The global automotive sector is witnessing significant changes. “There has been no shortage of headlines in the news cycles about the struggles and opportunities for this sector,” Lawrence Keyler, global automotive leader and partner at RSM US, a think tank, said in a 2024 insights note.
Those changes arise from increased competition, which will challenge how traditional auto manufacturers (OEMs) “think about their product development, marketing, and supply chain,” Grand Lui, manufacturing lead at RSM Canada, said in the annual insights report.
Local auto manufacturers could be noticeably affected because they assemble models belonging to major international OEMs.
Deloitte’s “The Future of Value Chains 2025 and Beyond” report highlighted four possible scenarios for OEMs. All of which “demand a significant willingness to change” on the part of auto manufacturers.
Landscape
The Deloitte report says today’s fast-paced technology developments mean traditional automakers are increasingly competing with big tech players “with pockets full of cash that they are willing to invest.”
That is shifting investment focus to software and connected services over hardware, such as engines and mechanical parts. Electric vehicles will further diminish hardware development budgets as they “contain far fewer components than combustion engines,” Deloitte’s report said.
That invariably impacts R&D budgets and development directions, the choice of suppliers, and the equipment and personnel manufacturers need to develop high-tech cars. Automakers also have to decide which tech features would impress but not overwhelm owners.
OEMs will be most affected by new technologies, such as 3D-printing car parts, artificial intelligence, and the country’s digital infrastructure. Another factor is the availability of affordable financing for individuals and manufacturers. Being eco-friendly and sustainable is the third factor.
Government policies and legislation will also impact the future of the global car industry. That includes intellectual property rights laws, freedom of trade, public infrastructure, and data storage facilities.
Lastly, changing behavior will indirectly impact the global car market. The Deloitte report highlighted consumers’ “safety awareness, material wealth, trust in [automakers], customization and urbanization.”
Scenario 1: Almost everyone wins
This is the best-case scenario. “In this world, [EVs and hybrids], autonomous driving and integrated mobility are a common reality for the broad public,” the report said.
OEMs “set the standards and are the dominant players. Their diverse range of products and services allows “innovative outsiders … to play according to the rules set by the OEM.”
The Deloitte report forecasts that eventually “33% of all cars sold” will be at least partially powered by an electric motor. Customers will accept self-driving cars, and “OEMs [will] need it as a prerequisite for lucrative digital business models.” Individual vehicle sales will decrease 24% as ride-hailing becomes more popular.
Meanwhile, “digital business models [could] contribute [up to] 20% of the [OEM’s] total revenue,” the report said. This scenario will accelerate the digitization of the industry (manufacturing 4.0) to increase “efficiency, reduce prices, and [improve] quality.” The downside is automakers will require fewer factory workers.
Scenario 2: Tech domination
In this scenario, tech companies will overpower the auto industry, and customers will embrace that situation. “OEMs … mainly become suppliers of white-label cars to the internet giants.”
To increase sales, automakers must either “provide a superior platform for infotainment and mobility services or retain a strong brand image.”
Ultimately, “OEMs are not able to fully cash in on revenue potential” as their vehicle hardware is commoditized. That means profit margins will decrease, the report said.
In this scenario, 36% of all cars sold will have electric motors. The latest technologies and features would only work on EVs. Also, corporations would demand only EVs for their fleets to showcase their eco-credentials and an avant-garde image.
New car sales would drop 24% as customers increasingly prefer ride-sharing services over owning a car.
In this scenario, OEMs’ digital business models would find “competition from IT giants … difficult to defeat.” Meanwhile, manufacturing 4.0 and automotive layoffs would accelerate faster than the other three scenarios.
Scenario 3: Playing defense
This scenario would see “massive lobbying by OEMs [to] prevent potential new high-tech players from entering the market … This defensive strategy … slows down technical development. That means potential innovations may not be rolled out to the market.”
Meanwhile, technologies under development, such as autonomous cars, would not see further developments, causing “dramatic accidents” as they are immature. That would ultimately lead to a “loss of consumer acceptance,” the report said
Around 18% of cars on the road would be powered by electric motors. The report says customer demand for EVs would be low, as government regulations fuel most of the demand.
“High-tech cars [would be] marketable only in premium niches.” Personal car sales would drop “10% due to [ride] sharing.” Meanwhile, the OEM’s offerings will be the differentiator in the market.
In this scenario, “digital services are not the focus of customers’ interests … Investment [would be] worthwhile only to … premium segments.” Manufacturing 4.0 would be adopted only to improve efficiency, prices and car quality. The upside is that more auto workers would be needed.
Scenario 4: Almost everyone loses
In this scenario, OEMs and tech companies focus on reducing costs at the expense of hardware and feature differentiation. “The car is a mere means of transportation, and brand attractiveness diminishes,” Delloite said. “The technology hype has cooled down, … putting an end to the rise of high-tech cars.”
The commoditization of transportation and tech features decreases profit margins, and OEMs prioritize lowering manufacturing costs rather than offering better cars and features.
Ride-hailing tech companies and public transport would be the winners. Meanwhile, “private car ownership decreases, [and] fleet management becomes [important] to OEMs.”
The report expects 21% of cars sold will be electrified in this scenario. “High-tech vehicles would be present in premium segments, with mainstream vehicles sharing the same technologies and features.”
In this scenario, low customer demand and distrust of OEMs and tech companies mean “investment would most likely be unprofitable.” Manufacturing 4.0 would only proliferate to reduce costs and increase efficiency. “Vehicle sales will not be significantly affected.”
The future
The Deloitte report stressed that OEMs’ business model decisions in the coming years will shape the future. “Today, [an OEM] primarily operates two business models: producing and selling vehicles and offering financing services,” the report said.
In coming years, Delloite says OEMs will seek more revenue by building unbranded parts for other manufacturers. “The main customers … will be new market entrants such as Google or Uber. They will focus on … user-centric software while leaving hardware development to OEMs.”
Another business strategy will see OEMs monetize the data their cars collect when driven. That revenue stream would come from vehicles sold for ride-sharing services or infotainment software and apps, “as well as other ways of monetizing the large amounts of data available in and around cars.”
Other significant factors will be decisions made by non-automotive players and regulators, as well as the speed of technology adoption in general, the Deloitte report said. “OEMs … need to position themselves toward a clear target picture, perhaps investing at times… to get a foot in the door — while accepting that some of these investments will end up as sunk costs.”
This article first appeared in August’s print edition of Business Monthly.
