Automotive industry trends 2027+

Summary: The classic Tier 1 role, delivering a finished system with its own software, is losing ground. OEMs pull software in-house, NVIDIA and Qualcomm sell central compute directly to OEMs, and Chinese suppliers follow their OEM customers to Europe.

Current situation: OEM insourcing has been rocky. Volkswagen's software unit Cariad fell behind schedule, and the group turned to a joint venture with Rivian and a partnership with Xpeng. Suppliers are restructuring quickly. Continental separated its automotive business as Aumovio in 2025, Bosch announced 13,000 job cuts, and ZF is shrinking its footprint.

Expected development: Value in the vehicle is moving to central compute, software platforms, and batteries, where tech companies and Chinese players lead. That leaves Tier 1s two realistic roles: specialist in safety-critical hardware and actuation, or platform integrator for OEMs without software scale. Suppliers caught between the two face the hardest decade.

Challenges: Automotive software talent is scarce and expensive. Chinese suppliers set cost benchmarks that European Tier 1s struggle to match. And while OEMs reorganize their sourcing, long-standing supplier relationships turn fragile before the new vehicle programs have proven themselves.

Time to impact: 2-4 years
Potential impact: Very high
STEEP segment: Economic
This year's trend development: New

Summary: Europe and North America want battery supply chains that work without China. Low lithium prices, high Western costs, and failures such as Northvolt's bankruptcy are slowing that effort, and China's hold on refining and materials know-how remains the deeper exposure.

Current situation: According to the IEA, China refines most of the world's lithium and cobalt and produces the bulk of battery-grade graphite, cathode, and anode material. Lithium prices fell sharply from their 2022 peak, which delayed many Western mining and refining projects. Northvolt went bankrupt in Sweden in March 2025, and the US company Lyten took over its Swedish sites in 2026. ACC has put planned gigafactories in Germany and Italy on hold.

Expected development: The battery supply chain will split into Chinese and Western-aligned networks, shaped more by policy than by market prices. Western capacity will come later than announced, and much of it will rely on Chinese licenses, equipment, or partners. For OEMs, low-price periods are the cheapest moment to sign long-term, diversified offtake.

Challenges: Western refining and cell costs remain well above Chinese levels, and few investors fund new projects at today's prices. Permits for a mine or refinery take years. The move toward LFP and sodium-ion keeps changing which materials matter most. If solid-state cells reach volume late this decade, plants tooled for today's lithium-ion processes may need costly retooling before they have paid back.

Time to impact: 2-4 years
Potential impact: High
STEEP segment: Political
This year's trend development: New

Summary: China built car capacity for a market that has stopped growing. The price war that followed is pushing weaker brands out, and the surplus goes abroad. For every OEM outside China, this is the competitive force to plan around through 2030.

Current situation: Dozens of brands compete on price, and BYD cut prices on many models by up to 34% in 2025. Passenger car retail sales in China declined year on year in most months of 2026 after the purchase tax exemption for new energy vehicles was halved, while exports kept rising. Many Chinese OEMs lose money. The parent company of the Neta brand entered bankruptcy proceedings in 2025, and Beijing has publicly warned the industry against destructive price competition.

Expected development: The Chinese market will consolidate into fewer, larger groups that come out leaner and faster. They will fill their plants through exports and local production abroad. Western OEMs will keep losing share in China and will meet the same rivals in Europe, Latin America, the Middle East, and Southeast Asia.

Challenges: Long payment terms push the losses down to suppliers. Beijing can reshape the market quickly through consolidation orders or pricing rules. Abroad, Chinese brands still face tariffs, local content rules, and the slow work of building dealer networks, service, and confidence in residual values.

Time to impact: 0-2 years
Potential impact: Very high
STEEP segment: Economic
This year's trend development: New

Summary: Zonal architectures replace dozens of control units with a few central computers and zone controllers. Wiring shrinks and software becomes updatable across the whole vehicle. The architecture an OEM chooses now sets its development speed and software cost for the next decade.

Current situation: Tesla went first, and Xpeng and NIO followed quickly. Rivian's second-generation vehicles cut the number of control units sharply, and that architecture underpins Rivian's joint venture with Volkswagen. In China, Volkswagen started series production in 2026 on the CEA architecture co-developed with Xpeng. BMW's Neue Klasse runs on four high-performance computers, and Mercedes-Benz launched MB.OS with the new CLA.

Expected development: Zonal designs will be the default for new platforms between 2028 and 2030. Supplier value shifts from single-function ECUs to central compute, zone controllers, and software platforms. OEMs that had to restart their architecture programs are buying capability from partners to close the gap.

Challenges: A zonal architecture means a new platform and a large upfront investment. Certifying consolidated controllers under ISO 26262 is harder than certifying individual ECUs. Supply contracts built around domain ECUs have to be unwound, and the architecture only pays back with a strong software organization behind it.

Time to impact: 0-2 years
Potential impact: Very high
STEEP segment: Technological
This year's trend development: New

Summary: Western OEM profits have dropped sharply under Chinese competition, US tariffs, and expensive EV programs. Funding for EV platforms, software, and batteries is shrinking just as those programs reach their most capital-intensive phase.

Current situation: Stellantis reported the first annual loss in its history for 2025, after roughly €20 billion in EV-related write-downs. Porsche's automotive profit fell by more than 90% in 2025, and Volkswagen, Mercedes-Benz, and BMW all reported steep declines. Nissan announced around 20,000 job cuts after its merger talks with Honda broke down in February 2025. Several OEMs now source technology from Chinese partners: Volkswagen from Xpeng, Stellantis from Leapmotor, and Audi from SAIC.

