The Automotive Industry in 2024: Navigating Challenges and Embracing Transformation
Published Date: February 3, 2025
The automotive industry, like many sectors, experienced significant disruption following the COVID-19 pandemic and its lingering aftereffects. The sector faced numerous challenges, spanning supply chain complexities to shifts in consumer behavior. However, the industry has demonstrated resilience, marked by a notable rise in vehicle production and sales in recent years. According to the Organisation Internationale des Constructeurs d’Automobiles (OICA), global vehicle sales reached 92,724,668 units in 2023, increasing from an estimated 82,871,094 units in 2022. These figures underscore the resurgence in global demand and evolving consumer preferences. As we move into 2024, the automotive industry finds itself in a landscape of recovery, innovation, and complex challenges.
Top 5 Challenges in the Automotive Industry
Sustainability Targets and Regulatory Pressures
Sustainability remains a top priority for the automotive sector, with regulatory bodies worldwide intensifying emission standards and sustainability goals. For example, in April 2023, the European Parliament and the Council amended Regulation (EU) 2019/631 to strengthen CO2 emission performance standards for new vans and passenger cars. This change aligns with the EU’s climate neutrality goal for 2050. The amendment established tighter 2030 targets and mandated a 100% reduction for cars and vans by 2035. In response, automakers are investing heavily in electric vehicle (EV) technologies to satisfy these regulations.
Volvo Cars, for instance, aims to electrify 90-100% of its global sales by 2030 and achieve net-zero greenhouse emissions by 2040. Furthermore, the circular economy is gaining traction. Nissan, for example, has vowed to utilize 40% sustainable materials by weight in vehicles created across the US, Europe, China, and Japan. Similarly, Hyundai Mobis launched a comprehensive strategy in September 2024 to develop sustainable and recyclable materials for future mobility. This strategic move is intended to reinforce the company’s competitiveness in electrification and electronic components, in anticipation of future global regulations. The overarching strategy is built around three key pillars: sustainable materials, innovative materials, and digital materials. This approach ensures Hyundai Mobis’s independence in materials, components, and equipment (MCE) and addresses the growing demand for eco-friendly solutions. These shifts necessitate significant investment in research, production facilities, and consumer education, requiring automakers to innovate for profitability.
Technological Disruptions and Consumer Expectations
Technological advancements are rapidly reshaping the automotive industry, alongside evolving consumer expectations. Electric vehicles (EVs), advanced driver-assistance systems (ADAS), and connectivity features are now in high demand in the market. Automakers are actively responding with substantial R&D spending. BYD’s announcement in January 2024 of a $14 billion investment in smart car technology, including autonomous driving software and driver-assistance systems, exemplifies the industry’s commitment to innovation. However, the transition from internal combustion engines to EVs is a challenging process. Despite the upward trajectory of EV sales in regions like China—where registrations rose 35% from 2022 to 2023—manufacturers continue to grapple with high costs and project timeline delays. For instance, in September 2024, Toyota, the world’s largest automaker, announced its plans to produce 1 million EVs in 2026, a revision from its earlier target of 1.5 million. These instances highlight the difficulty of scaling production significantly and the complexities of existing supply chains. These issues underline the financial and operational challenges associated with the adoption of electric mobility.
Labor Shortages and Skill Gaps
Labor shortages are a looming threat to the automotive industry, especially in developed economies such as Europe and the United States. The Institute of the Motor Industry (IMI) projects that the automotive retail sector will support about 557,484 jobs by 2031, representing a 2% decline from 2021. Despite this, the continuous replacement of an existing workforce is still an undertaking. IMI data suggests that over the next decade, about 111,400 jobs will need to be filled due to retirements, migration, and other factors. These widening gaps in the workforce slow down innovation, affect production, and add to costs. In response, automakers and suppliers are forging partnerships with educational institutions. The partnership between the University of Tennessee and the Alliance for Automotive Innovation in December 2024 is a notable example. This new initiative brings together universities across the country to focus on automotive policy research, promote innovation, enhance workforce training, and influence government policy. The University of Tennessee’s involvement marks the first of its kind in this initiative. In addition to strategic alliances, automakers are accelerating their transition to advanced robotics and vocational training to help fill the growing skills gap and ensure the industry’s long-term sustainability.
Geopolitical Tensions and Supply Chain Disruptions
Geopolitical conflicts, such as Russia’s invasion of Ukraine and the Israel-Hamas conflict, have resulted in global supply chain disruptions, significantly hitting the automotive sector. These uncertainties have complicated the production of components, oil exports, and logistics, leading to slower car manufacturing globally. Before the Russia-Ukraine war in 2022, for example, Russia was highly dependent on Western imports for auto parts, as domestic car production relied heavily on partnerships with foreign corporations. With the war’s onset, Western companies withdrew, disrupting Russia’s car manufacturing and halting production. Semiconductor shortages are another critical issue. Israel, a major player in chip manufacturing, has faced turmoil that has restricted manufacturing worldwide.
In response, automakers are rerouting supply chains and boosting local production, efforts that do help reduce risks but often at a higher cost.
Rising Threat of Cybersecurity Breaches
With connected vehicles becoming more widespread and the increasing reliance on digital technologies, cybersecurity threats within the automotive industry have increased. Estimates by Upstream Security indicate that in 2023, large-scale cyber incidents in the automotive sector more than doubled compared to 2022. Alarmingly, 95% of these attacks were carried out remotely, with hackers exploiting vulnerabilities in infotainment systems, telematics, and autonomous technologies. These security breaches allow attackers to take control of vital systems, steal data, or even disrupt operations. EV charging stations and automotive vehicle-to-everything (V2X) communications are particularly vulnerable. This has led to automakers investing in advanced cybersecurity measures, such as robust telematics and 5G technology, to protect vehicles from the increasing scope of cybersecurity threats.
Navigating the Road Ahead
The automotive industry finds itself at a pivotal point, navigating rapid technological changes, increasingly strict regulations, and shifts in market requirements. Effectively addressing these challenges requires a mix of smart strategies, sustainable practices, and a skilled workforce. But for those willing to innovate, significant opportunities exist. For instance, early in 2025, South Korea’s Hyundai announced a massive $9 billion investment in next-generation technologies, including electric vehicles, hydrogen-powered systems, and software-defined vehicles. Similarly, in 2024, Toyota extended its focus on hydrogen by rebranding its California R&D office to the North American Hydrogen Headquarters (H2HQ), underlining its commitment to alternative energies. These developments show the increasing role and growth potential of clean energy in defining the future of the automotive industry. Despite the various challenges, the future is ripe with potential for transformative growth, led by innovation and sustainability.
Author: Pooja Sharma
