Automotive Industry Analysis: A Difficult Race For Traditional Players

 

The automotive industry is experiencing a slower-than-expected growth compared to outlook in previous years due to elevated prices for consumers and a lack of investment in adequate infrastructure. However, some countries, such as China, are offering better pricing alternatives and higher-than-average adoption rates while benefiting from economies of scale. Consequently, Chinese companies are exporting and growing more than traditional competitors based in Europe, the US, and Japan. Therefore, US and Europe are adjusting their regulations to help their firms compete better and not lose more and more market share in the long term. In this post I show you an industry analysis that deepends on several aspects you must account for when forecasting the industry future and the evolution of the market share of the main competitors.

Market Overview & Key Figures

• In 2024, the global automotive market was valued at USD 4.14 trillion.
• It is expected to grow at a CAGR of 6.3%  from 2025–2034, reaching around USD 7.60 trillion by 2034.
• There are approximately 877 businesses operating in this global car manufacturing segment.
• Employment in the industry in 2025 is around 2.59 million people globally.

Main Segments

By Vehicle Type:

• Commercial vehicles (LCVs, Heavy Trucks, Buses & Coaches) led the market in 2024 with about USD 2.07 trillion in revenue.
• Passenger cars (Hatchback, Sedan, Sport Utility Vehicles (SUV), MUV) were the second-largest category.

By end use:

·         The individual (private ownership) segment held ~79% of the market in 2024.

·         The rest is commercial usage: ridesharing, taxis, rentals, corporate fleets.

By Propulsion:

• Internal Combustion Engine (ICE) vehicles (gasoline segment) remains dominant supported by widespread infrastructure and lower upfront costs. In 2024 gasoline accounted for over 55% of the market share.
• Electric vehicles (EVs) will be the fastest-growing segment, with a projected CAGR of 12.4%.
• Hybrid vehicles are also growing as policies, consumer preferences, and technology push towards cleaner mobility.
• Hydrogen vehicles are still nascent and face infrastructure, cost, and technology hurdles.

By size / class:

Vehicles are categorized by compact, mid-size, full-size, and luxury.

·         Compact models are gaining interest, especially in urban regions with space constraints and cost sensitivity.

·         Mid-size, full-size, and luxury classes remain important where consumers demand space, comfort, prestige, and advanced features.

By region:

• Asia-Pacific: Largest market in 2024 (45% of global car market revenues in 2024), worth about USD 1.86 trillion, driven by rapid urbanization, rising manufacturing bases, growing middle-class demand, and strong government support. China is leading deeply in both conventional and electric vehicle sales/manufacturing. Expected to exceed USD 2 trillion by 2034. Europe & North America are lagging compared to China & Global South. Emerging economies (India, Thailand, Vietnam, etc.) are making gains due to subsidies, infrastructure investment, and local demand. Chinese OEMs continue gaining domestic share, pushing outward into exports. Their cost base is typically lower, and speed to market is faster. China has emerged as a leading global auto exporter, with Chinese car exports surpassing those of South Korea in 2021 and Germany in 2022. The EU is now the main destination for Chinese car exports, with imports increasing by nearly 40% from 2022 to 2023. Suppliers (global and local) must engage more deeply with Chinese OEMs while margins and negotiating leverage are under pressure, and global suppliers face margin compression in China.
• North America: high infrastructure, high income, strong ownership rates, consumer demand for diverse models (strong demand especially for SUVs, trucks), and rapid adoption of hybrid/EV technologies. Regulation also pushes growth.
• Europe: Highly shaped by strict environmental regulations, pushing automakers to invest in clean energy, efficiency, and safety (more R&D). Consumer preference for sustainability. Europe is becoming more of an import market, especially for EVs coming from China. European exports to China are declining. In 2023, the EU produced 14.8 million vehicles, including 12.2 million cars, remaining a net exporter of cars. However, production levels are still below pre-pandemic figures. Production costs in the EU are approximately 30% higher than in China, primarily due to higher energy and labor costs. There have been announcements of job cuts and factory closures in EU car manufacturing and battery production, partly due to concerns over the slowing uptake of electric vehicles. The EU automotive industry employs approximately 13.8 million people, accounting for 6.1% of total EU employment and 8% of European manufacturing value added. The automotive sector's economic relevance varies across EU regions, with countries like Slovakia, Romania, Sweden, Czechia, Hungary, and Germany having automotive employment constituting over 10% of total manufacturing employment.
• MEA (Middle East & Africa) and Latin America: also growing with potential in urbanization and vehicle demand growth, though with more constraints (cost, infrastructure, etc.). Luxury/high-performance vehicle segments have rising demand in some MEA countries.

