Automotive & Mobility

Driving Innovation: AI and the Future of Mobility

• Regulation, software and talent are the three defining pillars of change in the automotive industry.
• More broadly, geopolitical risk, weak global economic growth, higher living costs and interest rates will continue to dampen new vehicle demand, with sales expected to remain just below pre-pandemic levels at 3 percent and 1 percent for new cars and commercial vehicles.
• Legislation to limit emissions and clean air regulations will continue to affect vehicle use, spurring interest in newer, particularly electric, vehicles. Gartner predicts that 85 million EVs will be on the road globally by the end of 2025, a 33 percent increase from 2024. Of the 85 million, 62 million are expected to be battery electric vehicles (BEV) and 23 million plug-in hybrid electric vehicles (PHEVs).
• The software-defined vehicle (SDV) has seen traditional car makers competing not just with EVs but with tech companies themselves (e.g. software, semiconductor, AI platform providers), as competition heats up in a global market valued at more than $3.5 trillion in 2023, according to Spherical Insights. By 2033, the global automotive industry is predicted to exceed $6.8 trillion, according to Yahoo Finance, achieving a CAGR of 6.77 percent over 10 years.
• Software participants include Microsoft, Amazon, Google, Apple, ELEKS, Blackberry, Foxconn and Huawei, threatening the domain of the OEMs, who in turn are shoring up their position, through customer-centric products and the digital customer journey; sustainability; evolution into adaptive organisations; efficiency at all levels; and intelligent use of data and seamless connectivity.
• Software & AI are having a transformative impact on the automotive industry, enabling features like autonomous driving, predictive maintenance, and personalised user experiences. AI-driven software helps process vast amounts of data from sensors, allowing vehicles to make autonomous decisions in real time. Moreover, AI enhances the development of new functionalities such as advanced driver-assistance systems (ADAS), making cars smarter and safer.
• The move to technology in automotive is also changing partnerships in the industry. Horizontal business relationships and alliances are the new standard, putting OEMs on a par with their collaborators, rather than being downgraded to mere hardware suppliers. The upside is that strategic alliances are designed to reduce costs while accelerating innovation; the downside is that horizontal partnerships give both parties equal rights, which can be challenging.
• Horizontal collaborations between car manufacturers are picking up pace and include Volkswagen and Rivian; Nissan & Honda and Mitsubishi; JLR & Tata Communications; Honda and Renesas; and Microsoft and Volkswagen.
• OEMs are pursuing strategic alliances with major tech companies, particularly Microsoft and Amazon Web Services (AWS), providing access to platform solutions on a large scale.
• The supplier industry is also creating collaborations and partnerships, including Bosch and Microsoft, leveraging AI to make cars safer and more comfortable. Also, semiconductor company NXP and safety expert TTTech, who announced their merger at CES 2025, featuring AI software for SoC systems on chip.
• Semiconductors are at the core of industry transformation and the transition to smarter, safer and more sustainable vehicles. They underpin electrification and energy efficiency; ADAS and autonomous driving; safety systems; connected vehicles and vehicle-to-everything (V2X) communication; in-cabin experience; sustainability and efficiency (e.g. lightweighting vehicle systems and reducing power consumption in electronic components); and supply chain resilience (automakers will adopt multi-sourcing strategies and invest in localised semiconductor production where possible).
• While partnerships with tech companies, investments in R&D, and a gradual transition toward becoming software-driven organisations are key strategies for survival, leaders would do well to take a more holistic view. Mission-critical partnerships are part of a much bigger picture, while on the other side of the coin, major internal change to the way automotive companies do things is the ultimate strategic priority.

“To remain competitive, diverse partnerships are essential - but the new leadership principle is the ability to understand, connect and navigate these different worlds with vision. The future belongs to those who can bridge gaps and turn cultural diversity into a winning business approach.”

Jutta Menzenbach
Managing Partner, Germany
Global Practice Co-Leader, Industrial Practice
Global Sector Leader, Automotive

Shaping the Next Generation of Automotive Leadership in an Autonomous World

• With such disruption in this industry, there are significant challenges around both talent and leadership.
• Pedro Pacheco, VP Research at Gartner counsels that for many automotive manufacturers the greatest challenges to success in software technology are internal. Good leaders think and act in a way that is focused on software integration, helping them to find the best talent to master a variety of challenges. With the increasing rate of OEM and tech partnerships, only an alliance whose leadership understands the big picture, focusing on disruptive change, is likely to succeed.
• Leaders therefore need to manage a massive cultural shift not just within the industry, but with external partners, enabling cross-functional collaboration with other verticals; this involves breaking down silos, handling legacy systems, attracting the right talent and fostering speed and agility. In this context, leaders themselves need to be highly sensitive to their own succession planning.
• Most boards in the automotive industry are ‘traditional’ rather than ‘digital’. Ideally there should be a director on the management board with a vision and strategy for leveraging AI, guiding the future direction of the organisation. Assessing the efficacy and profile of the board annually is a bare minimum.
• Candidates with the right profile are expensive and typically from telecoms or digital companies with good software and start up experience including different AI use cases, particularly platforms for web services. It’s helpful to think in terms of the business model and how close it is to the market and product; specifically, the extent to which candidates have used data and AI to set up new business models for the future.
• For automotive software engineers, mobility is an issue in the global talent pool, particularly cross-border mobility. For example, German candidates tend to move only within Germany, while candidates from India will relocate to Germany. Ideal candidates have a mix of scientific work at a high level (including university collaborations), deep AI and AI platform knowledge.
• Talent strategy therefore requires a matrix approach that mirrors the matrices redefining the industry.

Read more on the topic: 

• Economist Intelligence Unit: Automotive Outlook 2024
• Wavestone: The Future of the Automotive Industry
• Gartner: EV forecasts
• McKinsey: Outlook on the automotive software and electronics market through 2030
• The Asahi Shimbun: Mitsubishi Motors to opt out of Honda-Nissan holding company