Key takeaways
Margin pressure
EV transformation
Supply chain volatility
Software capabilities
Workforce restructuring
Key challenges in the automotive industry
The automotive sector is facing simultaneous pressure from margin compression, supply-chain volatility, uneven EV adoption, workforce restructuring, and accelerating software-driven transformation. Automakers must therefore balance near-term cost and production challenges with investments in flexible manufacturing, new skills, and technologies that support the transition to next-generation vehicles.
Automotive margins face structural pressure
Profitability is being squeezed by intense Chinese competition, restructuring costs, tariffs, and changing EV economics, with Chinese vehicles priced 30–40% below competing models in some European markets. Volkswagen has cut its 2026 operating-margin outlook to no more than 1%, down from 4–5.5%, while projecting €10 billion in one-off costs linked largely to Porsche and market conditions. BMW is targeting a 1–3% automotive margin in 2026 and 3–5% by 2028, supported by plans to reduce management divisions and roles by 20% by mid-2027. Revised U.S. fuel-economy rules could partially offset cost pressure by reducing automakers’ technology costs by $60.6 billion through 2031, equivalent to approximately $1,289 per vehicle.
Managing supplier and demand volatility
Supplier disruptions are creating production risks, with a supply issue affecting Ford’s F-150 production while F-Series sales had already fallen 11% year-on-year through August. Demand volatility is also reshaping production plans, as GM cut planned Chevrolet Bolt EV production from 150,000 to around 35,000 vehicles, a reduction of approximately 77%. Investment uncertainty is adding further pressure, with nearly $20 billion in U.S. EV-related projects cancelled in 2025 and approximately 27,000 planned jobs put at risk. These shifts make flexible production and supplier planning increasingly important as automakers respond to changing EV demand and policy conditions.
Reshaping production for EV growth
EV adoption is advancing unevenly across markets, with UK battery-electric registrations rising 36% year-on-year in September 2026 to reach 28.3% of new-car registrations. Automakers are adapting manufacturing capacity to support the transition, as Renault is investing €600 million through 2030 to reconfigure two Spanish plants for five new models and establish a battery-assembly line, while GM and LG Energy Solution are upgrading a Tennessee plant to produce lower-cost lithium manganese-rich battery cells by 2028. However, policy uncertainty is disrupting transformation plans, with nearly $20 billion in U.S. EV projects cancelled in 2025 and around 27,000 planned manufacturing jobs put at risk.
Restructuring and reskilling redefine automotive jobs
Workforce restructuring is accelerating as manufacturers respond to electrification, digitalisation, and competitive pressure, with Volkswagen targeting 100,000 job reductions and facing a labour dispute over wage agreements covering around 100,000 German workers. BMW plans to cut approximately 8,000 jobs in Germany and reduce management divisions and roles by 20% by mid-2027, while expanding AI to streamline operations and decision-making. However, workforce demand is also shifting toward new technical capabilities, illustrated by McLaren’s £500 million UK manufacturing and engineering investment expected to create 1,000 jobs by 2032. These developments highlight a growing need to balance workforce reductions with targeted investment in digital, engineering, and advanced manufacturing skills.
Software skills drive the next vehicle shift
The shift toward software-defined vehicles is increasing demand for advanced software, electronics, cybersecurity, and systems-integration capabilities, with the automotive embedded software development toolchain market growing from approximately $5.9 billion in 2025 to a projected $10.4 billion by 2030. BlackBerry’s QNX division recorded 27% year-on-year revenue growth to $80.3 million in Q2 2026, reflecting stronger demand for software supporting digital cockpits and driver-assistance systems. Technology partnerships are also expanding the need for specialised expertise, as Stellantis’s Chinese joint venture partnered with Momenta on intelligent-driving and driver-assistance technologies for Jeep and Peugeot.
Next steps
Automakers should strengthen cost discipline and supply-chain resilience while increasing production flexibility to manage volatile EV demand, tariffs, and changing market conditions. Investment should also focus on reskilling, software and cybersecurity capabilities, and adaptable manufacturing infrastructure to support the transition toward software-defined and electrified vehicles.
Want to explore how to address these challenges?
Let’s connect!
Understanding these challenges is key to staying competitive in automotive.
