Executive Summary 

OEMs already generate extensive battery data across manufacturing, quality, testing and logistics. The opportunity is to keep the physical battery connected to the right information as it moves from the plant through logistics networks and into the receiving depot. 

This transition involves multiple organisations and specialised systems, each serving a valid operational purpose. Even a small number of identity or documentation mismatches, however, can create additional verification, temporary quarantine and repeated inspections. In an illustrative monthly flow of 10,000 battery packs, a 1% mismatch rate would produce 100 investigations and approximately 50 hours of additional work. 

The Digital Battery Passport (DBP) can help by providing a persistent battery identity and controlled connection to selected information held across existing OEM systems. It does not require OEMs to replace those systems or disclose complete Bills of Materials and other commercially sensitive information. Applied carefully, it can strengthen receiving, inventory control, warranty investigations and exception management while protecting intellectual property and trade secrets. 

A complex handover 

A battery may leave the manufacturing plant with detailed records covering its identity, configuration, quality checks and test status. Before reaching the depot, it can pass through staging areas, logistics providers, consolidation points and receiving inspections. 

Each participant may use a different system for a legitimate operational purpose. The opportunity is to ensure that the battery’s identity remains connected to the information required at the next handover. 

If a battery arrives with an identity or documentation mismatch, an OEM may need to: 

• Hold it temporarily for verification; 
• Retrieve information from several systems; 
• Repeat part of an inspection; or 
• Confirm whether an exception occurred during production or transport. 

These controls protect safety and quality, but better-connected information could make them faster and more targeted. 

For example, in an illustrative monthly flow of 10,000 battery packs: 

• A 1% information-mismatch rate would create 100 investigations; 
• At 30 minutes per investigation, this would require 50 working hours; and 
• Reducing mismatches to 0.25% would avoid 75 investigations each month. 

The precise financial benefit will vary, but the operational opportunity is clear: fewer unresolved handovers mean less manual work and more available inventory. 

Where the Digital Battery Passport (DBP) can help 

From 18 February 2027, EV batteries, light means of transport batteries and industrial batteries above 2 kWh must have an electronic battery passport linked to a unique identifier. Access to its information will depend on the user and applicable access rights.  (EU Battery Regulation 2023/1542) 

The DBP is not intended to replace OEM manufacturing, warehouse, quality or transport systems. Its value lies in helping connect them around a consistent battery identity. 

At the plant-to-depot handover, this could help authorised teams confirm selected information such as: 

• Battery identity and configuration; 
• Relevant test or inspection status; 
• Shipment and receiving status; and 
• Recorded damage or handling exceptions. 

Detailed operational records can remain in their source systems. The DBP provides a connection through which the appropriate information can be located and verified. 

Traceability with commercial protection 

Better traceability does not require OEMs to disclose everything. Complete Bills of Materials (BOMs), supplier relationships, sourcing strategies and manufacturing configurations may contain intellectual property, confidential know-how and trade secrets. Access should therefore be based on what is legally required and operationally necessary. 

The objective is controlled visibility: the right information, for the right actor, at the right stage. 

From compliance to operational value 

A well-designed connection between OEM systems and the DBP could support: 

• Quicker receipt and release of battery inventory; 
• More precise quarantine and recall decisions; 
• Stronger evidence for warranty investigations; 
• Clearer accountability across handovers; and 
• Safer management of damaged or exceptional batteries. 

Through the BASE project, partners are exploring how Digital Battery Passport data can support decisions across the battery lifecycle. Seraph helps translate this work into practical operational questions: which information is needed, where handover risks occur, who needs access and where stronger traceability can create measurable value. 

For OEMs, the opportunity is not to rebuild systems that already work but rather it is about connecting existing information more effectively, and use the Digital Battery Passport to strengthen control across the battery journey. 

Ready to harness the DBP for operational advantage?

Do you need support, guidance and insights on automotive manufacturing excellence? Let’s talk  https://seraph.com/contact-us/

About Seraph  

Seraph is a global operations and strategy consulting firm, that leads value chain improvements, restructurings, and turnarounds. We unite the disparate roles in operationally intensive businesses to create efficient operations, bridging the divide from concept to production. High-level decision-makers in manufacturing and industrial organizations rely on us to solve complex issues and launch initiatives that ensure success and sustainable change.

Seraph is a member of the BASE Battery Passport for Transparency and Circularity consortium.

The BASE project has received funding from the Horizon Europe Framework Programme (HORIZON) Research and Innovation Actions under grant agreement No 101157200 

Visit the BASE website here: https://base-digibattpass.eu/

Executive Summary 

The Digital Battery Passport will give OEMs access to richer battery-condition and lifecycle information. Remaining Useful Life prediction can turn this information into forward-looking decisions across warranty, spare-pack planning and maintenance. The opportunity extends beyond the prediction itself: OEMs will need to integrate RUL outputs into processes, responsibilities, decision thresholds and performance measures.  

