On the Move, October 11, 2024

The headlines

• Stellantis CEO Carlos Tavares to retire in 2026
• Elon Musk unveils Tesla's Cybercab, a game-changer for urban mobility
• Global car manufacturing market projected to reach USD 5.77 trillion by 2031
• EU imposes up to 45% tariffs on Chinese EV imports
• Supply chain disruptions and supplier bankruptcies plague global automakers
• Battery technology innovations promise to address EV range and affordability concerns

Top 6 - Issues shaping the automotive industry

The automotive industry is in a transformative phase, driven by innovations in electric vehicles, automation, regulatory pressures, and increasing competition, particularly from emerging markets like China. As carmakers adapt to shifting consumer demands, environmental goals, and ongoing supply chain disruptions, they face both opportunities and challenges. In this edition of On the Move, we explore the top six themes impacting the global industry and highlight emerging opportunities that could help companies thrive in this evolving landscape.

1. Electrification and the transition to EVs

What’s happening? The global car manufacturing industry was valued at USD 3.18 trillion in 2023 and is projected to reach USD 5.77 trillion by 2031, growing at a compound annual growth rate (CAGR) of 7.7%. OEMs like Volkswagen, Toyota, and BYD are making major investments in electric vehicles, but EV sales in Europe are lagging behind expectations. Germany, for example, saw a 69% drop in EV sales in August 2024 due to range anxiety, high costs, and limited charging infrastructure. However, emerging markets like India are experiencing rapid growth, with the country’s EV market expected to grow at a CAGR of 49% between 2022 and 2030.

What does it mean for the industry? Carmakers must address both consumer affordability and charging infrastructure to drive mass adoption of EVs. The rise of emerging markets like India and Brazil presents significant growth opportunities, as governments in these regions offer incentives, promote local production, and invest in charging networks. Innovations in battery technology, such as solid-state batteries, are expected to reduce production costs and improve EV range, which will be crucial for large-scale EV adoption.

Further reading: Costs of the green transition loom large for European companies India’s booming EV market growth EU member states agree to impose tariffs on Chinese electric vehicles

2. Supply chain disruptions and the impact of supplier bankruptcies

What’s happening? Global supply chain disruptions continue to impact carmakers, with supplier bankruptcies causing major component shortages, particularly in Germany. For example, Porsche and Aston Martin have issued profit warnings due to component shortages. Stellantis, facing these disruptions, announced a leadership shake-up as CEO Carlos Tavares prepares to retire in 2026. Additionally, a 40% global drop in semiconductor production has significantly impacted the automotive sector, particularly for EV manufacturing.

What does it mean for the industry? To mitigate future risks, automakers must diversify their sourcing strategies and consider vertical integration to secure critical components, such as semiconductors and batteries. Ford, for instance, is leveraging AI and digital tools to predict and manage supply chain issues. Localising production and building resilient supplier partnerships will be crucial as automakers navigate continued disruptions.

Quote from the industry: "Over the past six to nine months, blue-chip suppliers have had fires, floods or administrators appointed to an extent and a scale that I personally haven’t seen in my career,” said Adrian Hallmark, CEO of Aston Martin.

Further reading: Stellantis announces management shake-up at global car brands Volkswagen and Stellantis face major supplier shortages Supply chain digitalisation: A key to automotive success

3. Regulatory pressures and the high cost of the green transition

What’s happening? Carmakers are under pressure from stringent environmental regulations, particularly in Europe, where the EU’s 2035 ban on combustion engine vehicles is fast approaching. While the US and China are offering generous subsidies for EV production through the Inflation Reduction Act and China’s New Energy Vehicle (NEV) plan, Europe faces rising costs. Northvolt, a key player in European battery production, has raised $15 billion in subsidies but is still struggling to scale production, showcasing the high cost of meeting green targets.

What does it mean for the industry? While the green transition poses financial challenges, it also presents opportunities for innovation. Carmakers can capitalise on government subsidies and incentives to accelerate the shift to electric and hydrogen-powered vehicles. However, European carmakers will need to invest heavily in renewable energy-powered factories and sustainable technologies to remain competitive in the global race for EV dominance.

