Key takeaways
Profitability pressure
EV production transformation
Supply chain vulnerability
Software-defined vehicles
Automotive skills gap
Key challenges in the automotive industry
The automotive industry is undergoing a broad transformation as profitability pressure, supply chain disruption, accelerating EV adoption, workforce restructuring, and software-driven vehicle development reshape competitive priorities. These interconnected pressures are increasing the need for greater cost efficiency, supply chain resilience, manufacturing flexibility, workforce readiness, and technology investment.
Automotive profitability pressure
Automotive profitability remains under pressure from intensifying global competition, rising operating costs, tariffs, and the continued cost of electrification. Chinese manufacturers are adding significant pricing and market-share pressure, with BYD’s overseas shipments increasing 134.5% year-on-year in August 2026 to a record 189,466 vehicles. In response, automakers are accelerating cost-reduction programs, with Honda targeting more than $9 billion in cost reductions by 2030 to protect margins and strengthen competitiveness.
Automotive supply chain vulnerability
Geopolitical disruptions are increasing pressure on automotive supply chains, with only 5 vessels crossing the Strait of Hormuz on 1 September 2026 versus a 10-day average of around 14, followed by just 4 vessels the next day against an average of around 13. Trade exposure is also intensifying as U.S. tariffs now affect roughly US$20 billion of Canadian exports, including automotive products, with tariffs on Canadian automotive products planned to reach 50% from January 2027; Honda’s production delays caused by parts shortages demonstrate how quickly these disruptions can cascade across global supplier networks.
Accelerating EV production transformation
Rapidly shifting EV demand is forcing automakers to realign production capacity and investment plans across markets with uneven adoption. In July 2026, EU27 BEV registrations rose 41.8% year-on-year to 202,597 units, representing 26.3% of new registrations, while charging infrastructure expanded 15.2% to more than 1.15 million points; in Germany, BEV registrations surged 75% in August even as overall vehicle production fell 4% and exports declined 12%. This divergence highlights the need for greater manufacturing flexibility and infrastructure alignment as the transition to electric mobility accelerates.
Closing the automotive skills gap
The transition toward EVs, AI, and software-defined vehicles is widening the automotive skills gap as manufacturers require new capabilities while managing multiple powertrain technologies, digitalisation, and changing supply chains. With Volkswagen planning around 100,000 job reductions and European production capacity still more than 500,000 vehicles above demand, workforce restructuring is increasing the need to redeploy and reskill employees. The European Commission is addressing this gap through six workforce pilot projects backed by €14.5 million, supporting almost 1,000 workers across 10 European countries.
Software-defined vehicle technology
The move toward software-defined vehicles is increasing technological complexity, driving automakers to adopt standardized ECUs, operating systems, middleware, and shared vehicle-control software. Honda and Nissan are targeting jointly developed SDV technologies from fiscal 2029, while the automotive cybersecurity market is projected to expand from $6.88 billion in 2026 to $18.86 billion by 2033, underscoring the growing technology and security requirements of connected vehicles.
Next steps
Automakers should prioritize margin protection through targeted cost reduction while strengthening supply chain resilience and adapting production capacity to shifting EV demand. Closing critical skills gaps and establishing scalable software, cybersecurity, and digital capabilities will also be essential to support long-term competitiveness and manage the transition successfully.
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