Electrification, geopolitics, and technological disruption: key drivers redefining the automotive landscape
Executive Summary
The global automotive industry is undergoing one of the most profound transformations in its history, shaped by electrification, digitalization, geopolitical fragmentation and intensifying competition. While the sector remains large and structurally resilient, it is no longer a high-growth industry and faces sustained pressure on profitability and competitiveness.
In 2024, the global automotive market generated approximately USD 2.2 trillion in revenues, with projections reaching USD 2.8 trillion by 2033 at a modest 2.8% CAGR. Vehicle sales volumes remain broadly stable at around 75 million units annually, with China firmly established as the world’s largest market and production hub, accounting for roughly one-third of global output. Industry revenues are highly concentrated, with the top 20 Original Equipment Manufacturers (OEMs) generating nearly the entire market value.
Structural Transformation and Electrification
Electrification is no longer optional but regulation-driven, particularly in Europe. Tightening EU CO₂standards, which mandate zero tailpipe emissions for new cars by 2035, have made Electric Vehicle (EV) adoption a regulatory necessity rather than a consumer-led trend. By 2024, 22% of global new-car sales were Battery-Electric or Plug-in Hybrid (BEV+PHEV), with China leading adoption. However, growth momentum has begun to slow, particularly in the United States, reflecting constraints related to vehicle affordability, uneven deployment of charging infrastructure, and the gradual withdrawal of purchase incentives.
EV production costs remain structurally higher than Internal Combustion Engine (ICE) vehicles, primarily due to battery costs and the need for parallel investments in legacy and electric platforms. While battery prices have declined sharply, European OEMs still face a significant cost disadvantage driven by higher labor, energy prices, and fragmented supply chains. Chinese entrants benefit from building brand new infrastructure from the ground up, while U.S. and European incumbents must maintain aging legacy assets and simultaneously invest in new infrastructure to stay competitive in the modern automotive landscape.
Technology, Software, and New Mobility Models
Beyond electrification, the industry is converging toward the software-defined vehicle. Advanced Driver-Assistance Systems (ADAS), AI-driven vehicle intelligence, Over-The-Air (OTA) updates, and connectivity are reshaping value creation, strengthening the strategic role of Tier-1 suppliers and technology ecosystems. Autonomous driving, particularly in the form of robotaxis, is approaching commercial viability, with China and the U.S. leading deployment.
At the same time, Mobility as a Service (MaaS) is challenging the traditional ownership model, especially among younger and urban consumers. This shift opens new recurring revenue pools but requires automakers to rethink their business models, capabilities and partnerships
Competitive Landscape and China’s Rise
These technological and structural shifts are reshaping the competitive balance within the global automotive industry. Traditional global leaders such as Toyota, Volkswagen and General Motors remain dominant in volume and revenues, but Chinese OEMs, notably BYD, have emerged as systemic challengers, particularly in EVs. China’s dominance across the battery value chain, electronics and critical raw materials has enabled cost bases up to 50% lower than Western competitors, allowing Chinese manufacturers to compete aggressively on both price and technology in global markets, including Europe.
European responses (including tariffs, industrial policy initiatives, and supply-chain localization) have so far provided only partial protection against this rising competition. Chinese OEMs are increasingly mitigating trade barriers through localized European production, limiting the long-term effectiveness of protectionist measures.
Profitability and Cost Pressure
As competitive pressures intensify, profitability has become a central stress point for manufacturers. Industry profitability has normalized sharply after post-pandemic peaks. By early 2025, OEM EBIT margins had fallen to around 5.2%, below supplier margins for the first time in years. This deterioration reflects a combination of softer demand, diminishing pricing power, rising electrification investments, and intensifying price competition, especially from Chinese manufacturers.
In response, automakers are pursuing aggressive cost-efficiency strategies, including automation, platform consolidation, supplier optimization and organizational restructuring. Simultaneously, control over battery minerals and supply-chain resilience has emerged as a critical determinant of long-term competitiveness, with battery-related raw materials carrying far greater strategic weight than traditional automotive inputs.
Outlook
Looking ahead, the automotive industry will remain structurally important but increasingly polarized. Success will be determined by the ability to integrate technological innovation with scale, cost discipline, and geopolitical resilience. Europe faces a decisive decade: without rapid progress in scaling EV supply chains, reducing costs, and restoring innovation speed, its historical leadership risks further erosion in an industry increasingly shaped by China and geopolitics.