Long-established carmakers are grappling with converging challenges – from the rapid rise of electric vehicles (EVs) and new competitors turning the market upside down to economic headwinds dampening consumer demand. And of course, there is the fundamental technology shift towards software-defined, autonomous-capable vehicles.
It’s a perfect storm for legacy brands, which must urgently adjust their sails in response. In this article, we dive into some of the factors putting the industry under strain – and explore why surviving, and thriving, means addressing not just one issue but “all of the above”.
Let’s first take a look at the larger macro-economic picture worldwide.
After the global slowdown during lockdown and post-pandemic rebound, global car sales have once again slowed. High inflation and rising interest rates have made vehicles less affordable, cooling consumer demand.
For example, in the USA, new vehicle sales jumped 12% in 2023 to 15.6 million, yet still fell short of the 17 million annual sales seen pre-2020. By late 2023, high interest rates, some as high as 10%, pushed vehicle loan delinquencies to their highest level in a decade.
Similarly, in Europe, economic growth slowed to only 0.5% in 2023, eroding consumer confidence around big purchases like cars. In short, the era of easy money and booming demand has ended, meaning that car makers must now contend with more cautious buyers who are hitting the brakes on spending.
One of the biggest ripple effects of the Covid-19 pandemic was the disruption in global supply chains. For the automotive sector, it led, most notably, to semi-conductor chip shortages – limiting the availability of new vehicles and driving up prices accordingly.
For electric vehicle manufacturers, the affordability challenge was especially acute. Between 2020 and 2022, EVs averaged about 35% higher prices than comparable petrol-driven cars.
But by 2023, supply issues had eased, and dealer inventories recovered, just as interest rates climbed. So, pent-up demand evaporated, and economic pressures grew, with some brands offering discounts to entice buyers, and even luxury marques feeling the pinch.
Now with US import tariffs causing further economic uncertainty and reshuffling across global markets, the industry is once again taking strain, squeezing sales volumes.
Additionally, the markets have been disrupted by a sharp acceleration in EV adoption. Global sales of conventional (non-electric) cars peaked around 2017/18 and have since stagnated or declined, while EVs (battery-electric or plug-in hybrid) now account for a fifth of new cars sold worldwide in 2024. From virtually zero EVs sold just a decade ago, this signals a seismic change in market dynamics.
For legacy automakers, the EV boom is a double-edged sword. On one hand, it presents an untapped opportunity in new markets; on the other, it has turned the competitive landscape and economics of car manufacturing on its head. New EV-focused players have taken the gap and leapt ahead: BYD and Tesla alone accounted for 35% of all global EV sales in 2023 – more than all legacy automakers outside China combined.
In China, the world’s largest automotive market, domestic EV makers have rapidly gained dominance, aided by years of government support. Chinese brands offer low-cost, tech-packed EVs that are gobbling up market share at home and abroad. In 2024, the country produced more than 12 million EVs – or roughly 70% of global production.
By contrast, Western and Japanese automakers have seen their sales plunge – a huge blow, given China’s market is as large as the US and European markets combined. Losing in China (and facing an influx of Chinese EV exports globally) has put legacy carmakers on the defensive.
So, while many automakers are investing billions in developing electric models and battery plants just to stay in the game, they are currently seeing losses instead profits. Many legacy players also ramped up EV output faster than the market could absorb. In the US, demand has dropped off, with Ford, for example, scaling back its EV production targets and even temporarily idling some EV factory lines to avoid oversupply.
In European markets, EV demand growth has also flatlined due to significant reductions in purchase subsidies in countries like France and Germany. Multiple Western automakers have warned of tough times ahead – balancing the need to fund EV development against uncertain near-term demand.
Meanwhile, legacy companies now effectively run two businesses (the profitable combustion side and the loss-making EV side), all while competing with agile EV-only firms. The strain is evident: companies from Volkswagen to Nissan have announced layoffs and factory idle time to cut costs during this transition.
Technology is the other major force rocking the auto industry. The rise of electric vehicles and autonomous, software-defined vehicles (SDV) go hand-in-hand – EVs are often designed as software-centric from the ground up, and autonomous driving R&D requires enormous computational resources.
Modern cars are no longer chiefly mechanical devices; they are “computers on wheels,” packed with electronics, software, and connectivity. This shift toward the SDV – where a car’s value is heavily determined by digital features and software capabilities – is reshaping how automakers design and build products. It’s also creating new financial and technical struggles for companies historically centred on hardware engineering who have to pivot and form partnerships or make acquisitions of tech companies.
The average car today contains 35% of its cost in electronics – a share that has skyrocketed from just 5% in the 1970s. By 2030, essentially half the vehicle’s value will be coming from computing and technology components rather than traditional engine/chassis parts. An estimated 90% of new vehicle models may be “software-defined” by 2029.
In practical terms, a mid-range car now has dozens of microprocessors and over 100 million lines of software code running onboard – compared to maybe 10 million lines of code a decade ago. For perspective, that is more code than in some commercial jetliners or operating systems. And if full self-driving capability is achieved, future autonomous vehicles could require up to 500 million lines of code to handle the AI and sensor processing. This explosion of complexity means automakers must invest heavily in software development, cybersecurity, and electronics architecture. Indeed, 90% of new vehicle models may be “software-defined” by 2029 – meaning nearly all functions of the car are integrated and controlled via software and updatable over-the-air.
Despite automakers and suppliers pouring billions into self-driving vehicle programmes over the past decade, true autonomous cars are still not widespread, and timelines have been pushed out. This has also led to some strategic pullbacks: for example, General Motors cut $1 billion in annual costs by halting certain robo-taxi development efforts in 2024, and Ford and Volkswagen shut down their joint AV venture in 2022 after slow progress. The dream of fully self-driving cars will eventually arrive (one projection sees 25% of global car sales being autonomous by 2040), but in the meantime it remains a cash drain rather than a revenue source.
All these tech trends create short-term pain for long-term gain. Automakers must sink money into new software architectures, electronics, and AI features now to avoid being left behind. The concept of the “software-defined vehicle” also flips old business models: instead of one-and-done sales, carmakers aspire to sell services, updates, and app-like features to car owners over time. However, figuring out how to monetise software (without alienating customers) is an ongoing experiment. In the interim, the costs of this tech transformation weigh on the bottom line, impacting profits.
The automotive industry’s struggles cannot be pinned on a single cause – it truly is a perfect storm of multiple disruptive forces hitting together. Economic slowdown and high financing costs have made consumers think twice about new car purchases. At the same time, the EV transition sees new rivals challenging well-known brands, and the legacy business model is being turned inside out as ICE sales decline and EV investments surge.
On top of it all, the technology upheaval of software and autonomy compels automakers to reinvent themselves as tech companies and manage a far more complex product development process. Any one of these shifts would be a monumental challenge; all of them at once has created formidable headwinds for the industry.
As an automotive assembly line and digital manufacturing tech partner, Jendamark can also see and support the opportunities for those able to ride out the storm. The companies that can successfully balance all of the above – adapting to economic realities, aggressively innovating in EVs, and embracing software-centric design – are likely to emerge stronger in the long run.
Right now, though, OEMs worldwide must adapt or fall behind. Many are restructuring operations, partnering with tech firms, and lobbying for supportive policies, like EV incentives, to navigate this tricky curve. In the end, the automotive industry is struggling because it is reinventing itself on multiple fronts simultaneously, a challenging journey that will likely continue over the coming years until a new equilibrium is found.
For more on this topic, watch the full episode of Jendamark’s The Disrupted Factory podcast with Yanesh Naidoo here.
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