Operational Excellence and Continuous Improvement teams are well positioned to connect engineering and battery intelligence with after-sales, warranty, service and supply-chain operations, turning predictive data into measurable operational value. 

The Digital Battery Passport will give OEMs a richer record of battery condition, history and lifecycle performance. Remaining Useful Life prediction can turn that record into forward-looking decisions across warranty, spare-pack planning and maintenance. 

From 18 February 2027, the EU Battery Regulation requires electric-vehicle batteries, light means of transport batteries and industrial batteries above 2 kWh to have a battery passport. The Regulation also connects battery management systems with up-to-date information on state of health and expected lifetime. 

For OEMs, this creates an important transition. Battery information will increasingly support decisions throughout the product lifecycle rather than remaining primarily within engineering and compliance functions. 

From current condition to predicted lifetime 

State of Health provides an assessment of a battery’s current condition. Remaining Useful Life, or RUL, looks forward: it estimates how long the battery can continue to perform before reaching a defined operational threshold. 

RUL is best understood as a forecast based on available data, operating conditions and assumptions. Temperature, charging behaviour, depth of discharge, battery chemistry and previous use can all affect degradation. Reliable predictions therefore require validated models, consistent data and a clear understanding of uncertainty. 

When these conditions are in place, RUL can provide OEMs with a new layer of battery intelligence. 

More proactive warranty decisions 

Warranty management is traditionally shaped by defined coverage periods, reported faults, diagnostic testing and historical failure patterns. RUL introduces the possibility of identifying degradation trajectories before a battery reaches failure or a warranty claim occurs. 

OEMs could use this intelligence to: 

• Identify battery populations showing unusual degradation; 
• Distinguish isolated failures from broader product patterns; 
• Support earlier and more targeted interventions; 
• Improve the evidence available for warranty assessment; and 
• Strengthen forecasting of future warranty exposure 

The Digital Battery Passport can provide access to trusted lifecycle information, while RUL models interpret that history in relation to future performance. Together, they could help warranty teams move towards more evidence-based and proactive decision-making. 

Smarter spare-pack planning 

Battery packs are costly service components. Holding too many creates capital and storage costs; holding too few increases repair times and customer disruption. 

RUL intelligence could improve spare-pack planning by providing a clearer view of when replacement demand is likely to emerge across different vehicle models, battery populations, markets or operating conditions. 

Rather than relying primarily on historical replacement rates, OEMs could combine installed-base information with battery-condition and degradation forecasts. This could support more precise decisions about: 

• The number and type of replacement packs required; 
• Where spare packs should be positioned; 
• When packs are likely to be needed; and 
• Whether repair, replacement or continued monitoring is the most appropriate response 

The value lies in connecting battery intelligence with parts planning, procurement and after-sales operations. 

Maintenance based on predicted need 

RUL can also change how battery maintenance is organised. Fixed schedules and fault-triggered interventions provide limited insight into the different degradation paths of individual batteries. 

Predictive information creates scope for maintenance decisions based on expected battery behaviour. A battery showing stable performance may continue in operation, while one displaying an accelerating degradation pattern may require inspection, repair or replacement. 

For OEMs and their authorised service networks, this could support: 

• Earlier identification of emerging battery issues; 
• Better preparation before a vehicle reaches the workshop; 
• More targeted diagnostic procedures; 
• Improved coordination between technical support and spare-parts availability; and 
• Clearer decisions about continued use, repair, replacement or second-life assessment 

The result is a more differentiated maintenance model, shaped by the condition and expected future performance of each battery. 

Operational Excellence as the integrating capability 

RUL information has relevance for engineering, after-sales, warranty, service operations, supply-chain planning, sustainability, compliance and finance. Its value depends on how effectively these functions convert a prediction into a coordinated operational decision. 

Operational Excellence and Continuous Improvement teams are well positioned to act as the integrating capability. Their role can be to connect technical RUL outputs with the processes, responsibilities and performance measures governing warranty, maintenance and spare-pack decisions. 

This could include: 

• Mapping the end-to-end process from battery data and RUL prediction to operational action; 
• Defining ownership, decision thresholds and handovers between functions; 
• Incorporating predictive signals into standard operating procedures; 
• Identifying delays, duplication and unnecessary testing within existing processes; 
• Aligning operational KPIs with battery-condition and lifecycle outcomes; and 
• Establishing feedback loops through which real-world results improve both processes and prediction models 

The objective is not simply to introduce another source of data. It is to redesign the decision process around the new intelligence. 

