The Global Automotive Industry: Navigating Uncertainties with Resilience

The global automotive industry is at a crossroads. Traditional risk management strategies aren’t enough in an era of rapid technological advancements, geopolitical tensions, and supply chain upheavals. Carmakers saw abrupt changes in consumer demand during and after the COVID-19 pandemic and continue to grapple with persistent supply chain bottlenecks and transformative technological trends like electrification and autonomous driving. Geopolitics, with its trade barriers and potential to limit companies’ access to critical materials, is making things even tougher. For automakers, the stakes couldn’t be higher. It’s time to rethink the road map.

Industry players will need to make substantial capital investments even as they face higher risks. Spending on electric vehicle (EV) batteries alone is expected to rise by 27 percent annually, reaching $400 billion by 2030. Similarly, the development of autonomous-driving technology will demand significant investment. Meanwhile, shifts in demand mean the value chain will need to evolve from a more resilient supply chain and sourcing strategy toward a more flexible and trade-resilient production and distribution network—all tied to long-term capital commitments. How quickly these changes are materializing is evident in China’s vehicle exports, which, according to data from the China Association of Automobile Manufacturers, were five times higher last year compared with 2020, while exports from the United States and Japan fell. Brand perceptions are changing, too, as evidenced by the declining demand for foreign cars in China.

These challenges have forced industry leaders to rethink their strategies and ask difficult questions: How can we be better prepared for future uncertainties and anticipate disruptions earlier? More important, how do we adjust our approach to reducing risks while staying competitive?

Embedding resilience into strategic planning

Embedding resilience within strategic planning means understanding where and how uncertainties evolve, across which dimensions or areas a company can strengthen its resilience, and then dynamically linking the two in an agile strategic-planning approach.

Identify the broad, long-term trends that often produce short-term disruptions

Disruptions are hard to predict, but business leaders can identify the areas from which they are likely to emerge. The World Economic Forum’s 2024 risk report highlights trends in technology, the environment, geopolitics, and socioeconomics that can lead to risks. In our view, the automotive industry faces 25 to 30 core strategic risks in these areas. Leaders can assess each of these risks for its impact, likelihood, and ways to limit the fallout. For instance, geopolitical risks affect market access, supply chains, and long-term production stability. Government policies can also affect access to technology, which is part of the growing trend of political protectionism and bargaining. Other risks include demographic shifts, energy transition policies, and changes in economic growth that influence demand for cars and EVs.

Mapping how these strategic risks could affect the organization’s strategy can help leaders focus on the most urgent scenarios or those tied to critical strategic decisions. Typically, this analysis should highlight three to four high-priority scenarios each quarter to guide strategic decisions around major investments or changes to existing plans. Forward-thinking automakers, for example, monitor geopolitical developments, such as trade restrictions or tariffs, and establish relevant markers designating when to adjust production so they can access markets and maintain supply chains. They also explore flexible production models to adapt to shifting demand. This is a break from the past when automakers planned sales volume and priced cars according to available production capacity.

Define the company’s highest-priority resilience dimensions

Specific risks do not affect just one aspect of an automaker’s operations. For example, trade restrictions don’t just challenge companies to think differently about production networks; such restrictions force a broader strategic response, touching everything from finances to operations to reputation management.

Most organizations view resilience through six main categories: financial, operational, digital/technological, organizational, business, and reputational. Each has its own subset of risk dimensions ranging from operational stability to strategic competitiveness. For instance, if leaders are considering the operational resilience of their supply chains, the focus might be on keeping specific parts and components flowing. But strategically, they will also need to consider how to design supply chains that can adapt to today’s volatile environment—be it geopolitical tensions, trade restrictions, conflicts, or climate-related disasters. In the past, the focus may have been on minimizing supply chain costs in a global free-trade environment. Today, the focus for supply chain leaders must be on planning for flexibility, additional redundancies (backup resources), and strategic sourcing options for rare materials, components, and technology. Each dimension of resilience offers short- and long-term opportunities for targeted improvements and greater organizational preparedness.

Link uncertainties to structural resilience factors to further define priorities

Investing in resilience is costly, so prioritizing these investments is essential. Leaders will need to align their resilience initiatives with current and emerging risks. In this way, they can shape their quarterly agendas to include discussions about strategy and portfolio risks.

Consider the regulation of new technologies: For carmakers, managing new regulations and legal precedents on product liability will be critical for realizing advances in autonomous driving and AI. Automakers should weigh the potential benefits of being first movers against the potential legal and reputational risks of early adoption. Similarly, changes to environmental laws will influence the energy transition and its pace. Companies can take three actions to effectively link these and other uncertainties with structural resilience factors.

FAQs

Q: How can automakers stay competitive amidst rapid technological advancements?

A: Automakers can stay competitive by embedding resilience into their strategic planning, focusing on key risk areas, investing in new technologies, and adapting to shifting consumer demands.

Q: What are the main challenges facing the automotive industry today?

A: The automotive industry is facing challenges such as supply chain disruptions, geopolitical tensions, rapid technological changes, and shifts in consumer preferences towards electric vehicles and autonomous driving.

Conclusion

In conclusion, the global automotive industry is undergoing significant transformations that require a strategic approach to risk management and resilience. By embedding resilience into every aspect of their business strategy, automakers can navigate uncertainties, anticipate disruptions, and stay competitive in a rapidly changing landscape. It is crucial for industry leaders to prioritize resilience dimensions, identify key strategic risks, and link uncertainties to structural resilience factors. Building a resilience muscle through regular reviews, tracking progress with the right tools, and leading with resilience at all levels of the organization will be essential for long-term success in the automotive industry.