Executive Summary

The global automotive industry continues to navigate a period of modest growth and significant transformation in 2025. Total vehicle sales are projected to increase slightly by 1.6% this year, with around 92.5 million units sold in 2024 and a similarly steady volume expected in 2025.

Key drivers include the rising adoption of electric vehicles (EVs) and ongoing technological innovations, despite challenges like supply chain issues, tariffs, and mixed economic conditions. China remains the largest vehicle producer and market, while Europe and North America undergo shifts in consumer preferences and production strategies. The industry is balancing the decline of traditional combustion engine vehicles with a growing focus on electrification and software integration.

Recent Developments

• In May 2025, Volkswagen launched the Golf GTI in the Indian market. The latest version features enhanced performance and refined aesthetics, aiming to capture demand in the premium hatchback segment with a sportier driving experience.
• Nissan announced the global launch of its Micra EV set for late 2025. The electric hatchback is expected to offer a competitive 408 km range per charge, targeting urban consumers seeking reliable and sustainable city mobility.
• Mazda introduced the EZ-60 electric SUV in China in April 2025. Positioned in the midsize SUV segment, the vehicle boasts a 600 km range, reflecting Mazda’s push to strengthen its presence in Asia’s growing EV market with high-efficiency models.

Innovations Boost Engagement

Innovations in the automotive sector are primarily shaping customer engagement through advanced electric vehicle technologies, autonomous driving features, and integrated software systems. Battery technology improvements, such as the move from lithium-ion to solid-state batteries, are enhancing vehicle safety, range, and cost-effectiveness.

Meanwhile, automakers are embedding AI-powered virtual assistants and smart infotainment systems, creating more personalized and intuitive driving experiences. Automakers like Stellantis and Mercedes-Benz have implemented AI systems that function as virtual travel companions. These innovations are not only sustaining consumer interest but also redefining vehicle ownership and usage patterns.

Sales, Tariffs, and Market Activity

(source: kroll.com)

Financial Insights

Financially, the global automotive market shows slow but positive growth. Despite this, the sector faces increased costs due to supply chain constraints and tariffs. For example, the U.S. market anticipates a slight sales dip to approximately 15.4 million units in 2025, with electric vehicles accounting for about 10% of new car sales and growing at a slower rate (+10% in 2024 vs 40% in 2023).

In contrast, the Chinese automotive market continues to expand robustly, with sales reaching 31.4 million units in 2024 and new energy vehicles capturing a growing share. Investment and R&D spend focus heavily on electrification, connectivity, and sustainable technologies, which increasingly influence profitability and market positioning.

(credit: infosys.com)

Industry Dynamics

The automotive industry is experiencing dynamic shifts marked by geographic production adjustments, evolving consumer preferences, and regulatory pressures. Greater China upgraded its 2025 light vehicle production outlook by 195,000 units due to strong government incentives.

Japan and South Korea also see cautious increases, while North America maintains stable production with concerns over tariffs influencing pricing and demand. The European market is witnessing reduced combustion engine sales by over 20% for petrol cars in some countries, signaling strong moves toward electrification. Alongside this, the rise of hybrid vehicles addresses both emission regulations and infrastructure limitations.

Mergers and Acquisitions

M&A activity in the automotive sector remains active but slowed slightly in H1 2025 compared to late 2024, impacted by trade tensions and regulatory uncertainty. The global automotive market saw deals valued at about $14 billion in Q2 2025, a 249% rise compared to Q2 2024, driven by mega-deals over $1 billion.

Major acquisitions focus on suppliers and electric vehicle technology, including battery and thermal management innovations. Notable transactions include Porsche acquiring a stake in battery tech firm V4Drive and tire producer Hankook increasing its ownership of Hanon Systems. This consolidation trend reflects strategic positioning along the EV and supply chain transformation.

(source: startus-insights.com)

Top Automotive Investors

• The European Investment Bank is the largest investor in the automotive sector with an investment amount of $6.7 billion, showing strong financial support for industry innovation and growth.
• BNP Paribas follows closely with $4.5 billion invested, reflecting its solid commitment to the automotive market.
• The SoftBank Vision Fund has dedicated $3.4 billion towards automotive ventures, prioritizing future-facing technologies.
• Both UniCredit and Société Générale have invested approximately $3 billion each, supporting established automotive businesses and their expansion.
• Tencent and Geely each have invested about $2.9 billion, signaling significant involvement from Asian investors in shaping the automotive sector’s future.
• Airtel has also contributed $2.5 billion, demonstrating diversified investor interest beyond traditional automotive finance players.

(source: startus-insights.com)

Trends

Key trends shaping 2025 include a continuing shift toward electrification, autonomous driving developments, increased vehicle connectivity, and a stronger focus on sustainability. Electric vehicle sales could represent up to 23% of the global light-vehicle market this year, led by China’s dominant role. Autonomous driving technologies are accelerating but still face consumer trust and regulatory hurdles.

Moreover, connected cars are evolving with the rise of software-defined vehicles, integrating into broader internet-of-things ecosystems. Hybrid vehicles gain traction as a practical transition technology amid infrastructure gaps. Additionally, resilient supply chains, AI integration, and service-based business models (servitization) are redefining automotive economics.

Technology Outlook

Technology will remain at the core of automotive industry transformation. Advances in electric powertrains, battery chemistry, and AI-enabled vehicle systems promise to deliver safer, cleaner, and more efficient vehicles. Solid-state batteries are anticipated to replace older lithium-ion packs, improving energy density and safety. AI and machine learning support everything from driver assistance to manufacturing efficiency.

The adoption of 5G connectivity enhances autonomous vehicle capabilities and enables real-time data exchange. Software increasingly defines the vehicle experience, with manufacturers investing heavily in vehicle operating systems and digital services platforms, marking a future where cars are as much software-driven devices as machines.

Conclusion

The automotive industry stands at a decisive point in its evolution. The sector continues to serve as a cornerstone of the global economy, contributing trillions of dollars in output and employing millions of people worldwide. Growth is steady, with projections ranging between 3 and 6.5 percent CAGR over the coming decade, supported by rising vehicle demand, advancing technologies, and expanding global markets.

Electrification, digitalization, and data-driven services are reshaping the competitive landscape, while traditional manufacturing strengths are being complemented by partnerships in software and connectivity. China’s dominance in electric vehicles and battery supply chains highlights shifting power centers, while Europe and North America face the dual challenge of maintaining competitiveness and meeting regulatory commitments on emissions.

References

• https://www.infosys.com/iki/research/automotive-industry-outlook2025.html#
• https://www.kroll.com/en/publications/m-and-a/automotive-industry-insights-summer-2025
• https://economics.td.com/us-north-american-auto-outlook-2025
• https://www.startus-insights.com/innovators-guide/automotive-industry-outlook/
• https://automotivewebwire.com/insights/automotive-industry-outlook-2025/
• https://www.acea.auto/publication/the-automobile-industry-pocket-guide-2025-2026/
• https://www.epicflow.com/blog/5-latest-trends-in-the-automotive-industry/
• https://www.knowledgeagent.de/blog/posts/the-knowledgeagent-automotive-m-a-report-h1-2025/
• https://www.grantthornton.in/insights/thought-leadership/automotive-dealtracker-q1-2025/