Global disruptions, regional dynamics and tech: Auto sector races to adapt

The North American automotive manufacturing sector—for decades a symbol of globalization—is entering a new era as markets transform and supply chains recalibrate in response to trade disruptions. Companies that once relied on highly interconnected cross-border supply chains and economies of scale are now adapting to a more fragmented global economy.

In the United States, national reindustrialization, resource and labor market protectionism, regulatory divergence, and accelerated technological disruption are redefining the competitive landscape. At the same time, global competitors are raising the bar for cost efficiency and technological innovation, compelling U.S. automobile producers to balance deglobalization with regional integration, market protectionism with competition, electrification with consumer demand, and innovation with disciplined capital management.

Regionalization in a deglobalizing world

The U.S. market, mature and saturated, is now leaning on protectionist measures to insulate domestic producers and give new technologies and supply chains time to evolve. In contrast, markets in the Asia Pacific region are expanding rapidly, with new entrants aggressively pursuing technological breakthroughs and market share. Regionalization will disrupt traditional economies of scale and demand new business models built on standardized components, modular platforms and flexible production lines capable of adapting to multiple vehicle types.

U.S. automakers have strong supply chain, production and technological foundations to stay competitive—but a landscape defined by tech-savvy, price-sensitive consumers, rapidly evolving technologies, and global competition requires reimagining all parts of the business models. Companies rethinking those business models will need to focus on costs and disciplined capital allocation, given persistently high capital costs, competing investment priorities and rising operational expenses. 

Automotive manufacturers are already adjusting by rightsizing operations, scaling back or reprioritizing electric vehicle (EV) investments, focusing on profitable market segments, and adapting production lines for multiple product types. Delivering on technological advancement also requires reevaluating vertical integration strategies and buy vs. build decisions; forging partnerships with suppliers and technology firms (some outside the traditional automotive ecosystem); and strengthening dealership and aftermarket collaborations.

For suppliers, these shifts open new revenue streams but demand greater agility and greater connectivity with original equipment manufacturers (OEMs). As automakers partner with tech companies entering the sector to vertically integrate some aspects of production, suppliers may experience faster consolidation.

Customer preferences shaping market direction

Shifting market conditions and growing competition require customer-centric strategies from automakers. Today’s car buyer is value driven, technologically curious and price sensitive, with diminishing brand loyalty and an expectation of an omnichannel buying experience. Online research dominates early-stage decision making, often supported by artificial intelligence tools that compare models, specifications and pricing. Still, in-person dealership interactions remain an important step in closing sales, with test drives and personal sales engagement continuing to influence the final decision. Extended vehicle ownership, driven by inflation and rising vehicle costs, shifts attention toward aftermarket services and parts replacement, increasing the importance of strong post-sale customer experiences.

OEMs and suppliers need to understand this evolving customer profile. Data from spring of 2025 sheds some light on recent buyer trends, with a notable uptick in light vehicle sales as consumers rushed to buy cars ahead of price increases from tariffs. April’s seasonally adjusted annual rate of 17.8 million units sold later dipped to 16.4 million units in September (still supported by strong EV sales ahead of the expiration of the $7,500 EV credit).

Delivering vehicles that combine affordability with advanced technology and ensuring seamless experiences across the entire lifecycle will be essential to remain competitive in this rapidly changing market.

Trade policies and supply chain vulnerability

Recent U.S. trade policy shifts have intensified supply chain uncertainty. Automakers have absorbed some tariff-related costs to avoid losing market share in the current market conditions, but as policies stabilize and higher costs persist, price adjustments are unavoidable.

The upcoming renegotiation of the United States-Mexico-Canada Agreement will be a critical milestone, with duty rates, rules of origin, and labor and environmental standards all subject to review. Regardless of the review outcomes, auto manufacturers will need to integrate tariff impacts into supply chains, pricing and investment planning.

Globally, an uneven pace of electrification

Another factor automotive manufacturers are navigating is the pace of electrification, which remains uneven across regions. In North America, EV adoption continues to grow but at a slower pace, with projections trending downward for both the short and long term. U.S. EV growth has been dampened by EV policy rollbacks, including the removal of federal EV tax credits, relaxed fuel economy standards and uncertainty over California’s emissions authority. Canada’s EV adoption is outpacing the U.S. on a percentage basis, supported by stronger policy signals and an abundant clean electricity grid, but absolute volumes remain modest.

We expect a sharp decline in U.S. EV sales now that the $7,500 EV federal tax credit has expired. Before that expiration at the end of September, though, the incentive drove a surge in sales, with EVs accounting for almost 10% of overall car sales. While some states maintain incentives and OEMs offer temporary discounts, these measures cannot fully offset the impact of the expired federal credit. EV affordability remains a barrier: An average EV still costs about $9,000 more than a comparable internal combustion engine model. Continued charging infrastructure gaps across states also contribute to slower adoption, while policy volatility and tariffs complicate long-term investments in EV production capacity and supply chains.

Globally, China leads the EV transition, accounting for 65% of worldwide sales and achieving price parity with combustion vehicles. Chinese EV exports—over $19 billion in the first seven months of 2025—have penetrated Europe despite high tariffs. Europe maintains strong regulatory support and higher adoption rates than North America, emphasizing the impact of policy stability, consumer incentives and infrastructure on market outcomes. To accelerate adoption, companies will need to drive down costs, build flexible and localized supply chains, scale battery and component production, expand charging networks, and deliver affordable models.

Beyond EV sales trends, EV technology and battery innovation are at the core of the auto sector’s transformation. Cost reductions in lithium-ion batteries, improvements in energy density and advances in thermal management are critical for affordability and adoption. Flexible EV platforms, scalable battery production and modular vehicle architectures allow manufacturers to serve multiple markets while controlling costs. OEMs and suppliers will need to continue investing in battery innovation, localized production and supply chain security.

Technology and product evolution

The modern vehicle is increasingly electrified, connected and autonomous, affecting not just vehicle features but how vehicles are designed, built and sold. Connected and software-defined vehicles (SDVs) are transforming the automotive experience, with advanced infotainment, telematics, over-the-air updates and vehicle-to-everything connectivity becoming standard. These technologies allow OEMs to continuously upgrade features, improve safety and enhance customer engagement post-sale, creating new revenue streams and data-driven insights into consumer behavior.

Autonomous driving and advanced driver assistance systems also continue to progress steadily, with features ranging from lane-keeping technology and adaptive cruise control to semiautonomous highway driving. These systems require advanced sensor networks, AI-enabled decision making and constant software improvements. Success in this space requires collaboration with technology firms, integration of cutting-edge sensors and thorough testing to ensure safety, reliability and regulatory compliance.

Overall, as vehicles become more advanced, suppliers are under pressure to deliver more tech-enabled components, with OEMs demanding tighter integration, faster innovation cycles, cost efficiency and digital capabilities that support SDVs. Across all technological fronts, AI is a common enabler for auto manufacturers to embrace these high-tech trends. Companies will need to integrate and train their teams on how to use AI effectively to optimize procurement, streamline production, improve supply chain visibility, support research and development, enhance marketing decisions, and personalize after-sales services.