The Automotive Industry in 2024: Challenges and Transformations
Published Date: February 3, 2025
The sudden onset of the COVID-19 pandemic, followed by its after-effects, led to a significant economic downturn and had a lasting impact on the global industrial landscape. The automotive sector, along with several other industries, was among the worst affected. The industry faced numerous challenges ranging from supply chain complexities to changes in consumer buying patterns.
That being said, the automotive industry has made significant progress over the last few years, primarily due to a noticeable rise in vehicle production and sales. According to OICA, global vehicle sales reached 92,724,668 units in 2023 from an estimated 82,871,094 units in 2022. These figures depict a surge in global demand and a change in consumer behavior.
As we move into 2024, the automotive industry is navigating a landscape of recovery, innovation, and challenges.
Top 5 Challenges in the Automotive Industry
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Sustainability Targets and Regulatory Pressures
Sustainability is still the top priority for the automotive industry. Regulatory bodies worldwide are getting stricter with emission standards and sustainability goals. For example, in April 2023, the European Parliament and the Council updated Regulation (EU) 2019/631 to strengthen CO2 emission performance standards for new vans and passenger cars to meet the EU’s goal of being climate neutral by 2050. The amendment tightened 2030 targets and introduced a 100% reduction for both cars and vans by 2035.
Automakers are investing heavily in electric vehicle (EV) technologies to meet these regulations. For example, Volvo Cars plans to electrify 90 to 100% of its global sales by 2030 and achieve net zero greenhouse emissions by 2040. The circular economy is also gaining momentum, with companies like Nissan pledging to use 40% sustainable materials (by weight) in vehicles manufactured in Japan, the US, Europe, and China.
Similarly, Hyundai Mobis launched a comprehensive strategy to develop sustainable and recyclable materials for future mobility in September 2024. This is part of the company’s overall effort to stay ahead of global regulations by 2030 and strengthen its competitiveness in electrification and electronic components. The strategy is divided into three main pillars: sustainable materials, innovative materials, and digital materials. This will secure the company’s independent competitiveness in materials, components, and equipment (MCE) and respond to the growing demand for eco-friendly solutions.
Such moves require big investments in research, production facilities, and consumer education. Hence, automakers need to innovate while making profits.
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Technological Disruptions and Consumer Expectations
Automotive technology is evolving fast, and consumer expectations are changing. Electric vehicles (EVs), advanced driver-assistance systems (ADAS), and connectivity features now top the market demand. Automakers are responding with big R&D investments. BYD’s announcement to invest $14 billion in smart car technology, including autonomous driving software and driver-assistance systems, in January 2024 is a testimony of the industry’s commitment to innovation. However, a transition toward electric vehicles from internal combustion engines is extremely challenging.
While EV sales recorded an upward trend in regions like China—with new electric car registrations registering a 35% growth in 2023 over 2022—automobile manufacturers are grappling with high costs and delayed timelines. Quoting an instance, in September 2024, the world's largest automaker Toyota announced its plans to produce 1 million EVs in 2026, a revision from its previously announced sales target of 1.5 million. Such instances underline the difficulties of scaling production and supply chain complexities. These challenges underscore the financial and operational complexities of embracing electric mobility.
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Labor Shortages and Skill Gaps
Labor shortages are a looming challenge for the automotive industry, especially in developed economies like Europe and the U.S. The Institute of the Motor Industry (IMI) forecasts that the automotive retail sector will produce around 557,484 jobs by 2031, a 2% decline from 2021.
Despite this decline, the replacement of the existing workforce continues to be a major undertaking. IMI data shows that over the next ten years, due to retirements, migration, and other factors, 111,400 jobs will need to be filled.
This broadening workforce gap slows down innovation, impacts production, and increases costs. In response to this, automakers and suppliers are collaborating with educational institutions. Quoting an instance, in December 2024, the University of Tennessee joined hands with the Alliance for Automotive Innovation. This new partnership, led by the auto industry’s top trade association, brings together universities across the country to focus on automotive policy research, encourage innovation, boost workforce training, and influence government policy. The University of Tennessee becomes the first to become a part of this initiative.
In addition to strategic alliances, automakers are accelerating their transition toward advanced robotics and hands-on vocational training to fill the skills gap and maintain the industry’s sustainability.
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Geopolitical Tensions and Supply Chain Disruptions
Geopolitical conflicts like Russia’s invasion of Ukraine and the Israel-Hamas conflict have resulted in global supply chain disruptions, significantly impacting the automotive industry. These uncertainties have messed up the production of components, oil exports, and logistics, slowing down car manufacturing worldwide. For instance, before the Russia-Ukraine war in 2022, Russia heavily relied on Western imports for auto parts, as the country's domestic car production was sustained by partnerships with foreign corporations. After the war began, Western companies withdrew, leaving Russia’s car manufacturing in bedlam and halting production.
Semiconductor shortage is another critical issue. Israel, being a pivotal player in chip manufacturing, has faced upheavals that have hindered vehicle production globally. In response, automakers are rerouting supply chains and ramping up local production. While these efforts help reduce risks, they often come with a higher price tag.
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Rising Threat of Cybersecurity Breaches
With the growing trend of connected vehicles and the increasing reliance on digital technologies, cybersecurity threats have become commonplace. Based on estimations by Upstream Security, in 2023, large-scale cyber incidents in the automotive sector registered more than two-fold growth compared to 2022. Alarmingly, 95% of these attacks were carried out remotely, with hackers exploiting vulnerabilities in infotainment systems, telematics, and autonomous technologies. These breaches can allow attackers to take control of critical systems, steal data, or disrupt operations.
EV charging stations and automotive vehicle-to-everything (V2X) communications are particularly vulnerable. This has prompted automakers to invest in advanced cybersecurity measures, such as robust telematics and 5G technology, to protect vehicles from these growing cybersecurity threats.
Navigating the Road Ahead
The automotive industry is facing a predicament, navigating rapid technological changes, stricter regulations, and shifting market needs. Addressing these concerns will require smart strategies, sustainable practices, and skilled workforces. But there are ample opportunities for those ready to innovate.
For instance, in early 2025, South Korea’s Hyundai announced a massive $9 billion investment in next-gen technologies, including electric vehicles, hydrogen-powered systems, and software-defined vehicles. Similarly, in 2024, Toyota expanded its focus on hydrogen by rebranding its California R&D office as the North American Hydrogen Headquarters (H2HQ), reflecting its commitment to alternative energy.
These developments underscore the expanding role and growing potential of clean energy in shaping the future of the automotive industry. Despite challenges, the path ahead is filled with potential for transformative growth, with innovation and sustainability leading the way.