For example, an RUL alert may involve engineering validation, warranty assessment, customer communication, workshop planning and spare-pack availability. Without an agreed process, each function may interpret or respond to the same prediction differently. Operational Excellence teams can create the shared workflow through which the signal becomes a consistent, measurable action. 

OEMs may therefore not require an entirely new organisational department. They will require a structured cross-functional operating model, and their existing Operational Excellence and Continuous Improvement capabilities can provide the foundation for building it. 

Validation will determine business value 

The commercial value of RUL will depend on confidence. OEMs will need evidence that predictions remain reliable across different battery chemistries, products, operating environments and use patterns. They will also need transparent decision thresholds and clarity regarding responsibility when a prediction informs maintenance or warranty action. 

This makes validation central to exploitation. A technically advanced model becomes commercially useful when an organisation can understand its output, assess its uncertainty and incorporate it confidently into operational processes. Operational Excellence teams can support this transition by testing predictive insights within controlled processes, measuring the resulting operational outcomes and refining the workflow before wider deployment. 

From battery data to operational advantage 

The Digital Battery Passport establishes an environment in which battery information can travel further across the lifecycle. RUL adds a forward-looking dimension to that information. 

For OEMs, the opportunity extends across warranty management, spare-pack planning, maintenance, after-sales operations and future lifecycle decisions. The organisations that benefit most will be those that connect validated predictive intelligence with clear ownership, cross-functional processes and practical decision rules. 

Through its participation in the BASE project, SERAPH is exploring how emerging Digital Battery Passport capabilities can be translated into Operational Excellence, implementation readiness and sustainable business value. 

The strategic question for OEMs is becoming clear: how will predictive battery intelligence be embedded into the processes and decisions that shape operational performance every day? 

Ready to harness the DBP for operational advantage?

Do you need support, guidance and insights on automotive manufacturing excellence? Let’s talk  https://seraph.com/contact-us/

About Seraph  

Seraph is a global operations and strategy consulting firm, that leads value chain improvements, restructurings, and turnarounds. We unite the disparate roles in operationally intensive businesses to create efficient operations, bridging the divide from concept to production. High-level decision-makers in manufacturing and industrial organizations rely on us to solve complex issues and launch initiatives that ensure success and sustainable change.

Seraph is a member of the BASE Battery Passport for Transparency and Circularity consortium.

The BASE project has received funding from the Horizon Europe Framework Programme (HORIZON) Research and Innovation Actions under grant agreement No 101157200 

Visit the BASE website here: https://base-digibattpass.eu/

Executive Summary 

In our previous article, we explored how battery intelligence could help OEMs make more informed about safety and recall decisions. The same intelligence has the potential to transform another critical area of the automotive business: after-sales service. 

Today, technicians often spend valuable time identifying the source of battery-related issues before repairs can begin. Increasingly, however, battery information is becoming available long before the vehicle reaches the workshop. Digital Battery Passports (DBP), State of Health (SoH), Remaining Useful Life (RUL), Digital Twins and predictive analytics are creating the foundations for a new service model, one where diagnostics begin with information rather than investigation. 

For OEMs, the opportunity extends far beyond faster repairs. Better battery intelligence could improve workshop productivity, reduce unnecessary battery replacements, optimize warranty management, shorten vehicle downtime, and enhance customer experience. But are your after-sales operations ready to use better battery data? 

The Shift 

Imagine a customer arriving at a dealership because the vehicle reports reduced battery performance. Today, the technician begins by asking questions such as:  

What might be the problem? What caused it? Is it related to battery degradation, software, charging behavior, or operating conditions etc.? Only then does the diagnostic process begin. 

Tomorrow, the process may start very differently. Before the technician even connects a diagnostic tool, key battery information may already be available through the Digital Battery Passport and connected systems, including State of Health (SoH), charging history, previous maintenance events, diagnostic records and Remaining Useful Life (RUL). Instead of spending time gathering information, technicians can begin by interpreting it. The diagnostic process shifts from investigation to informed decision-making. 

Why Executives Should Care 

Every additional hour spent diagnosing a vehicle affects workshop capacity, technician productivity, customer satisfaction and warranty costs. As battery intelligence improves, after-sales operations may increasingly become data-driven. Potential benefits include: 

• shorter diagnostic processes 
• higher first-time fix rates 
• fewer unnecessary battery replacements 
• improved workshop planning 
• better warranty decisions 
• reduced vehicle downtime 
• improved customer confidence 

Perhaps the greatest opportunity is that technicians spend less time trying to understand the problem, and more time solving it. 

