Automotive Industry Faces Uncertainty Heading into 2025

The automotive industry experienced a turbulent 2024 and the outlook for 2025 remains uncertain as manufacturers confront persistent challenges and emerging trends.

From supply chain disruptions to shifting consumer behaviours, automakers are grappling with a complex landscape that could reshape the global Industry.

Persistent supply chain woes

Supply chain shortages continue to plague the Industry, particularly the lingering global semiconductor shortage that began in 2020. Despite modest improvements, production delays and output cuts persisted throughout 2024, forcing automakers to postpone model launches and limit availability.

Analysts warn that "the industry has yet to fully recover," predicting that these challenges will persist into 2025. The slow recovery supports the fragility of global supply chains and highlights the need for manufacturers to build greater resilience.

Economic headwinds impact consumer demand

Economic challenges, including high interest rates and rising vehicle prices, have curbed consumer enthusiasm. The impact is particularly evident in the EV segment, where affordability remains a primary concern.

Despite price reductions and government incentives, EV adoption has faced significant headwinds.

The global light vehicle market is projected to grow to 91.4 million units in 2025, a modest 3.1% increase from 2024. Analysts forecast that "the recovery will be slow," reflecting cautious optimism amid economic pressures.

Shifting consumer preferences and market dynamics

Consumer preferences are evolving, reshaping the industry's priorities. In certain markets, there is renewed interest in internal combustion engine (ICE) vehicles, as EV adoption faces hurdles such as affordability and charging infrastructure gaps.

Simultaneously, younger consumers embrace alternative ownership models, like vehicle subscriptions, which are challenging traditional sales strategies.

Meanwhile, Chinese automakers continue to make aggressive strides in the global EV market. Despite the potential for tariffs, Chinese brands are ramping up European local production initiatives, further intensifying competition. Established European automakers are now re-evaluating their strategies to defend market share.

Regulatory pressures mount

The European Union's cap on average emissions from new vehicle sales is set to drop to 93.6 grams of CO2 per kilometre (g/km) by 2025— a 15% decrease from the 2021 baseline of 110.1 g/km.

Exceeding these limits could result in substantial fines, adding further strain on automakers grappling with economic headwinds and EV demand challenges.

The European Automobile Manufacturers' Association (ACEA), representing major brands like BMW, Volkswagen, Renault, Ferrari and Volvo, has called for relief measures. In a statement, ACEA urged the EU to ease 2025 compliance costs while maintaining the transition to green mobility.

However, some experts oppose relaxing these targets.

Julia Poliscanova, senior director for vehicles and e-mobility at Transport & Environment, argues that maintaining strict carbon goals is essential for future competitiveness, stating in a previous interview: "The vehicle CO2 target is critical in making them more competitive and transition quicker."

"Even if it is to the detriment of higher profit margins in the short term, it pushes automakers to create viable products in the future."

Market performance: A mixed picture

Shares of Europe's leading automakers—the "big five" of Volkswagen, Mercedes, BMW, Stellantis and Renault — have struggled throughout 2024. Milan-listed Stellantis has seen the steepest decline, down 37% year-to-date, followed by Volkswagen (-23%) and BMW (-21%). Renault, however, has emerged as an exception, posting gains of 19% thanks to its relatively limited exposure to the US and Chinese markets.

Deutsche Bank analysts noted: "Automotive stocks are having a hard time globally," pointing to persistent challenges that weigh heavily on investor sentiment.

Strategies for survival and growth

The outlook for 2025 remains cautious. While a gradual recovery in global volumes is expected, significant uncertainties loom. Political developments, particularly in the US, could trigger new tariffs, threatening global trade dynamics and further complicating automakers' pricing strategies.

Horst Schneider, head of European automotive research at Bank of America noted: "What people need is cheaper EVs" 

"They get launched in 2025, so some carmakers say there is no need to cut the targets. But it might still be necessary to give them more time because acceptance on the consumer side is just not yet there."

The road ahead

As automakers navigate the challenging landscape, flexibility and innovation will be essential for survival. While 2025 may not deliver significant relief, it could represent a turning point as the Industry accelerates its transformation toward sustainability, technological advancement and market resilience.

The road ahead remains uncertain, but those who can adapt to changing demands and challenges may emerge stronger and better positioned for a rapidly evolving future.

Explore the latest edition of EV Magazine and be part of the conversation at our global conference series, Sustainability LIVE and Manufacturing LIVE.

Discover all our upcoming events and secure your tickets today.

EV Magazine is a BizClik brand.