Adopting Blockchain in Automotive

By Katherine Rossi

December 13, 2019

Blockchain is commonly thought of as a technology connected to crypto currencies such as Bitcoin or Ethereum.  In reality, a blockchain is a complex distributed ledger of transactions, which has an added layer of security due to the replication of the chain as data is entered and validated by users.

The blockchain may be set up as a public chain, a private chain, or a hybrid chain, depending on the needs of the enterprise.  However, all blockchains have a similar benefit – the ease of completing a transaction by removing the need for third parties like a bank to move the funds, or a notary to validate the signing of an agreement.  As such, it has versatile uses outside of cryptocurrencies, especially within the automotive industry, particularly around data sharing.

One potential use of a blockchain and distributed ledger technologies (“DLT”) is to facilitate track and trace visibility across previously siloed ledgers and to allow for independent authentication of car manufacturing claims from build to destruction, including all the microtransactions in between.

MOBI, a nonprofit smart mobility consortium that includes members of communities and governments, start-ups and technology companies, and mobility providers like automakers, has proposed utilizing blockchain technology to reduce the costs of mobility and provide safer options.  In their published initiative, Vehicle Identity Standard, MOBI proposes replacing Vehicle Identification Numbers (“VIN”) with a Vehicle Identity (“VID”), which would include replicable data starting with the build and continuing through to the history of maintenance and repairs, usage-based insurance, and other small transactions into a blockchain.  The data of the VID for each car could be stored within a vehicle wallet in a similar manner to cryptocurrency data.  Access to the wallet could be limited to select people, but a blockchain allows for additional security due to distributed replication across a consortium of nodes.  European automakers, including Renault, Porsche, and Daimler have also expressed an interest in technology that would allow automakers and repair facilities to record microtransactions in a digital maintenance log.

Another area of interest to the automotive industry is smart contracts, where the terms of the contract are uploaded and the results validated in a blockchain.  There is still a human element – determining that the end product or deliverable agrees to the terms of the contract.  However, the use of a blockchain in this way provides opportunities for improved efficiency and decreased costs by limiting the need for third parties to validate data.   For example, the Toyota Research Institute, with MIT Media Labs and other industry partners, began researching the ability of utilizing a blockchain and distributed ledger technology to support autonomous driving and the new mobility environment.  In this use of blockchain, car manufacturers and engineers could share data related to the testing needs, the test performed, the results of the tests, and any requested changes with multiple persons and gain quick, accurate validation.

Additionally, it could record the scale price decreases that often occur in long-term sourcing agreements within the industry.  Because the chain itself will document the total transactions and units or time of the contract in a way that is easy for all related parties to view, it will ease the difficulties associated with determining the time in which the scaled decrease takes effect.

A third practical use of blockchain is in the supply chain process, an offshoot of the smart contract concept.  The food industry is already using blockchain in tracking the sourcing of certain products and a similar technology could help in warranty claims.  It could also provide a consensus of what occurred – including records of the total ordered, any damages, and total received.  It would allow both involved parties to agree on the timing of retroactive price changes, validated and replicated, and ease the accounting process as both accounting teams would have access to the same data and neither could overwrite the single, shared ledger, including recognition of warranty issues or damages.

The adoption of blockchain technology in the automotive industry could revolutionize not only the accounting and legal departments, but also the way the way engineering teams approach designing and manufacturing automobiles.  In the dealer and resale markets, digital ledgers have the power to supersede the need for third-party providers that offer microtransaction history of accidents, thereby reducing the purchase price.  It could also trickle down to members of the extended mobility environment, such as insurers, and ride-share and car-share companies.

 



Disclaimer of Liability

The information provided here is for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation.

Mazars USA LLP is an independent member firm of Mazars Group.


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