Growth Drivers

• Ongoing population, urbanization and road infrastructure growth: As more people live in cities, demand for personal mobility/vehicles rises, especially for mobility in congested or sprawling urban environments.
• Growing middle classes and rising disposable incomes, especially in emerging markets, enabling consumers to purchase vehicles and more premium or well-equipped models.
• Growth in e-commerce and logistics, boosting demand for commercial vehicles (especially last-mile delivery).
• Rising Interest in Vehicle Subscriptions: Younger consumers are increasingly open to vehicle subscriptions, questioning the necessity of ownership. This reflects a broader shift towards mobility-as-a-service (MaaS) models.

·         The nature of demand will change: more emphasis on fleet and shared vehicles, flexible ownership, and use-based adoption than mass private ownership in many markets.

·         Brand loyalty shifts: A significant number of consumers are considering changing vehicle brands. Price is the primary factor influencing brand choice in developed markets like Germany, Japan, and the U.S., while product quality is more important in countries such as India and Saudi Arabia. While consumers show interest in connected features—such as maintenance alerts and safety updates—willingness to pay extra for these technologies remains low in developed markets, challenging automakers to monetize connectivity effectively. While interest in electric vehicles (EVs) continues, consumers are becoming more discerning. Factors such as environmental friendliness, regulatory benefits, and driving experience are top reasons for considering EVs. Consumers are increasingly prioritizing relevance and precision over reach and heritage in brand selection. This shift underscores the need for automakers to focus on value, experience, and trust to maintain customer loyalty.

• Government incentives and policies to reduce emissions.
• Rising consumer demand for greener, safer, more connected cars. CASE technologies—Connected, Autonomous, Shared, Electric—are central to ongoing innovation.
• Connected vehicles & autonomous vehicles represent major growth opportunities: Vehicles are becoming networks on wheels — with software updates, data connectivity, over-the-air (OTA) updates, and integration with digital services. Autonomous vehicles are also gaining ground: Self-driving tech is evolving with advanced sensors, AI, and connectivity. Advances in self-driving technology will gradually reduce human control, especially in specific contexts (urban, shared, fleets) and automakers and tech firms (e.g. Tesla, Waymo) are investing heavily. Regulatory approvals on autonomous cars are key because they are expected to be a major shift in how people travel as they get more support. Younger consumers, particularly Gen-Z, exhibit greater enthusiasm for autonomous driving technologies, with 74% expressing excitement. In contrast, only 12% of Gen-Z are apprehensive, compared to 37% of Baby Boomers.
• Shared Mobility: There is a growing shift from vehicle ownership to usership, with shared mobility services becoming more common.
• Rise of Software-Defined Vehicles (SDVs): Vehicles are increasingly defined by software (updates, features, connectivity, etc.). The need for suppliers to become more like “tech companies” implies heavy R&D and software development burdens. In this environment there is potential for new entrants while existing players must adapt or integrate.

·         Diverse Mobility: Growth of on-demand mobility services (ride-hailing, car-sharing, subscription models) will expand the ways people use vehicles. This leads to new business models beyond vehicle ownership. Automakers and suppliers must shift from purely product-centric models (sell more cars) to service- and software-centric models (mobility on demand, subscription, feature upgrades, data monetization). Vehicles must be upgradable, modular, and adaptable over time (via software updates) to remain competitive, and thus platform models should be developed. More profits may come from software, data, services, and mobility operations than from vehicle hardware alone. Therefore, tech companies, software firms, and new entrants will compete with traditional OEMs and suppliers.

