Automotive manufacturers are now facing another potentially transformational technology: blockchain.
From Silicon Valley to Wall Street, technologists and investors alike are buzzing about the potential for the Blockchain to revolutionize … well everything. The hype is high and the potential is real but roadblocks remain. The funding backdrop is healthy and the application eco-system is growing. Once considered the underlying pipes of Bitcoin, this technology is quickly taking center stage from its crypto-currency parent, ushering in of a new set of tools to cut costs and challenge the profit pool of the middle-man with a promise to make centralized institutions obsolete.
Since the advent of cars, the automotive industry has always embraced technological advances, but the pace of change has accelerated so rapidly that auto original equipment manufacturers (OEMs) worldwide are struggling to keep up. By 2020, experts estimate that 250 million connected cars will be on roads across the globe. With each vehicle equipped with more than 200 smart sensors, a deeply-connected infotainment system, and advanced cloud-based core informatics, the need for data management will be as crucial as maneuvering through rush-hour traffic. But It is not just connected cars, or even autonomous cars that manufacturers are racing to [safely] bring to market; it is not just 5G connectivity shifting narratives around smart city interactions or in-car experiences; it is not just car-sharing and new business models with which they are experimenting; and it is not just artificial intelligence (AI) or computer vision for which they are recruiting talent. Automotive manufacturers are now facing another potentially transformational technology: blockchain.
What is Blockchain?
Blockchain is a distributed ledger system that maintains a continuously growing record of transactions, or blocks, where each block is linked to a previous block and cannot be altered or reversed once it is added to the chain, and which does not require a central administrator to guarantee the veracity of any transaction. It is essentially a technological solution to the issue of trust in a record or transaction. Blockchain is the underlying technology behind bitcoin, which is a digital token that allows one party to pay another anywhere in the world for goods and services, in some ways like cash.
Just like a dollar bill, a bitcoin, once used, permanently passes to another person and cannot be reused or unilaterally withdrawn. With a dollar bill, this is because the bill physically passes to another party; with a bitcoin, this is because the transaction is etched in the public ledger and cannot be undone. Blockchain technology eliminates situations akin to receiving a blank check where there is no value in the underlying account or paying a seller for land that he does not own. Furthermore, because the transaction itself is secure, the cost of the transaction can be significantly lower when compared to traditional payment methods such as credit card payments, international remittances, or any situation where there is a third-party guarantor.
What are Smart Contracts?
A smart contract is a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract. Smart contracts allow the performance of credible transactions without third parties. These transactions are trackable and irreversible. Smart contracts were first proposed by Nick Szabo, who coined the term, in 1994. Proponents of smart contracts claim that many kinds of contractual clauses may be made partially or fully self-executing, self-enforcing, or both. The aim of smart contracts is to provide security that is superior to traditional contract law and to reduce other transaction costs associated with contracting. Various cryptocurrencies have implemented types of smart contracts.
In the connected car industry, smart contracts can be embedded into manufacturing blockchains to automatically release purchase orders at certain phases of the manufacturing process. Supply chains can benefit from contracts being automatically awarded to the supplier with the largest inventory on hand. And buyer financing can be approved based on smart contracts that automatically evaluate credit ratings.
Features of Blockchain:
- Access to the shared ledger is permissioned; only authenticated parties get access to the ledger and permissions are configurable. The benefit is that ledger access can be controlled so that only parties that you want to access it can do so.
- The shared ledger is replicated and distributed; every permissioned participant gets a copy of the same ledger. The benefit is the increased transparency of information.
- Transactions are encrypted; only those parties with separately provided security certificates can un-encrypt transactions. This means that transaction details remain secure and unreadable to all but the transaction’s explicit stakeholders.
- Transactions are immutable; sets of transactions are grouped up into blocks and the blocks are then written to the ledger. Each block also holds the hash value of the previous block; creating a linked chain of blocks that can’t be changed. This enables assets to be traced back to their origin through every update stored in the transaction record and linked by the chain.
- The shared ledger is final; participants in the business network agree that the shared ledger is the single source of truth or System of Record, which brings the benefit of fewer disputes about discrepancies in records of transaction details between parties.
Blockchain use cases for the Automotive industry
The Automotive industry is a complex ecosystem with multiple parties involved in the design, production, distribution, marketing, selling, finance and servicing of vehicles. Outlined below are some example scenarios.
