Key takeaways
Profitability
Transformation
Supply chain
Technology
Workforce
Key challenges in the automotive industry
The automotive industry faces numerous business challenges. At Enliven Systems, we analyzed key pain points across the automotive industry to better understand its core challenges. Companies must adapt to the complexities of electric vehicle (EV) transitions, digital transformations, and supply chain uncertainties, understanding the key pain points and implementing effective solutions to sustain profitability and growth.
Why automotive profitability is under pressure
Automotive profitability is under sustained pressure as manufacturers face rising structural costs alongside intensifying competitive and geopolitical challenges. Industry EBIT margins are expected to remain at 4.8% in 2026, with a broad recovery unlikely until 2027 as electrification spending, tariff pressures, and intensifying competition continue to weigh on performance. Meanwhile, BEVs accounted for 20% of the European market during the first five months of 2026, adding to the challenge of driving EV adoption while maintaining profitability. Europe’s nearly €200 billion investment in the EV ecosystem is further increasing capital intensity across the sector, while tariff pressures, supply-chain disruptions, and the aggressive expansion of Chinese manufacturers continue to compress margins through heightened pricing pressure and market-share competition. Reflecting these broader industry trends, BMW lowered its 2026 automotive EBIT margin guidance from 4–6% to 1–3%, underscoring the growing difficulty of maintaining profitability in the current market environment.
Managing the EV transformation
The industry is undergoing a complex transformation as the shift to electric vehicles requires fundamental changes across products, manufacturing, and supply chains. While global battery-electric and plug-in hybrid vehicle registrations increased 7% year-on-year to approximately 2 million units in June 2026, and European registrations grew 31% to around 530,000 units, adoption remains uneven across regions. In the US, battery-electric vehicles still carry a 15–20% price premium over the average market price, with nearly 50% of prospective buyers identifying upfront cost as the primary barrier to adoption. These disparities slow the pace of market transition and delay returns on investment. Meanwhile, Europe’s commitment of nearly €200 billion to the EV ecosystem highlights the scale of investment required to restructure production systems, battery supply chains, manufacturing operations, and charging infrastructure, making transformation one of the industry’s most significant strategic challenges.
Strengthening supply chain resilience
Supply chains remain highly vulnerable to geopolitical disruption, with recent instability in the Middle East exposing critical logistics risks. Maritime traffic through the Strait of Hormuz fell to a five-week low, with only six vessels transiting the waterway on one day as security concerns intensified. More than 11,000 suppliers, 100,000 products, and up to US$460 billion in revenue remain exposed to potential disruption. Delays and higher transportation costs are already affecting manufacturers, while logistics networks may require several months to normalise. These conditions are accelerating the need for more resilient supply chains through contingency planning, supplier diversification, and greater flexibility in sourcing and logistics.
Accelerating the shift to software-defined vehicles
The automotive sector is rapidly transitioning toward software-defined vehicles, requiring manufacturers to accelerate software development, strengthen system integration, and compete with technology-driven entrants. The global automotive software and electronics market is projected to reach approximately US$519 billion by 2035, reflecting a fundamental shift in value creation from hardware to software, AI, and connected services. This transformation is driving significant investment, with Kia alone committing more than US$28 billion between 2026 and 2029 to electrification, AI, and software capabilities. As vehicles become increasingly connected and software-centric, automotive companies must also address growing challenges related to cybersecurity, interoperability, over-the-air updates, and the digital infrastructure required to support continuous software innovation.
Closing the automotive skills gap
The transition to electric vehicles, AI, and software-defined vehicles is fundamentally reshaping workforce requirements across the industry. Demand for expertise in software, battery technology, electronics, cybersecurity, AI, and digital engineering continues to grow, while traditional internal combustion engine (ICE)-related roles are declining. The talent shortage has become a major constraint on transformation, with 92% of automotive employers reporting difficulties in finding skilled workers. As manufacturers accelerate electrification, automation, and software-driven production, large-scale workforce reskilling and organizational restructuring are becoming essential to secure the capabilities needed for future competitiveness.
Next steps
Successfully navigating these challenges requires a coordinated strategy that balances profitability with long-term transformation. Automotive companies should prioritize investments that strengthen supply chain resilience, accelerate digital and software capabilities, and build the workforce skills needed to support electrification and AI-driven operations. Organizations that proactively align their technology, operations, and talent strategies will be better positioned to improve resilience, sustain profitability, and remain competitive in a rapidly evolving market.
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Understanding these challenges is key to staying competitive in automotive.