·         Technological advances: including electric powertrains, advanced driver assistance systems (ADAS), cellular vehicle-to-everything (C-V2X) connectivity, autonomous driving features, connected systems, better in-vehicle entertainment/infotainment, vehicle-to-vehicle communication, usage of sustainable materials, advances in battery technology and EV charging infrastructure, and improved internal combustion efficiency.

Key Challenges

• Rising cost concerns and financial pressure: Because of the capital intensity of the industry—factory investment, R&D, labor, materials—profit margins are sensitive to input cost changes. Also, performance improves if input costs (material, component, raw materials) ease. In general, the purchase price of cars (especially EVs), fuel/energy, advanced components (batteries, sensors, software), insurance, maintenance, financing costs are all factors that could limit adoption or slow growth. These production costs are especially high for EVs and advanced tech components. Therefore, suppliers face squeezed margins in EV components while hybrid and ICE components regain importance as bridging technologies. OEMs are re-evaluating forecasts and scaling production expectations are down where demand or regulatory headwinds indicate risk. Suppliers are renegotiating contracts, adjusting output. Responses include producing more fuel-efficient and affordable models, government incentives (especially for EVs), tax reductions, and encouraging shared mobility (ride-sharing, car-sharing) to ease the cost burden on individual owners.
• Profit margins are forecast to improve somewhat, especially as EV- and hybrid model sales increase and production/input cost pressures ease. Expected profit margins around 4.7% toward the end of the period.
• Trade agreements (e.g. EU-Mercosur) are altering the landscape for automotive manufacturing & trade.
• The industry has high entry barriers: substantial capital investment is needed for manufacturing facilities, R&D, and developing supply chains. Scale and brand reputation are major advantages. Larger established automakers maintain dominance. They benefit from scale, existing brand loyalty, and global manufacturing footprints.
• Shorter vehicle lifecycles & fragmentation: OEMs are expanding model ranges; average unit volumes per model are shrinking, leading to more competition for supplier content and higher per-unit R&D burden.
• Infrastructure limitations in some markets (charging stations, hydrogen fueling, etc.), which can slow down EV uptake or make “alternative propulsion” less feasible.
• Consumer confidence declines and price sensitivity prevails: 45% of global consumers report a decrease in purchasing power, leading 42% to plan to keep their current vehicles longer. Despite this, 78% remain excited about new models and brands, particularly in Asia (85%) and South America. Price Sensitivity prevails as the top decision driver across all regions, with reliability and brand following closely. In Western markets, price sensitivity is up to 15% higher than in some Asian countries.
• Consumer acceptance and willingness to shift to new propulsion technologies. For example, there are regional disparities in EV adoption due to infrastructure and purchasing power differences. EV adoption is still expanding, but the rate of growth has cooled compared to past years. By 2035, all new vehicles in the EU are required to be zero-emission, with a review scheduled for 2026. The global market saw 14 million electric vehicles sold in 2023, representing 18% of all cars sold.
• Regulatory and policy uncertainty through strict regulations: These can be both opportunities and risks as governments adjust emission standards, safety requisites, tailpipe standards, battery recycling, incentives such as subsidies and its rules, trade policies, etc. (E.g., regions pushing EVs or environmental policies). Therefore, competirors need to be agile and adapt as fast as possible. Prioritisation of sustainability not just for regulation, but for competitiveness: sourcing, materials, emissions, battery recycling, etc. will affect cost and market access.
• Sustainability practices are not uniform; compliance with differing regional rules is complicated.
• Cybersecurity risk is rising across the board: vehicles, supply chain, infrastructure. Regulations like the EU’s DORA (Digital Operational Resilience Act) are coming into force to address such risks. It is important to build in cybersecurity & data governance early. As more connectivity and data use is built in, weak links (supplier vulnerabilities, software flaws) can have large risks.
• Supply chain disruptions and vulnerabilities. There are also significant fluctuations in raw material (especially for EVs and batteries).

