Europe’s carmakers face growing competition from AI for vital supplies

Europe's car manufacturers face increasing competition from artificial intelligence (AI) for crucial supplies, according to a new study. The Czech and German branches of EY, consulting for the European Automobile Manufacturers Association (ACEA), examined ten critical materials and components, scoring them against six factors that could restrict supply.

The highest-ranking risk factor was supply concentration, followed by five vulnerable inputs: semiconductors, silicon, tungsten, neodymium-iron-boron magnets for electric motors and wiring harnesses, and cable bundles connecting a vehicle's electrical systems.

Previous disruptions have occurred due to China's rare-earth export curbs, Nexperia's chipmaker supply crisis, and the 2021-2022 semiconductor shortage. More concerning, however, are the challenges in refining and processing minerals, as well as the scarcity of processing capacity, qualified suppliers, and specialized expertise.

The shift towards electric vehicles exacerbates the problem, as they require fewer traditional parts but demand more semiconductors, power electronics, and critical materials, putting carmakers in direct competition with AI, data centers, defense, and clean energy sectors. This increased competition for resources accounts for an estimated 15% rise in demand.

Price hikes are inevitable due to the heightened competition and concentrated supply chains. For example, gallium's price surged over 11-fold between 2016 and 2021, from approximately $197 to $2,269 per kilogram, driven by growing AI development.

Carmakers are increasingly competing with AI manufacturers for these resources. Volkswagen's collaboration with Uber to deploy autonomous, electric ID. Buzz AD microvans in 2026 and Stellantis' plans to produce robotaxis for Uber using Nvidia's self-driving technology in 2028 illustrate this trend.

The study underscores four potential disruption scenarios, including electronics supply shortages from Taiwan, resource nationalism in Asia, strained trade routes in the Americas, and instability along Africa's mineral export routes. While complete self-sufficiency is impractical, the study urges Europe to expedite permitting and qualification processes, prioritize investments in the most critical bottlenecks, diversify suppliers and logistics routes, enhance supply chain monitoring, and provide private investors with long-term demand certainty. This approach is not merely risk management but a means of preserving Europe's industrial prowess.