Learning from Industry 

Elements of this transformation are already beginning to appear across the automotive industry. 

Case 1 – Remote diagnostics before the workshop visit 

Several vehicle manufacturers now analyze battery information remotely before a customer even arrives at a service center. Instead of beginning diagnostics from scratch, technicians can review battery status, software versions, diagnostic events, and historical operating data in advance. This allows workshops to prepare tools, software updates, or replacement parts before the appointment, improving both workshop efficiency and customer experience. 

The principle is simple. The more information available before the vehicle enters the workshop, the less time is spent investigating once it arrives. 

Case 2 – Software increasingly becomes part of the repair 

Recent battery recalls have also demonstrated another important trend. 

Rather than immediately replacing battery packs, manufacturers have increasingly introduced software capable of monitoring battery behavior and identifying vehicles requiring further intervention. Software is therefore becoming more than a diagnostic tool. It is becoming part of the service strategy itself. This represents an important shift as the workshops may increasingly rely on battery intelligence to determine whether intervention is needed before deciding how to perform it. 

Strategic Insight 

The greatest opportunity with Digital Battery Passport and battery intelligence is that with all the available information it may be reducing the uncertainty that may exist before the repair. This reflects a broader principle of operational excellence: better visibility leads to better decisions. 

For decades, workshop diagnostics have focused on discovering what happened. Battery intelligence has the potential to shift that effort towards understanding why it happened and deciding what should happen next. 

When technicians spend less time searching for information and more time solving problems, organizations reduce waste, improve consistency, and create conditions for continuous improvement. The future competitive advantage may not come from repairing batteries faster, but it may well come from eliminating the time spent understanding what needs to be repaired. 

What Makes This Possible? 

Several technologies are beginning to converge: 

• The Digital Battery Passport provides trusted lifecycle information 
• Digital Twins help maintain an up-to-date digital representation of the battery 
• State of Health (SoH) measures battery degradation 
• Remaining Useful Life (RUL) estimates future performance 
• Predictive analytics identify patterns that may indicate emerging issues before they become critical 

Together, these technologies create something far more valuable than individual datasets. They create context. However, information alone is not enough. To generate real business value, battery intelligence must integrate with existing workshop management systems, diagnostic tools, warranty platforms, and customer service applications. 

This is where APIs become increasingly important. An API (Application Programming Interface) allows different software systems to exchange information automatically. 

Rather than manually searching for battery history across multiple applications, future workshop systems may retrieve relevant information automatically, giving technicians immediate access to the insights they need. Ultimately, Digital Battery Passports are not replacing existing systems. They are becoming another intelligent source of information within an increasingly connected digital ecosystem. 

Leadership Questions 

As battery intelligence continues to evolve, executive teams may wish to ask: 

• How much workshop time is currently spent finding information rather than repairing vehicles? 
• Can our after-sales systems consume Digital Battery Passport data? 
• Are we collecting battery information that technicians can actually use? 
• Which department owns battery intelligence once the vehicle leaves production? 
• Could battery intelligence reduce warranty costs while improving customer experience? 
• Are we preparing only for regulatory compliance or for the next generation of connected after-sales? 

Conclusion  

For decades, competitive advantage in after-sales has often depended on technician expertise, workshop efficiency and service quality. These will remain essential, however, for some companies, the next competitive advantage may come from something different – having better information and using it in the right way. Because the workshop of the future may be capable of repairing the batteries the fastest, but it will be the one that chooses to understand them before the first diagnostic tool is even connected. 

Ready to harness the DBP for operational advantage?

Do you need support, guidance and insights on automotive manufacturing excellence? Let’s talk  https://seraph.com/contact-us/

About Seraph  

Seraph is a global operations and strategy consulting firm, that leads value chain improvements, restructurings, and turnarounds. We unite the disparate roles in operationally intensive businesses to create efficient operations, bridging the divide from concept to production. High-level decision-makers in manufacturing and industrial organizations rely on us to solve complex issues and launch initiatives that ensure success and sustainable change.

Seraph is a member of the BASE Battery Passport for Transparency and Circularity consortium.

The BASE project has received funding from the Horizon Europe Framework Programme (HORIZON) Research and Innovation Actions under grant agreement No 101157200 

Visit the BASE website here: https://base-digibattpass.eu/

In 2024, China supplied 35.6% of the EU’s imports of rare-earth metals and compounds. The same figure for the US was 66.6%. Korea, 50%. Japan, 38%. At a glance, Europe is the least China-exposed major auto-producing bloc in the West. 