(1) Supply Chain
Supply chains encompass the end-to-end flow of information, products and services, and money. The way these components are managed affects an organisation’s competitive positioning in areas such as product cost, working capital requirements, speed-to-market, and service perception. Organisations are exploring innovative methods to streamline their supply chains to meet evolving consumer demands and optimise efficiencies. Technological advances are collapsing linear supply chains into dynamically connected and always-on digital supply networks (DSN), transforming how businesses exchange and share information and assets.
In the automotive sector, there are several key ERP and manufacturing systems that generate vehicle data and control the manufacturing process. These systems must communicate with dozens or hundreds of systems downstream, which rely on datafeeds to perform their functions. For example, a manufacturing plant must coordinate effectively with multiple tiered suppliers, 3rd party logistics and transportation companies to ensure timely delivery of parts and optimised inventory levels. A blockchain-based system would enable greater transparency of accurate information between the different parties; improving just-in-time logistics, reducing erroneous orders and raising inventory turns.
Maersk, the world´s biggest shipping line, is already experimenting with the uses of blockchain to improve international logistics management, both for the control of deliveries – in collaboration with IBM – and for the management of international insurance for the merchandise that it transports, in an alliance with Microsoft, among others.
(2) Manufacturer Finance
A car manufacturer must wait several weeks or months before it receives payment for a shipment of vehicles from an importer/distributor/dealer. With multiple parties controlling different steps in the chain; the issuing of a Letter of Credit by the purchaser’s bank or submission of a Bill of Ladling by the manufacturer are still processes with a heavy flow of paperwork. A blockchain-based system would enable greater transparency of accurate information between the different parties, faster processing of export/import and banking documentation and ultimately reduce the settlement period before the manufacturer receives payment for cars delivered.
(3) Automotive/Internet of Things Interactions
One of the most exciting opportunities is how the technology can be applied to the IoT. Gartner forecasts that 20.8 billion connected things will be in use worldwide by 2020. Most people understand the “autonomous” part of the phrase “autonomous vehicles” as it relates to driving. Self-driving cars can navigate to a destination without requiring a human behind the wheel — pretty simple, not to mention “millions or billions” of devices communicating with each other efficiently requires that their interactions and transactions exist on an immutable database of shared, secure, and highly permissioned access. As one example, a shared ledger between automotive OEMs, parts distributors, dealerships, service mechanics, insurance providers, and others could support the ability for parts or equipment within a car to autonomously sense its own needs. For instance, a car could advise the driver about the need for repair, contact remote users for updates or nearby suppliers for replacement parts, negotiate pricing and appointments for service and repairs, authenticate the proper technician, and process the respective payment for services.
An early example of blockchain supporting transparency across the above interactions was recently announced by Renault. The French automaker is piloting a digitized car maintenance program, which uses blockchain as a shared ledger to log all car repair and maintenance history in one place. The next pilot, it says, will focus on vehicle-based microtransactions – essential to integrating the IoT with the exchange of value. Oaken Innovation recently demonstrated the idea of a blockchain-enabled tollbooth, in which Tesla cars automatically pay as they pass through toll booths, as both nodes (car and tollbooth) have ethereum nodes, which use smart contracts to trigger a machine-to-machine (M2M) transaction.
(In a future article, RadarZero will expand on this feature).
(4) Retail Sales, Service & Finance
Whether an individual, institution, or dealer, few can afford to purchase cars outright; instead, purchasing cars typically requires loans to finance the transaction. Although financing varies somewhat by the nature of the transaction, typical auto financing includes a host of verification steps to which blockchain could be applied for efficiency gains: customer bank validation along multiple phases of transaction setup and execution (in compliance with know your customer (KYC) and anti-money laundering (AML) regulations); issuing letters of credit; review of multiple documents sourced from different locations; investigating actors’ legal structures; scoring and classifying risk; archiving of reviewed documents; etc.Transparency of information about a vehicle’s real wear and tear would help the auto finance provider to more accurately gauge residual value of the vehicle as the lease approached its end of contract date.
In the spring of 2017, Indian automotive OEM Mahindra, created a blockchain incubator focused specifically on the automotive financing use case.
(5) Shared Ownership & Automotive Usage
According to The 2017 PwC Strategy & Digital Auto Report, ‘car sharing‘ and driverless cars will be the major auto industry trends in the next ten years. PwC predicts that by 2030, 36% of all the vehicles on the road in the United Kingdom will be shared (including those driven by human beings and automatons) and that the figure will reach 46% in China. And blockchain will have an important role in that growing, although currently marginal, market.