Quote from the industry: “During this Darwinian period for the automotive industry, our duty and ethical responsibility is to adapt,” said Carlos Tavares, CEO of Stellantis, highlighting the need for companies to embrace change.

Further reading: Costs of the green transition loom large for European companies Northvolt struggles despite green subsidies China’s New Energy Vehicle plan

4. Global competition from Chinese EV manufacturers

What’s happening? Chinese automakers like BYD, Nio, and Great Wall Motor are rapidly expanding into Europe and other global markets. BYD became the world’s largest EV manufacturer in 2023, holding a 15% share of the global EV market and surpassing Tesla. The EU has responded with tariffs of up to 45% on Chinese EV imports to protect domestic automakers, but Chinese companies are already establishing production facilities within Europe, such as BYD and CATL's new plants in Hungary, to sidestep these tariffs.

What does it mean for the industry? Chinese EV brands are posing a major challenge to traditional automakers, offering low-cost vehicles with advanced technologies. To compete, European automakers must focus on premiumisation, offering superior performance, luxury features, and innovative technologies like autonomous driving. Companies that can differentiate through sustainability and advanced technology will have a better chance of maintaining a competitive edge.

Further reading: EU member states agree to impose tariffs on Chinese electric vehicles Chinese EVs challenge European dominance A divided EU presents China with easy targets

5. Autonomous driving and the future of mobility

What’s happening? Tesla unveiled its Cybercab robotaxi during an eagerly anticipated event in 2024, setting its sights on making autonomous transportation affordable. The Cybercab is expected to start production before 2027 and will cost less than $30,000. Elon Musk envisions this autonomous taxi as part of a broader future where self-driving, individualised mass transit becomes the norm. At the same time, Chinese tech companies like Baidu are investing billions in their own autonomous vehicle projects, such as Apollo Go, Baidu’s robotaxi platform, which operates in cities like Beijing.

What does it mean for the industry? The race for autonomous driving technology is heating up. Tesla’s Cybercab shows how self-driving technology can disrupt traditional urban transport, making it more affordable and accessible. However, automakers must navigate regulatory hurdles and safety concerns to achieve full autonomy. Collaboration with tech firms to integrate AI and software will be essential to gaining a foothold in this emerging market. Consumer trust in autonomous vehicles will be another key factor in widespread adoption.

Quote from the industry: “I think the cost of autonomous transport will be so low that you can think of it like individualised mass transit,” said Elon Musk at the Cybercab unveiling.

Further reading: Elon Musk unveils Tesla’s Cybercab robotaxis Baidu’s Apollo Go robotaxis make waves in autonomous driving Waymo vs Tesla: The race for autonomous driving dominance

6. Consumer demand, pricing, and the affordability dilemma

What’s happening? Despite the projected growth of the car manufacturing market from USD 3.18 trillion in 2023 to USD 5.77 trillion by 2031, automakers face significant challenges around pricing and affordability. The high cost of EV production, driven by battery materials, is limiting consumer adoption. Tesla has responded by cutting prices, but EVs remain out of reach for many. Meanwhile, consumer demand for hybrid and petrol vehicles remains strong in regions with limited charging infrastructure, such as Europe.

What does it mean for the industry? Affordability is a key issue carmakers must address. Advances in battery technologies, such as lithium-sulfur and solid-state batteries, are key to reducing production costs and making EVs more accessible to the average consumer. Governments will also need to continue offering subsidies to incentivise EV purchases, while OEMs explore new business models like subscription-based services and battery leasing.

Further reading: Battery makers aim to ease EV anxieties with 5-minute charge LG Energy flashes another warning light on EV sales Tesla’s price cuts and market strategy

The road ahead

The industry faces complex challenges from electrification and regulatory pressures to competition from Chinese EV manufacturers and ongoing supply chain disruptions. Yet, emerging opportunities in AI, sustainable materials, and autonomous driving technologies offer a path forward. To succeed, carmakers must embrace innovation, strengthen supply chains, and collaborate with governments to meet environmental goals while maintaining profitability. Those that adapt to these trends and focus on consumer needs will lead the market in the years to come.