The picture changes one step downstream in the supply chain. Seraph’s analysis of the CEPII BACI trade database puts EU imports at about $100 million in 2024, against $1.2 billion of permanent magnets, the form in which most rare-earth value arrives. China supplied 88% of those magnet imports, up from 86% in 2022, and the next-largest source was 3%. The material arrives embedded in finished products, and that is where the supply chain risk sits. 

Three numbers, one country 

China accounts for roughly 17% of world rare-earth compound export value, down from 25% in 2022. It holds roughly 90% of global refining capacity. And it supplies 88% of Europe’s magnet imports, a figure the European Parliament Research Service puts at 98% once the scope widens beyond the single HS code to include Chinese-origin magnets re-exported within the EU. 

The three figures describe the same country because the supply chain becomes more Chinese the further downstream it is measured. Several of the biggest compound exporters in the data, Japan, Malaysia, Estonia, and France, refine or re-export feedstock that is itself China-linked upstream. 

Europe has the ore. It walked away from the refining. 

Europe’s deposits are large but none are developed. Norway’s Fen Complex raised its resource estimate in March 2026 to 15.9 million tonnes of rare-earth oxides, more than total US reserves. Sweden’s Per Geijer holds over 1.3 million tonnes, and Norra Kärr, rich in the heavy rare earths magnets need most, received its mining permit only in June 2026. Greenland has two large deposits: Tanbreez and Kvanefjeld, the latter holding roughly 11 million tonnes and frozen since 2021, when Greenland banned mining ore with more than trace levels of uranium. Not one tonne of European ore is being extracted today, and until 2025 the continent had essentially one commercial separation site.  

Permitting the mine and hosting the refinery are what Europe finds difficult, and the examples above already show the first half: a decade of environmental objections at Norra Kärr, a uranium ban at Kvanefjeld. 

It hasn’t always been this way. Through the 1980s, Rhône-Poulenc’s La Rochelle plant was the world’s leading rare-earth separator, with roughly half the global market.  

Separation is messy work: mixed rare earths pass through hundreds of solvent-extraction stages, consuming acids and solvents in volume and leaving acidic wastewater. When French regulators refused to renew its radioactive-waste license around 1990, the company wound down ore processing and moved separation into Chinese joint ventures. China took the industry the West gave up. State support of $9 to 10 billion between 2010 and 2019, looser environmental rules, and price collapses like the one that bankrupted Molycorp in 2015 kept Western projects impossible to finance. By 2019, China held 85 to 90% of global refining capacity. Since 2023, it has banned exporting the separation technology itself. 

Rebuilding runs into the same headwinds. Swedish permitting takes 10 to 15 years by LKAB’s account. Industrial power costs more than twice US levels, per the IEA. The expertise sits in China.  

Above all, no European OEM has signed the long-term purchase agreements a separation plant needs to raise financing. Solvay’s La Rochelle expansion waits on customer commitments, and its binding deals so far are with US magnet makers. The one separation project under construction in Europe, Caremag at Lacq, is funded largely by France and Japan, with half its heavy rare-earth output committed to Japanese buyers.  

China’s controls follow the value chain 

China’s export controls track the value chain it dominates. Each escalation has moved one step further downstream, toward the layer where the concentration sits. 

First, the elements. On April 4, 2025, MOFCOM’s Announcement No. 18 imposed export licensing on seven medium and heavy rare earths and their derived magnets. The automotive impact was immediate: magnet shipments to Germany halved between March and April 2025, Ford idled its Chicago Explorer plant for a week in May, and CLEPA reported European supplier lines halting as stockpiles ran out. Approval rates for European license applications climbed from roughly 25% in early June 2025 to about 60% by July, per CLEPA, with reviews commonly running 60 to 120 days. 

On October 9, 2025, Beijing added five more elements, extended controls to processing equipment, and introduced a rule requiring a Chinese export license for any magnet made anywhere in the world containing 0.1% or more Chinese-origin rare-earth content by value.  Almost every magnet traces back to China at some point, so in practice the rule asserts licensing authority over most of the world’s magnet production. 

The rule is currently paused. Following the Trump-Xi meeting in Busan, China suspended the October measures on November 9, 2025, for one year, until November 10, 2026. Since then, conditions have eased selectively. In December 2025, China issued the first year-long general licenses to major magnet producers, and Volkswagen’s suppliers were among the early beneficiaries. Enforcement against the US has moved the other way: 17 tons of yttrium shipped to the US between April and December 2025, against 333 tons in the prior eight months; in May 2026, Chinese exports of controlled compounds to the US fell to zero; and on June 22, 2026, Beijing added MP Materials and USA Rare Earths to its own entity list. 

November 10 is the date to plan around. If the suspension lapses, the 0.1% rule reaches magnets already inside Western-made motors and subassemblies, regardless of where they were manufactured. 