Accounting and consulting firm EY, part of Ernst & Young Global Ltd, launched a blockchain based system that will enable companies or groups of individuals to more easily share ownership of vehicles and access to cars and trucks. EY could deploy the system, called Tesseract. EY’s Tesseract solves core mobility issues such as how to share vehicle ownership with widespread shared-use and how a multitude of mobility options can be integrated. As participants on a single platform, multiple stakeholders such as OEMs, mobility and transport companies, and cities and infrastructure providers, among others, will have the opportunity to create new value and revenue streams. Along with shared ownership, consumer demands for expanded mobility services are met, giving them access to the right type of vehicle for their ideal journey, on demand.
(6) Vehicle & Brand Experience
A car manufacturer may want to offer subscribing customers access to additional vehicles in its range for limited time periods. For example, a family that owns a people carrier for commuting to and from work and dropping the kids off at school during the week also gets access to a 2-seater sports car for a limited number of weekends or a camper van for a vacation trip. A blockchain-based system would enable the car company to securely transfer the owner’s personal mobility profile including preferences for seat settings, climate and infotainment between multiple vehicles and even third-party partners, such as car sharing or multi-modal transport providers.
(7) Automotive Title Transfer
The process of transferring ownership from buyer to seller of an asset – a car or other form of property – is one that requires numerous middlemen, phases, and reconciliations to execute. Property records and the “chain of title,” which include leases, titles of ownership, encumbrances, etc., are usually stored in title plants at the county level, which must be maintained and require significant labor resources (thus, higher fees) to search and curate in order to verify a transaction. Blockchain could be applied here to streamline this process, not only by digitizing and securing titles – many titles today are paper-based – but by expediting the time needed to authenticate, validate, and transfer ownership of specific assets.
A company called BigChainDB is developing CarPass in an effort to centralize all information about a car to a shared immutable and transparent database, immune to fraud or tampering. The pass would include title, service providers, prior damage, maintenance, and inspection history, but telemetry and sensor data introduce all manner of possibility in what could be registered on such a ledger. The concept was born in a hackathon in which energy company Innogy, BigChainDB, and Volkswagen Financial Services (VWFS) conceptualize what could be included in a car’s digital record involving telematics data, device data, and financial services data logged onto a blockchain.
The creators of CarFix, a Russian car service startup, are working on a new blockchain project that’s going after the US$1.8 trillion auto industry. The new venture, called VLBToken and based in Estonia, is developing the Vehicle Lifestyle Blockchain (VLB), a platform that promises to offer transparency into the data and history of a car’s lifecycle, and make interactions between businesses and individuals seamless and cost efficient.
(8) Spare Parts & Warranty
The global aftermarket business was valued at over 600 billion USD in 2016 and expected to grow to over a trillion USD over the next 10 years. Over 50% of this market consists of the sale of vehicle spare parts and business is split across OEM (Original Equipment Manufacturer) and IAM (Independent After Market) Suppliers. In 2017, 500,000 counterfeit car parts were seized in a raid in Abu Dhabi. These parts were supposed to make their way to Australia – potentially putting cars in danger and lives at risk. A car manufacturer is concerned that service centres and garages are knowingly (or otherwise) fitting counterfeit spare parts to their customer’s vehicles. Authentic looking but inferior fake parts do enter the supply chain and end up in dealer service centers. These fake spare parts would fail quickly after being installed in cars, causing reputational damage to the automaker. To fight the fraud, automakers have multiple layers of anti-fraud technologies and processes, but somehow fake parts are always available in the supply chain.
A blockchain-based system would enable the service centre, the car manufacturer and the customer to trace the provenance of spare parts back through every step in the supply chain to its original manufacture date and location. This would reduce damage to brand reputation and warranty costs for the car manufacturer if counterfeit parts are under-performing or worse, causing accidents. Today, it’s conceivable that an automaker will be able to track the provenance of a part from inception to disposal. By using a blockchain, a unique ID for each and every part is created and recorded, along with immutable timestamps from the moment of creation. Crypto-enabled tags that speak directly to the blockchain can be embedded directly into the part to add another layer of authenticity protection.
German utility company, innogy SE, has embarked on a project to build a platform to do just this. The Digital Twin platform aims to give each product its own story — providing a digital twin for every physical product.
(9) Digital Car Wallet
Ownership history, maintenance and repairs can be transparently and verifiably stored in a blockchain-based car wallet. Ownership record and fair price assessment of second-hand cars can be quickly established and transferring ownership can be done faster. As vehicles are uniquely identified on the blockchain, stolen cars can be easily tracked and traced. Lack of trust and business friction arising in the transfer of ownership is hugely reduced. If repairs and parts replacements are verifiably tracked on the blockchain, warranty claims will be transparent for all parties. (In a future article, RadarZero will expand on this feature).
