How China’s Auto Industry is Using Blockchain to Manage Production Costs

In a bid to remain competitive in global auto markets, Chinese manufacturers are following the example of brands like BMW, Mercedes, and Toyota by incorporating blockchain technology into the production process. The move is expected to control costs while adding an extra layer of data protection.

Recently, the government identified 15 key areas where the technology could be applied to cut costs and eliminate supply chain issues. The project is in the pilot stage in selective production centers that include Beijing, Guangzhou, and Shanghai. In addition to manufacturing, the benefits of blockchain are being investigated in the banking and healthcare industries as well as public utilities and government. 

The move is not just expected to spur innovation in production and service sectors. It’s hoped that is will also inspire further tech development and investment in other trending technologies like cryptocurrency. 

How Blockchain Reduces Production Costs

According to a spokesman for leading Chinese automaker, SAIC-GM-Wuling, the specific type of blockchain being applied is decentralized ledger technology (DLT). Due to its nature, this technology allows multiple stakeholders to access encrypted date via a decentralized database. 

Each transaction is recorded in hash, which is a cryptographic signature. It’s also timestamped and available to anyone with access to that dataset. This makes it impervious to fraud, forgery, and inaccuracies that can halt production and cost companies millions in lost revenue. 

Essentially, blockchain is a type of DLT register. The two terms are similar, and both use the same decentralization and cryptographic protocols. However, DLT does not require the same proof of work as blockchain, and it’s more scalable. That makes it a better option for manufacturing and supply chain operations that must scale up or down according demand. 

In the case of SAIC, which is based in Liuzhou, the tech is being tested on their best-selling Hongguang Mini EV and other select models. It’s hoped that the technology will help remediate the problem of human error, authorization issues, and invoicing irregularities during parts handovers. The company routinely purchases more than 900 necessary components from hundreds of vendors. This makes inventory management and logistics a nightmare. 

How Decentralized Platforms Help the Environment

Two of the biggest problems with both car manufacturing and the amount of paperwork needed to manage workflows is CO2 emissions. Although there are concerns about the additional resources and datacenters needed to handle increased computing power, it’s believed that would be offset by the benefits of developing DLT and blockchain in manufacturing.

With the system that’s currently in place, supply chain management at SIAC-GM currently costs about $2.5 million annually on paper alone. They use about 10 million sheets each year for documentation and reporting. 

It’s also modeling new processes for monitoring carbon emissions and validating ethically sourced cobalt used in batteries on the examples of Mercedes-Benz and BMW, Both of these companies have incorporated DLT and blockchain into their manufacturing. 

The best use of this can be seen in the Chinese-owned Volvo, which has begun using this technology to validate their own manufacturing materials. Because each node in the blockchain is authenticated and encrypted by a digital signature, low grade materials from unethical sources can be detected and eliminated from the manufacturing process.

We eagerly await the results of the pilot programs to learn more about how blockchain can improve efficiency and control costs in production facilities.

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