The policy response is aimed one layer upstream 

The EU’s response is real and moving, but much of it is aimed upstream of the chokepoint. The Critical Raw Materials Act, in force since 2024, sets 2030 benchmarks for extraction (10%), processing (40%), and recycling (25%), plus a 65% cap on any strategic raw material from a single third country.  

The benchmarks cover all 17 strategic materials as a class, so progress on lithium or nickel can flatter the headline numbers while rare earths stand still. Rare earths are furthest from every one: extraction today is zero, processing a few percent, recycling below 1%. Of the 47 strategic projects designated in March 2025, five cover rare earths, and Caremag is the only one under construction. 

The operational measures arrived on December 3, 2025, when the Commission adopted the RESourceEU Action Plan: a European Critical Raw Materials Centre for joint purchasing and stockpiling, proposed export restrictions on magnet scrap (Europe currently ships out the feedstock its own recyclers would need), and mandatory recycled-content shares in magnets. The G7’s June 2026 Evian summit added stockpile coordination and an IEA-linked monitoring platform, but a US-drafted price-floor scheme found no European backing.  

Capacity is still arriving, unevenly. Neo Performance Materials opened Europe’s first commercial EV-magnet plant in Narva, Estonia in September 2025 and commissioned a small-scale heavy rare-earth separation line in April 2026. Solvay’s La Rochelle site has produced magnet-grade NdPr since April 2025, with an ambition of 30% of European demand by 2030. Analysts put the combined Western pipeline at 30 to 50% of OECD magnet demand by 2028. In the meantime European buyers pay heavily: the IEA noted in October 2025 that European prices for some rare-earth materials reached up to six times Chinese domestic levels. 

What this means for manufacturers 

The data, the history, and the policy record point the same way: the risk sits downstream of where most companies look for it, and the fix sits downstream of where most policy is aimed. At 88% import concentration the exposure is close to universal and rarely appears under its own name. Treat November 10, 2026 as a hard date for inventory positioning and license documentation. And consider long-term supply agreements with the new Western producers.  

One year into the tariffs, supply chains are reorganizing. They aren’t coming home. 

In our May 2026 survey, we asked automotive leaders where they stood on reshoring, on a scale running from evaluating to completed. Roughly 2% reported it complete. 38% weren’t considering it at all. The rest sat in evaluating, planning, or early implementation. Our analysis of automotive-sector financial disclosures shows talk of reshoring and nearshoring up 23x since 2019.  

Their verdict was that reorientation of supply chains is greater than reshoring. The automotive picture, in real terms, says the same thing more sharply. 

For the automotive sector, import penetration sat around 44% throughout 2024, and fell to 39.6% in Q4 2025. The share fell because imports collapsed under the tariffs and the market itself shrank, not because domestic production rose to fill the gap. In 2025, under the full weight of the tariffs, both imports and domestic production fell together: real output down 1.3% compared to 2024, real imports down 10%.  

After stripping out inflation, real domestic output of vehicles and parts is up 2.2% since 2019, and real output tracks real imports almost exactly: real output and imports are tightly correlated1, rising and falling in step. Most pertinently, domestic output in the automotive sector has not risen to fill the space left by falling imports, which is exactly what reshoring would look like in the data.  

The import mix tells the same story. Auto imports fell 13% in 2025, and they fell from every major source: Mexico down 6%, Canada down 8%, Japan down 11%, South Korea down 16%, Germany down 20%, China down 25%. Not one major nation grew its share in the US market.  

The one shift worth noting is a relative one. Even though imports fell across the board, North America’s share of auto imports rose from 41% to 44%. The rest of the world just fell faster, by about 18% in comparison to Mexico and Canada’s collective 7%. The tariffs hit distant suppliers hardest and the integrated North American base least. That is reorientation toward the lowest-tariff, most-connected suppliers inside a shrinking total, with no sign yet of production coming home. 

The May numbers confirm what our survey base signaled more than a year ago. Back in December 2024, when we asked how operational footprints would shift, the answer was not expansion. A plurality of respondents expected to shrink or consolidate, and in the US specifically, consolidation intent ran well ahead of growth. The drivers were underutilized factories from soft demand, and tariffs that made the current footprint undesirable and uncertain. Where leaders did see opportunity, they pointed away from the US industrial Midwest, with Mexico drawing the most optimism. 

Policy uncertainty makes delay the rational choice. Footprint decisions run on a multi-year horizon; and an announcement comes in the form of a press release. Reshoring means a qualified supplier base, a hired skilled-trades workforce, and access to utilities.  