Modern vehicle infotainment systems provide an audio-video experience that rivals the home entertainment system. Blockchain can be a valuable add-on to infotainment technology by making sure that in-car payments for movies, apps, and other services are kept secure.
(11) Automotive Insurance and Leasing
Dynamic Pricing Models in Automotive Insurance and Leasing Disruptive trends are emerging in the insurance industry and insurance providers are experimenting with dynamic pricing models. A driver profile including miles covered, economical usage of vehicle and accident history is securely stored on the blockchain. Users share this data with providers offering insurance and leasing products based on their personal driving profile. The advantage that blockchain technology brings here is that the driver profile and historic events are immutably stored on the blockchain providing a single source of truth. Providers can rely on this single source of truth for offering personalized products with dynamic pricing. Users have access to better priced products and get incentivized for good driving behavior.
Insurance companies are already using connected car technology to set premiums based on actual driver behavior, rather than driving history. New telematics add-on services can provide insurance companies with driver location, drive duration, acceleration and braking behaviors, vehicle speed, cornering behavior, and other information. The current claims process requires extensive manual documentation, submission, and review resources to verify a claim. Entering these events on a distributed ledger could streamline both claims processing as well as subsequent payouts and service contracts associated with financing and executing repairs. Automotive OEMs could potentially use blockchain technologies like smart contracts or private keys to streamline the filing of certain insurance claims, automatically deploy service technicians, or automate payout.
The future model of traditional cars, electric and autonomous, will be embedded with more sensors than ever before and able to capture data that make them more aware of external environmental factors and allow them to become “super-connected” intelligent devices. These sensors will not only integrate with a driver’s other intelligent devices, but they will collect data about the car, navigation and external elements like weather and road conditions. This will make our cars their own computing machines, profound and far-reaching, as the data collected by them are exposed to analytics software to extract actionable insights.
The inherent properties of blockchain technology are ideally suited to reducing business friction and increasing trust among organizations across the automotive supply chain. Collaboration and communication among the participants in the supply chain are vastly improved through shared processes and record keeping. In the near-term, the technology is ready to be deployed by manufacturers and suppliers to protect their brands against counterfeit products and also achieve significant cost savings through supply chain process improvements. In the mid- to long-term automakers and mobility providers can drive business model innovation by building user-centric mobility products. Marketing and branding efforts can be concentrated on these products ultimately enhancing and strengthening customer engagement.
Collaboration and consortiums – Business Insider cited a KPMG survey of 200 automotive executives that identified BMW, Daimler (a member of the Hyperledger Project) and General Motors as the perceived leaders in connectivity and self-driving efforts. Toyota Motor Corp, said in May 2017 that its Toyota Research Institute would work with researchers at MITand technology partners including BigchainDB, Oaken Innovations and Commuterz, to develop blockchain-based applications. Toyota had also announced that it is building its own consortium, and that it is also part of R3. Telefónica is working with SEAT on how 5G, blockchain and data can transform the car industry after the two companies signed a new collaboration agreement. Meanwhile, the Blockchain IoT Consortium has come together with the sole purpose of coordinating the universe of IoT suppliers around new blockchain-powered use cases.
IBM Institute for Business Value has published an Experts Insight paper on “Blockchain for Mobility Services: Personalised Mobility through Secure Data.” This paper elaborates on multiple Blockchain usage scenarios. It also introduces IBM’s partnership with ZF Friedrichshafen and UBS bank. The goal: build a car eWallet and micropayments platform to automate payments for future electric and autonomous vehicles.
- BlockChain: A Distributed Solution to Automotive Security and Privacy
- Infographic: Blockchain for the Automotive Industry the Worldwide Survey Results
- Accelerating technology disruption in the automotive market | Deloitte
- Future of Automotive Supply Chain | IBM
- Mobilizing Blockchain Technology for the Automotive Industry | EY
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- The Blockchainand Automotive Hype, Reality and Possibilities | Luxoft
- Trafi & Blockchain An Exploration of Blockchain Data Management for the Finnish Transport Safety Agency
- IoT – Blockchain Platform For Automotive And Manufacturing
- Shifting gears in cyber security for connected cars | McKinsey & Company
IBM , Deloitte, EY, Reuters & Research Notes
Figure Credit: Delotte – Accelerating technology disruption in the automotive market