Supply Chain Issues and Market Shifts Challenge Automakers

The automotive sector continues to navigate a turbulent period, with the uncertainty of 2025 looming large.

Manufacturers confront ongoing disruptions and shifting market trends that could redefine the global industry. From fragile supply chains to evolving consumer behaviour, the path ahead is both complex and pivotal.

Supply chain issues, especially the lingering semiconductor shortage, remain a key hurdle for automakers.

This shortage, which began in 2020, has yet to fully abate. While 2024 saw marginal improvements, production delays and limited output persisted. Many manufacturers were forced to delay vehicle launches and cap production volumes to cope.

Analysts caution that "the industry has yet to fully recover," with 2025 expected to bring only modest relief. These persistent challenges highlight the vulnerability of global supply chains and the pressing need for manufacturers to invest in more robust systems.

The semiconductor shortage is particularly significant given its impact on modern vehicles, which rely heavily on advanced electronics.

Automakers increasingly explore strategies like diversifying suppliers, localising production and stockpiling critical components to reduce future disruptions.

Economic pressures shape consumer demand

High interest rates and rising vehicle costs have dampened consumer enthusiasm, presenting an additional challenge for the sector.

Electric vehicle (EV) adoption, once seen as a transformative force, has been particularly affected by affordability concerns. Despite government incentives and price adjustments, many consumers remain hesitant to make the switch to EVs.

The global light vehicle market is expected to grow modestly in 2025, reaching 91.4 million units, a 3.1% increase over 2024.

However, experts predict that "the recovery will be slow," reflecting ongoing economic headwinds.

Meanwhile, shifting consumer preferences are influencing the industry’s approach. Younger buyers increasingly favour alternative ownership models, such as vehicle subscriptions, over traditional purchases. These trends challenge automakers to rethink their sales strategies and adapt to new market dynamics.

At the same time, internal combustion engine (ICE) vehicles are experiencing renewed interest in some regions, as EV adoption faces hurdles like inadequate charging infrastructure.

Chinese automakers continue to dominate the global EV market, intensifying competition, particularly in Europe. These manufacturers are ramping up local production in response to potential tariffs, prompting established European brands to reconsider their strategies.

Regulatory and market challenges

Automakers are also grappling with stricter environmental regulations.

The European Union's new target for average CO2 emissions—set at 93.6 grams per kilometre by 2025—represents a 15% reduction from 2021 levels.

Exceeding these limits could result in hefty fines, compounding the financial strain on manufacturers already contending with economic and market challenges.

The European Automobile Manufacturers' Association (ACEA), which includes brands like BMW, Renault and Volvo, has called for more lenient compliance measures. However, environmental advocates argue against relaxing these targets.

Julia Poliscanova, Senior Director for vehicles and e-mobility at Transport & Environment, stresses the importance of these regulations.

She explains: "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."

Financial performance among Europe’s leading automakers has been mixed. Volkswagen, Mercedes, BMW, Stellantis and Renault all faced challenges in 2024.

Milan-listed Stellantis saw the sharpest decline, down 37% year-to-date, while Renault bucked the trend, posting a 19% gain due to its limited exposure to the US and Chinese markets.

Navigating the path ahead

Looking forward, the automotive industry faces a cautious 2025. While global vehicle volumes are expected to recover gradually, uncertainties such as potential new tariffs and political developments could further disrupt the market.

Horst Schneider, Head of European automotive research at Bank of America, notes the importance of making EVs more accessible to consumers: "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."

To thrive in this uncertain environment, manufacturers must remain adaptable and innovative. Building resilient supply chains, addressing consumer concerns, and aligning with environmental goals will be key to navigating the challenges ahead.

As the industry undergoes a transformation towards sustainability and technological advancement, it faces a crucial turning point. Those capable of adapting to this evolving landscape will be better positioned to succeed in a competitive and rapidly changing market.

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