Many different elements go into producing a finished vehicle. In fact, there are around 18,000 suppliers across the full value chain that contribute to this process. With parts produced, transported, and brought together across multiple locations around the world, the finished vehicle is the product of a truly global supply chain.
So what is the structure of that global automotive supply chain, where do the various parts of a vehicle come from, and how are they brought together to create a functioning car?
The automotive industry uses a four-tier supply chain, with suppliers structured in a pyramid shape. At the top, you have the original equipment manufacturers – the OEMs. These are the large, recognizable companies that sell the finished vehicle. Think Renault, Volvo, or Mitsubishi. They bring the various parts together to assemble and sell the car, and they are the ones who market it.
Below the OEMs are the Tier 1 suppliers. These companies produce the parts that make up much of the vehicle, such as the brake system, the seats, or the dashboard panels. Aside from selling some parts for use by mechanics and enthusiasts – what’s called the “aftermarket” trade – Tier 1s largely do not sell directly to consumers. Instead, Tier 1s sell their systems to different OEMs, with the idea being that this will encourage innovation and economies of scale for component production.
Below the Tier 1 suppliers are the Tier 2 companies. These manufacturers are responsible for creating the semi-manufactured components that are incorporated into the larger Tier 1 systems, or are used by OEMs in bringing together numerous Tier 1 systems. Examples include nuts, bolts, screws, and generic circuit boards. In practice, there will often be some overlap between Tiers 1 and 2 – with many Tier 1s producing their own semi-manufactured parts, and many Tier 2s providing more complete offerings for OEMs.
At the base of the supplier pyramid are the Tier 3 companies. These companies work directly with raw materials, processing and distributing them further up the supply chain. For example, a Tier 3 supplier of aluminum or steel ingots could be a mining company, a scrap recycler, or a wholesale metals merchant.
Read more about how software is reshaping the automotive value chain.
With such a broad array of materials and so many different manufacturers involved at various stages, the automotive supply chain spans the globe. At the bottom of the chain, materials such as steel, aluminum, copper, and cobalt are sourced from various locations. Australia, for example, is a major supplier of the iron ore used to produce steel, while Guinea is a leading source of bauxite for aluminum production.
Assembly is also often completed in stages across multiple locations, with specialized manufacturing plants producing individual components before passing them on. A car purchased in the UK, for example, may feature seats manufactured in Poland, a transmission built in France, wiring harnesses from Morocco, and an engine assembled in Hungary before final assembly takes place in Germany. Each stage in the supply chain plays a crucial role in the finished vehicle. In fact, the scale of the automotive supply chain is such that it contributes to 70% of international trade.
For individual economies, this global trade plays a key role in economic growth. According to the OECD, the automotive value chain supports approximately 12.9 million direct and indirect jobs and is responsible for nearly one-third of all industrial R&D investment in the EU alone.
The automotive supply chain contributes to 70% of international trade
Read more about why the 80/20 rule is reshaping powertrain strategy.
As the automotive industry has evolved alongside shifting customer behavior and a more connected global market, so too has the supply chain. Demand for specialized engine materials has expanded to include EV architectures featuring new batteries, motors, and other technologies.
Where the supply chain was once designed around one dominant technology, it must now accommodate a multi-powertrain world. As part of this shift, the traditional tiered model is also evolving. At Horse Powertrain, we position ourselves as a partner to OEMs, providing specialized combustion and hybrid solutions.
Our technologies are designed so that OEMs can hybridize their existing vehicles with minimal modification. Rather than designing a vehicle by following each step of the pyramid, we offer another route to the finished product, adding combustion capabilities to existing EV models.
As an international company, we at Horse Powertrain can tap into a global network across the supply chain, bringing together expertise and capabilities from around the world.
Find out more about our solutions here.