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Volkswagen’s sprawling Wolfsburg plant receives components from 1,600 suppliers – in no less than 100 rail cars and 750 trucks – each day. That is, of course, when wars, pandemics and energy price shocks aren’t wreaking having on business as usual.
Wolfsburg, said to be the biggest car factory in the world, has endured production shutdowns and curtailments in the past two years. Disruption and volatility have become the new normal for most carmakers, and this will inevitably change their approach to manufacturing.
The modern car factory relies on massive economies of scale to control the prices of the vehicles it produces. This is why Tesla’s Elon Musk announced the creation of the company’s battery “Gigafactory” well before it began producing its more affordable, mass-market Model 3 sedan. However, much conventional manufacturing wisdom has been put to the test since 2020 – and the car industry is increasingly questioning whether large, centralised factories are still fit for purpose. The British EV manufacturer Arrival doesn’t seem to think so.
Decentralised production
The company is in the process of setting up decentralised “microfactories” in the UK and the US to produce its buses and delivery vehicles. The facilities will rely entirely on robotic assembly processes and will cost $50m to set up (as opposed to the $1bn or more required for a more traditional plant). While they will produce significantly lower volumes of cars, Arrival says its microfactories will allow it to turn a profit without having to build a large and polluting industrial complex.
In a blog, the company claims it’s “empowering local communities globally” as well as “giving them access to clean technologies that can help decarbonise their region and improve air quality”. It also plans to source components and materials from local suppliers as much as possible. The first bus produced at an Arrival factory is due to be delivered this summer – meaning that there are still several months until the sector can see whether the micro approach is effective.
Before the pandemic, and the semiconductor shortage that followed, carmakers were probably most concerned with automating their production lines. Now, the issue of factory overcapacity is likely to be central in their minds. Inovev, a firm that provides automotive industry data, recently reported that the European Union has enough factory capacity to build about 22 million cars annually. Last year it built less than 15 million. Major carmakers in Asia aren’t faring much better: Hyundai reportedly shut down production at a plant in Chongqing, China in February owing to overcapacity concerns.
Back in Europe, Volkswagen has had to pause production of its EVs at two locations owing to the shortage of semiconductors. Although the company’s chief executive expects production to ramp back up in the second half of this year, he has said that it won’t be able to build all the cars it could sell in 2022. In the end, it may be difficult for the supply of new cars to keep up with demand – and consumers can expect to see rising car prices this year.
Market forces
Only a few years ago, robots and artificial intelligence were the buzzwords in automotive manufacturing. But today, companies are having to adapt to a maelstrom of undesirable market forces. Whether Arrival’s microfactory model can provide relief remains to be seen. The company itself expects to make 600 vans this year – which is less than half of what was promised in 2021. Surely the traditional factory can’t die before there’s a viable alternative waiting in the wings.
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