Car market disruptions: What’s fuelling the change?

Like other sectors of the transport market, the international car market is currently facing a mix of challenges and emerging trends, largely shaped by economic, social, regulatory, and technological shifts. Recognizing and understanding these dynamics is crucial for understanding the present and making informed investment decisions, not only in the roads sector but beyond.

Below are some of the most significant aspects.

Electric Vehicle (EV) Transition

• While the shift to EVs is essential for reducing carbon emissions, it is still encountering obstacles. High upfront costs, limited charging infrastructure, and battery supply chain issues hinder mass adoption. Additionally, consumers remain hesitant due to concerns over range anxiety and charging times.
• Governments worldwide are increasingly pushing for stricter emissions regulations, which has accelerated the shift towards electric vehicles. Car manufacturers are investing heavily in electric and hybrid technologies, and there is an increasing emphasis on sustainability. The 2023 market recovery was clearly driven by EVs in China, unlike Europe and the USA – suggesting that combustion engine vehicles demand is still strong in those markets.

Figure 1 – 2023 share of EVs on total car sales in the main global markets
Source: International Energy Agency. Global EV Outlook 2024

Figure 2 – Market trends: Electric vs. Non-electric car sales
Source: International Energy Agency. Global EV Outlook 2024

Digitalization and Connectivity

• As cars become more connected, with the integration of advanced driver-assistance systems (ADAS), over-the-air updates, and other digital technologies, the complexity of manufacturing and maintaining these vehicles increases. Ensuring data security and managing cybersecurity risks also become critical.
• The demand for connected vehicles continues to grow, with consumers looking for more advanced infotainment systems, enhanced safety features, and the ability to integrate their cars with smart devices. Additionally, the development of autonomous driving technology is advancing, although full autonomy remains a long-term goal.

Supply Chain Resilience

• The COVID-19 pandemic and subsequent global supply chain disruptions have led to delays in the production and delivery of vehicles. Microchip shortages have been particularly damaging, limiting the number of cars that can be manufactured and causing delays in vehicle deliveries.
• Building upon such experience, manufacturers are increasingly focusing on securing supply chain resilience, including diversifying suppliers and increasing local production to avoid over-reliance on distant regions.

Raw Material Shortages

• The rise in demand for EV batteries and other electronic components has driven up the price and competition for key raw materials such as lithium, cobalt, and nickel. This has resulted in rising production costs and increased pressure on manufacturers to secure these materials sustainably.
• Manufacturers are seeking to reduce their reliance on these critical materials through innovation, such as the development of solid-state batteries, and by exploring alternative recycling methods for old EV batteries.

Socioeconomic aspects

Several key factors are contributing to widespread uncertainty in the market:

• Economic Uncertainty: Most economies recently faced stagnation, inflation, and rising interest rates, leading to reduced consumer spending power. The ongoing European energy crisis exacerbated by geopolitical tensions has made consumers more cautious about large purchases, including cars.
• Shift in Mobility Preferences: Urbanization and changing consumer preferences, especially among younger generations, are leading to a shift away from car ownership. Car-sharing, ride-hailing services (e.g., Uber, Bolt), and alternative modes of transport like bicycles and e-scooters are growing in popularity, particularly in cities with well-developed public transport systems.

Figure 3 – Monthly Uber rides per quarter
Source: Uber analysed by Demandsage

• Tighter Emission Regulations: Stringent environmental regulations, such as the European Union’s push for stricter CO2 emissions standards, have led to higher production costs for traditional combustion engine vehicles, making them less affordable for consumers.
• Availability of Alternatives: Increased interest in public transport, cycling, and the growing trend of working remotely also contribute to lower car sales. The younger generation, in particular, is less inclined to own a car, preferring shared mobility options or using transport alternatives when needed.
• Longer Lifespan of Vehicles: Cars are lasting longer due to improvements in quality and reliability, meaning fewer consumers need to replace their vehicles. This is particularly evident as the used car market has become more attractive, making it harder for new car sales to grow.
• High Prices and Inflation: In recent years, car prices have risen, not only with the increased demand for electric vehicles and the impact of inflation, but also as a consequence of the heavy investments put in place by manufacturers to reach the energy transition targets – which also affect combustion engine car prices. All this has made new cars less accessible to many consumers.

Figure 3 – Italy – Car prices vs. average salary, 2004-2024 comparison
Sources: alvolante.it; OECD
* Average salaries refer to 2004 and 2023 and are expressed in 2023 real values – Average annual wages per full-time equivalent dependent employee

Reshaping of the Automotive Industry

• The automotive industry is undergoing a structural transformation, with legacy manufacturers being pressured by startups, especially in the electric vehicle space. This competition, coupled with the need for significant investments in innovation, is forcing traditional carmakers to adapt quickly.
• Automakers are focusing on electrification, automation, and connectivity, often through strategic partnerships, mergers, and acquisitions. There is also an increasing focus on sustainability, with many brands seeking carbon neutrality goals and investing in green manufacturing processes.

Conclusion

The present car market outlook is unclear, driven by a combination of economic pressures, shifting mobility preferences, regulatory changes, and evolving technology. While the transition to electric vehicles is a positive trend for the long term, the current challenges in production, supply chains, and consumer behaviour continue to shape the market dynamics.

At VTM, we closely monitor transport market dynamics like these, with the goal of supporting our clients in their strategic investments and operational challenges. We maintain a comprehensive view of the broader landscape, providing expert analysis and valuable insights to assist them in their evaluations.

References

• Al Volante
• Demandsage
• International Energy Agency. Global EV Outlook 2024
• OECD
• Uber