Only 8% of the leaders we surveyed expect a clean USMCA extension. A target that keeps moving is a reason to wait rather than build, and our respondents have tied their capital-expenditure delays directly to that uncertainty, deferring program launches, new equipment, and new facilities through 2026. 

Waiting to build is not the same as doing nothing. The OEMs have reacted where they can. Most are pursuing local-for-local, reducing China dependency while accepting that full independence is not available. Jim Farley has declared the era of the auto industry as a global business over, with localization accelerating. The intent is there; the capability is the constraint. Under new policy regimes, nearshoring may well be a strategic imperative. But there is an execution bottleneck – and until it clears, the data will keep showing reorientation, not reshoring.  

An analysis of how the largest energy supply disruption in modern history is driving a structural inflation cycle, and what the recovery timeline means for manufacturing, energy security, and the global economy. 

The closure of the Strait of Hormuz is not simply another supply chain disruption. It is a systemic shock, one that strikes at the foundations of the global energy system, commodity markets, and industrial production simultaneously. For those of us advising manufacturers and industrial leaders, the message is clear: this crisis will reshape cost structures, supply chain strategies, and investment decisions for years to come. 

Since February 28, 2026, when the U.S.-Israeli coalition launched air operations against Iran, the strait, through which approximately 25% of the world’s seaborne oil trade and 20% of global liquefied natural gas (LNG) transits, has been effectively closed. Ship transits collapsed from around 130 per day in February to just 6 in March, a drop of approximately 95%. The International Energy Agency has characterised the situation as the “largest supply disruption in the history of the global oil market.”

Even after the April 8 ceasefire between Iran and the United States, traffic through the strait remains far below pre-war levels. The question now is not whether recovery will happen, but how long it will take, and how deeply the inflationary consequences will embed themselves in the global economy. 

The Anatomy of an Inflation Shock 

The inflationary impact of the Hormuz crisis is not limited to higher fuel prices. It operates through multiple reinforcing channels that make it fundamentally different from a typical commodity price spike. 

Energy as the transmission mechanism. 

The IMF’s April 2026 World Economic Outlook projects global headline inflation rising from 4.1% in 2025 to 4.4% in 2026 under its reference scenario. Under an adverse scenario, one that more closely reflects actual market conditions in late March, inflation could reach 5.4%, with global growth declining to 2.5%. In a severe scenario involving prolonged energy dislocations extending into 2027, inflation would exceed 6% while growth falls to 2%.

These are not abstract forecasts. The European Central Bank has already postponed planned interest rate reductions and raised its 2026 inflation forecast. UK inflation is expected to breach 5% in 2026. In Europe, chemical and steel manufacturers have imposed surcharges of up to 30% to offset surging electricity and feedstock costs.

Beyond oil: the fertiliser and food price channel. 

The Strait of Hormuz is central to the global fertiliser trade. Over 30% of global urea, the world’s most widely used nitrogen fertiliser, is exported from Gulf countries through the strait. Urea prices have increased by approximately 50% since the start of the war. At the New Orleans import hub, urea costs surged 32% in a single week, leaping from $516 to $683 per metric ton.

The British think tank The Food Policy Institute has warned of long-term increases in food prices due to disruption in fuel and fertiliser markets. The timing is particularly damaging, disruption during the Northern Hemisphere spring planting season threatens to reduce yields of corn in the United States, the main feedstock for beef, poultry, and dairy, potentially increasing global food prices well into 2027. 

Industrial materials and the manufacturing cascade; The crisis extends well beyond energy. The Gulf region supplies approximately 21% of global aluminium, a significant share of global polyethylene, methanol, and sulphur, and nearly one-third of global helium. China, the world’s largest methanol buyer, faces potential shortages as port inventories approach warning thresholds. Taiwan and South Korea, (home to the world’s leading semiconductor manufacturers) are simultaneously dealing with lost energy supplies from the Gulf and shortages of critical minerals essential to chip production. 

Roland Berger has noted that even regions like Europe and the Americas, which have less direct reliance on imports transiting the strait, are indirectly impacted through complex, multi-stage global value chains. Raw materials from the Gulf are processed in Asia into intermediate goods, which are then shipped globally. The disruption is therefore not regional, it is systemic. 

Why This Inflation Cycle Will Be Structural 

The LSE Business Review captured it well: a short closure of the Strait of Hormuz is an oil shock; a long closure becomes an inflation and growth shock. 

There are several reasons to believe that the current inflationary impulse will prove more persistent than the 2022 commodity price surge following Russia’s invasion of Ukraine: 

Infrastructure damage extends the timeline. 

According to the IEA, 40 energy assets across nine countries have been severely or very severely affected. Qatar’s Ras Laffan facility, the largest liquefaction plant in the world, has been offline since it was first attacked on March 2. The Qatari government estimates that repairs could take three to five years. This is not a disruption that resolves when shipping lanes reopen. 