·         More data collection: However, consumers are willing to share data in some contexts (e.g. for lower insurance, safety) but only under conditions (opt-in, trust, privacy).

·         Policy shifts in certain countries (e.g. changes in US policy, subsidies, import/export tariffs) could influence regional competitive advantages. Monitoring geopolitical & trade shifts is vital because tariffs, trade deals, and regional incentives will affect costs, supply chains, and where it makes sense to locate production.

Sales & Distribution Channels

The market is served via dealerships, direct sales, and online retail models.

Dealerships currently dominate because of the in-person experience, service, and trust aspects.

But online retail / digital channels are growing, especially appealing to tech-savvy consumers wanting convenience.

Supplier Financial & Operational Health

·         Revenue & Margin trends: While revenue has somewhat recovered post-COVID, profitability remains chronically weak. Margins have structurally declined.

·         Regional margin differences:

o    China: among the healthiest supplier margins (~ 5.7%) due to strong domestic demand and favorable policy support.

o    Europe & South Korea: more strained margin levels (e.g. Europe ~ 3.6%) due to weak demand, high costs, and overcapacity.

·         Product segment margin trends:

o    Tire suppliers lead in margins (e.g. ~7.4%) supported by stable aftermarket business and high value add.

o    Electronics/infotainment have high growth but low margins, due to high R&D and launch costs.

o    Powertrain / ICE / hybrid components gain some support back, given slower EV momentum.

·         Overhead & cost burden: Many suppliers have bloated overheads, legacy structures, and increased personnel costs. Some are reducing workforce (5–10%) to manage costs.

·         Financial stress: More than 40% of the top 25 global automotive suppliers are now rated non-investment grade, increasing refinancing costs.

·         Interest & credit cost pressure: Elevated interest rates are eating into margins (interest expenses cutting >20% from EBIT to EBT in recent years).

Last but not least, McKinsey envisions a more layered mobility ecosystem, beyond just automakers and parts suppliers:

• Producer / Supplier: hardware, components, systems.
• Integrator: combining software, hardware, services.
• Provider: delivering mobility services to end users (e.g. fleets, sharing).
• Infrastructure & Support Layers: cities, charging networks, insurance, data services.

Importantly, companies may not stay confined to one layer: OEMs may also act as service providers, software developers, or mobility operators.

Supplier actions & recommendations:

1. Optimize portfolios and focus on strategic, differentiated technologies.
2. Form partnerships, alliances, or collaborations to share risk, scale, or access.
3. Structural cost management and efficiency improvements, especially for Western suppliers.
4. Regional execution strategies: tailor operations to local market realities, trade policies, and competitive dynamics.
5. Invest in software, digital capabilities, and platforms to align with the shift to SDVs.

Major Players

• BYD
• General Motors
• Ford Motor
• Tesla
• Honda
• Hyundai
• Toyota
• Suzuki
• Mercedes-Benz
• Volkswagen
• BMW
• Renault
• Nissan
• Stellantis

 

From my perspective, the competitive landscape in the future will be likely dominated by China in terms of suppliers because it owns a clear cost-advantage in terms of materials, labor, and energy. In regard to the main manufacturers, it is not that clear. Even if European, US and Japanese companies get competitive in terms of materials and energy (which is very difficult), they still face higher labor costs. Therefore, the rate of growth in terms of exports from Chinese manufacturers like BYD will likely drive this company to an industry leader position. 

To sum up, Chinese suppliers (both big and small) and main international manufacturers as BYD (showing rapid international expansion) are the safest bets at the moment from my perspective. The rest of the smaller players in China are not a clear bet at this point, nor the traditional leaders in Europe, US and Japan either because they need to catch up and some might fail when trying so.