The Traditional Automotive Operating Model Must Change as China Brands Poised to Capture One-third of the Global Automotive Market by 2030, Says AlixPartners Forecast

• China leads major markets in near-term volume growth as U.S., Europe momentum slows.
• Globally, OEMs outpace suppliers in profitability; automaker profit to slow outside of China as price war heats up.
• New Energy Vehicles (NEVs) to represent nearly half the global market by 2030, driven by surging plug-in hybrid-electric demand; internal-combustion-only (ICE) will slip below 40%.
• AlixPartners assessment of the Automotive Operating Model reinvention includes: revolutionized vehicle development processes and sales techniques, heavier emphasis on consumer tech – all resulting in lower costs and faster speed to market.
• Protectionism accelerating manufacturing localization.

DETROIT (June 27, 2024) – Profit and revenue for traditional automakers remain at healthy post-pandemic levels, but they must urgently reinvent today’s Automotive Operating Model as a rapid power shift from China is about to disrupt the global industry, according to comprehensive analysis published by AlixPartners, the global consulting firm. As several transformative forces accelerate, automakers must be willing to change their approach to everything from the way a vehicle is engineered to how revenue is captured over that vehicle’s lifetime.

The 21st edition of the AlixPartners Global Automotive Outlook finds Chinese automakers are increasingly setting the standard for an industry historically steered by the West, Japan, and South Korea. By 2030, Chinese brands will be a dominant force around the world, selling 9 million units outside China, for a 33% global share. Growth will be built on cost advantages; localized production strategies that will enable a build-where-you-sell strategy in non-China markets; and highly tech-enabled vehicles that meet evolving consumer preference for design and freshness, the report says.

“The global auto industry has been shaped by several inflection points over the past half-century, including the emergence of Japanese production techniques in the 1970s, then the rise of the Koreans, and the more recent disruption caused by Tesla,” said Mark Wakefield, global co-leader of the automotive and industrial practice at AlixPartners. “China is the industry’s new disruptor – capable of creating must-have vehicles that are faster to market, cheaper to buy, advanced on tech and design, and more efficient to build. For traditional OEMs, keeping pace with China’s strongest brands will require more than a course correction.”

Wakefield urged companies to avoid underestimating the scale of change the automotive industry is set to experience over the second half of this decade. By 2030, NEVs will represent nearly half of global vehicle sales, according to the outlook. China’s domestic brands will own one-third of the international market, and automotive suppliers – currently underperforming OEMs globally in profit margins – could gain leverage amid a price war, and demand for more advanced electrical and software vehicle capabilities. 

The fundamental building blocks of automobiles will also transform, having major ramifications in the U.S, the analysis finds. Today’s global car parc is comprised primarily of older-generation vehicles, designed using hardware-oriented engineering and unable to truly operate like an easily updatable smartphone on wheels. By 2032, 24% of sales in the U.S. will be far more sophisticated SVDs, leading to eventual revenue of roughly $650 in annual revenue per vehicle and representing a substantial portion of available revenue streams, according to AlixPartners.

“Automakers expecting to continue operating under business-as-usual principles are in for more than just a rude awakening – they are headed for obsolescence,” Andrew Bergbaum, global co-leader of the automotive and industrial practice at AlixPartners, said. “The revolution taking place in the global auto industry is driven by the incredible and once unthinkable maturation of Chinese automakers that do a number of things differently.

“Chinese brands put a higher value on features customers can actually experience, such as design and in-cabin tech; they are ruthlessly focused on maintaining their cost advantage even as they build factories abroad; and they have built a considerable lead in emerging NEV technologies – including battery production. Those capabilities have captivated China and will eventually define the global marketplace.”

China taking center stage

Among the findings in the analysis related to China’s business model:

• Supplier-OEM profit equation is flipped: Globally, automotive suppliers are reporting a 10.6% operating margin on average, trailing OEMs by nearly two percentage points, the analysis shows. In China, where OEMs are more focused on near-term market share growth, the 10.4% supplier margin outpaces OEMs by 3.3 percentage points.
• Faster development, fresher showrooms: Chinese EV automakers have ripped up the playbook related to vehicle development time, creating new products in half the time (40 months vs. 20 months), mainly by designing and testing to sufficiently meet standards vs. overengineering. China-branded models, meanwhile, are 2-3 years fresher than non-China brands, averaging only 1.6 years in market.
• “Made-in-China” advantage: The analysis finds Chinese brands enjoy a 35% cost advantage, affording flexibility (in Europe and elsewhere) to lower prices to offset tariffs. This advantage is built on lower labor costs and higher vertical integration from raw materials to component suppliers to final assembly to selling to other automakers. Further smoothing the path for export is the quick ramp up of overseas shipping capacity, prompting Chinese automakers to secure their own transport capacity.
• Higher sales-lead conversion: Many Chinese automakers utilize a direct-to-consumer sales approach, enabling a unified and transparent customer experience. These automakers use multiple channels for marketing and sales, resulting in higher consumer engagement.

The AlixPartners Global Automotive Outlook also contains several sales forecasts. Among them: 

• Sales in Europe will increase 2% in 2024, and track marginal growth of roughly 1% through 2027, led by Eastern Europe.
• U.S. Sales will increase 3% in 2024, with growth juiced by resurgent interest in PHEVs/ By 2030, ICE vehicles will only represent 35% of sales, upstaged by NEVs (new-energy vehicles, meaning battery electrics and plug-in hybrid electric vehicles), which will hit 41% share by that time.
• China sales will grow a relatively modest 4.7% in 2024 to 26.7 million vehicles. That number will exceed 32 million by 2030, 70% of which will be sold by China brands.
• NEV sales – including PHEVs (plug-in hybrid electric vehicles) – will surge 32% in 2024 globally. NEV share to reach 45% by 2030.  

“The trends we studied point to a world where NEVs are increasingly dominant, Chinese brands are increasingly prevalent, and traditional automakers, suppliers, fleets, dealers, and others are increasingly pressured to reinvent,” Wakefield said. “While we’ve long heralded the virtues of being more nimble, flexible, and adaptable, now is the time to approach those priorities with a greater sense of urgency and openness to new partnerships, operating principles, and expectations.”

Other key findings in AlixPartners Global Automotive Outlook include:

• Battery packs, making up 35% of vehicle costs, are rapidly becoming more economical through chemistry innovation and materials price reductions
• Raw material costs are declining overall, but ICE vehicles maintain a huge advantage. BEV material costs remain 85% higher than ICE counterparts.
• Last year’s UAW contracts signed by the Detroit Three resulted in cost developments, including widening the unfavorable gap vs. Mexican labor rates; lowering the typical payback time for automation by 25%-50%.

About AlixPartners

AlixPartners is a results-driven global consulting firm that specializes in helping businesses successfully address their most complex and critical challenges. Our clients include companies, corporate boards, law firms, investment banks, private equity firms, and others. Founded in 1981, AlixPartners is headquartered in New York, and has offices in more than 20 cities around the world. For more information, visit www.alixpartners.com.

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