Supply chain structural change is already hardening.

As Kevin O’Marah, Chief Research Officer at Zero100, has warned: “If peace with Iran is not locked in within weeks, structural changes in global supply chains will begin to harden.” War risk becomes the baseline assumption, meaning higher insurance and security costs, persistent surcharges, and redesigned shipping networks. These costs do not disappear when a ceasefire is signed. 

Regionalization is inflationary by design. 

The transition towards regionalized, redundant supply chains, which this crisis is accelerating, comes with inherent cost increases. As industry analysts have noted, this means redundant manufacturing capacity, higher inventories, smaller-scale production assets, and rising transaction complexity. All of these add both capital and operating expense. Rising costs of living are the new normal until the productivity effects of AI and automation can offset the transition costs. 

Limited spare capacity constrains recovery.

There is limited potential for increased oil output from producers outside the Middle East in 2026, as most operators are constrained by project cycle times, equipment shortages, and limited transportation options. The IEA estimates that only 3.5 to 5.5 million barrels per day can be redirected through Saudi and Emirati pipelines outside Hormuz, leaving a net shortfall of roughly 14.5 to 16.5 million barrels per day.

The Five-Year Recovery: What Manufacturers Should Expect 

Even if the conflict is fully resolved in the coming months, the economic aftershocks will persist for years. A credible five-year recovery timeline involves several overlapping phases. 

Phase 1: Acute crisis (2026); Continued supply disruptions, elevated energy and commodity prices, demand destruction in vulnerable economies, and monetary policy paralysis as central banks balance inflation-fighting with recession risk. The IMF’s reference forecast already projects global growth slowing from 3.4% (pre-war trajectory) to 3.1% this year. The adverse scenario puts it at 2.5%. 

Phase 2: Infrastructure repair and supply normalization (2026–2030); The physical reconstruction of damaged Gulf energy infrastructure, particularly Qatar’s LNG facilities, will take years. During this period, LNG markets will remain structurally tight, keeping natural gas prices elevated, particularly in Asia and Europe. Credendo has noted that even if the conflict ends soon, supply chains could take months or even years to recover, as time will be required to repair infrastructure, restart equipment, and clear port bottlenecks. 

Phase 3: Supply chain restructuring (2027–2032); Manufacturers will accelerate diversification away from single-chokepoint dependencies. This phase involves qualifying alternative suppliers, redesigning supply networks for redundancy, and building larger inventory buffers. For manufacturing sectors dependent on Gulf-sourced inputs, from petrochemicals to aluminium to fertilisers, this restructuring will require significant capital investment. 

Phase 4: New equilibrium (2029–2032); The global economy reaches a new steady state characterised by higher baseline costs for energy and industrial materials, more regionalized supply chains, greater emphasis on energy security as national policy, and accelerated investment in renewable energy as a hedge against chokepoint risk. The world will also start to return into a focus on nuclear energy, as a buffer against further geopolitical disruptions. 

Implications for Manufacturing Leadership 

For those of us working with manufacturers and industrial businesses, the strategic imperatives are clear. 

Cost structures are resetting permanently; The assumption of low, stable energy and input costs that underpinned manufacturing strategies for the past decade is no longer valid. Budgets and pricing models must account for persistent cost elevation and greater volatility. 

Supply chain resilience is no longer optional; The Hormuz crisis, following the Red Sea disruption and the pandemic-era supply chain breakdowns, has made resilience a survival requirement. Companies that have not invested in multi-corridor logistics, diversified sourcing, and strategic inventory buffers face existential risk in the next disruption. Focus will continue to shift away from globalization to resional supply chains over the remainder of the decade, and inventory will begin to be viewed as a strategic asset. 

Energy transition is accelerating by force; As Bloomberg has observed, the energy transition is being forced upon us in a very painful way. Companies that were slow to invest in electrification and renewable energy integration now face the dual pressure of elevated fossil fuel costs and intensifying policy incentives to transition.  Countries are looking at renewables and nuclear energy to fill base load needs. 

The recovery is not a return to the old normal; The five-year window ahead will be characterised by structural adjustment, not restoration. The businesses that emerge strongest will be those that treat this crisis as a permanent strategic inflection point, not a temporary inconvenience. If you have not already begun future proofing your supply chain, you you will be trapped by constraints of the current crisis.  

The Strait of Hormuz crisis has reminded the world,  in the most painful way possible, that the global economy remains critically dependent on a handful of narrow waterways and politically volatile regions. The inflationary consequences of that dependency will take years to fully work through. The time to begin building a more resilient foundation is now.