Expected development: Expect cost programs, fewer variants and brands, delayed launches, and more shared platforms, including with Chinese partners. Weaker OEMs may merge, sell brands, or build cars for others. OEMs that protect this year's margin by cutting future-critical investment will fall further behind.

Challenges: Plant closures and job cuts in Europe are expensive and politically charged. China, long the most profitable region for German OEMs, now drains margin. Technology deals with Chinese companies solve a cost problem and create a strategic dependency, as well as regulatory exposure in markets that restrict Chinese connected-vehicle technology.

Time to impact: 0-2 years
Potential impact: Very high
STEEP segment: Economic
This year's trend development: New

Summary: EV adoption has split into three speeds: record shares in China, steady growth in the EU, and a decline in the US since federal support ended. Western OEMs trim their EV plans to protect margins, while Chinese OEMs build scale they will take abroad.

Current situation: The IEA expects about 23 million electric car sales worldwide in 2026, close to one in three new cars. New energy vehicles reached a record 65% of China's passenger car retail sales in August 2026. In the EU, battery-electric cars passed 20% of registrations in 2026, helped in Germany by a relaunched purchase subsidy. US sales fell after the federal tax credit expired in September 2025. GM, Ford, Porsche, Stellantis, and others have written down EV assets or cut targets.

Expected development: Adoption will stay fast in China and in emerging markets supplied by Chinese brands, steady in Europe, and slow in the US. Global OEMs will need a different powertrain mix for each region. Slowing EV programs to protect home-market margins has a price: EVs will dominate global volume in the 2030s, and the Chinese lead grows every year Western programs wait.

Challenges: Separate regional strategies multiply engineering and capital needs. Many Western OEMs still lose money on each EV they sell. Subsidy changes swing demand within months, and plants sized for faster adoption run below capacity.

Time to impact: 0-2 years
Potential impact: Very high
STEEP segment: Ecological
This year's trend development: Reframed

Summary: Brussels has proposed softening the 2035 target, Washington has rolled back most vehicle CO2 policy, and Beijing keeps pushing. Western OEMs gain room to sell combustion and hybrid cars, and they lose the regulatory pressure that forced them to build EV scale.

Current situation: In 2025, EU carmakers won the option to average CO2 compliance over 2025 to 2027. In December 2025, the European Commission proposed a 90% CO2 reduction target for 2035 in place of 100%, with offsets for the remainder. In the US, Congress revoked California's zero-emission vehicle waiver in 2025, fuel economy penalties were set to zero, and consumer EV tax credits expired.

Expected development: OEMs will plan against rules that differ by region and can change with each election. Most will use the extra flexibility to sell more hybrids and combustion cars. Whether the relief buys time or widens the gap to Chinese competitors depends on how OEMs spend the time and cash they gain. Flexible multi-energy platforms are the hedge.

Challenges: Long-term powertrain and plant decisions become harder to justify. Diverging rules in the EU, US, China, and UK add portfolio complexity. EV capacity built for stricter targets risks running half empty.

Time to impact: 0-2 years
Potential impact: Very high
STEEP segment: Political
This year's trend development: Upgraded

Used-EV residual values slowing fleet adoption

Summary: Used EVs have lost value much faster than comparable combustion cars. Company fleets register the majority of new cars in Europe, so weak residuals feed straight into higher lease rates and slower fleet adoption.

Current situation: Price cuts on new EVs, rapid gains in range and charging speed, and doubts about battery health pulled used-EV prices down in the US and Europe from 2023 onward. In January 2024, Hertz announced it would sell around 20,000 EVs, citing weak resale values and high repair costs. Battery health certificates are spreading, and the EU battery passport, mandatory from February 2027, will make battery condition easier to verify.

Expected development: Residual values should stabilize by around 2028 as new-car prices settle and battery health data becomes standard. Until then, residual risk keeps lease rates high. There is an upside: cheap used EVs bring electric driving to private buyers who never buy new. OEMs can support residuals through certified used programs, battery warranties, and transparent health data, which makes their EVs cheaper to lease.

Challenges: Used-car buyers rarely get reliable battery health data. Every price cut on a new model lowers the value of the used ones. High repair and insurance costs suppress used demand, and uncertain residuals raise financing costs.

Time to impact: 0-2 years
Potential impact: High
STEEP segment: Economic
This year's trend development: New

Eleven trends reach very high potential impact in this report. Leading them are China's price war and overcapacity, the profit squeeze at Western OEMs, the regional split in EV adoption, US tariffs and local content rules, export controls on rare earths and chips, and the shift to zonal E/E architectures.

 Globally, yes. The IEA expects about 23 million electric car sales in 2026. The growth is concentrated in China, Europe, and emerging markets supplied by Chinese brands. In the US, EV sales fell after the federal tax credit ended in September 2025. 

Chinese OEMs export surplus capacity and set cost benchmarks through automation and scale. They increasingly supply technology to Western OEMs as well, as Volkswagen's Xpeng-co-developed architecture and Stellantis's partnership with Leapmotor show. 

The main risks are targeted export controls on rare earths, battery materials, and chips; tariffs and local content rules; and continued reliance on Chinese battery refining and materials. Many of these dependencies sit several tiers deep in the supply chain.