The global automotive industry is in a period of disruption that will radically transform the sector over the next decade and a half. This is one of the findings of the new Automotive Outlook 2040 report by Munich-based auto consulting firm Roland Berger.

“The global transformation that the automotive industry is going through is unstoppable and is only going to accelerate in the coming years,” says Felix Mogge, Partner at Roland Berger. “The pace of change will be too fast for many companies. But the picture is not all bleak, because the disruption brings a great many new opportunities from which players that adopt smart strategies can profit.”

To work out the drivers behind the changes and develop scenarios for the future, Roland Berger conducted an in-depth study of the industry and its markets to create an overall picture in the form of the Automotive Outlook 2040. Four megatrends will shape the industry transformation through 2040; the future will be polarized, automated, connected, and electrified.

These trends will alter the value chains and revenue pools of established car manufacturers and suppliers. However, with the right strategic priorities, opportunities for reasonable growth remain good.

A key factor is a regional shift in markets. While sales volumes will increase dramatically in the Global South and China to constitute some 60% of the global market in 2040, Western markets have already reached “peak auto” in terms of new vehicle sales. Yet, besides China, the Western markets are still a crucial pillar of the industry.

The Western markets of Europe, the U.S., and Canada have reached and, in some cases, passed peak auto in terms of new vehicle sales. They will likely stagnate or shrink slightly. However, given their size, they still offer significant absolute growth, which the Roland Berger experts estimate at €520 billion in the period to 2040.

There will be a strong per annum increase in new vehicle registrations in China (+1.2%), India (+4.2%), Latin America (+2.4%), and other countries across the Global South. In absolute figures, revenue growth in the period to 2040 will be strongest in China at around €590 billion.

Markets in the Global South are expected to grow in terms of absolute revenue by around €480 billion. However, despite their strong growth rates, their share of the total market will only rise from 14% today to 20% in 2040.

Overall, between 2025 and 2040, global per annum sales volumes will grow 1.1% on average, compared to 2.4% growth in the period 2010-2019.

Contrary to previous forecasts, one factor that is now expected to have only a minor impact on global vehicle sales is shared mobility. Roland Berger experts see some growth ahead in the use of shared mobility solutions, but any increase will not be as rapid as previously anticipated and will be limited to large urban areas. Since only 10% of travel takes place in these areas and this type of mobility complements trips in private vehicles rather than replacing them, shared mobility will be of lesser importance for the automotive industry’s future.

In contrast, the trend toward EVs (electric vehicles), is irreversible despite the current consumer reticence in some markets. The number of BEVs (battery electric vehicles) is growing fast globally, and the Roland Berger experts predict that they will make up a share of 64-71% of new vehicles in 2040, depending on the scenario. Another 20% will be hybrids, but hydrogen and e-fuels will play only a very minor role, owing to their low efficiency and high costs.

Electrification is ramping up at different speeds in different regions. Europe is expected to be fully electrified in about ten years, assuming the EU sticks to its current regulations, with BEVs making up 99% of new vehicle registrations. In China, BEVs passed the 50% mark in July 2024 and will reach a share of 70-85% by 2040. The U.S. will see 42-60% BEVs and the rest of the world 50%.

“Electrification is changing the balance of power in the industry—and not just because everyone is becoming more dependent on China for raw materials,” said Jan-Philipp Hasenberg, Partner at Roland Berger. “There are structural shifts between the component categories along the supply chains and in the target markets. The decline in components for ICEs (internal combustion engines) is more than offset by the increase in EV powertrains and batteries. Plus, there are the E/E systems and components for ADAS and automation solutions.”

Total global supplier revenue is set to grow 3.4% per year through 2040.

By 2040, almost all new vehicles will be based on the software-defined vehicle (SDV) concept, where the vehicle is built around the software platform and not the other way around.

“All of that changes the demand for components, creates new business models, and reinforces the shifts happening in the industry,” said Mogge. “We expect the number of European suppliers in the global top 20 to fall from seven today to five in 2040, while the number of Chinese suppliers will rise from two to six; and the world’s biggest supplier will then be found not in Europe but in China.”

Automotive Outlook 2040 describes the tectonic changes—shifting mainly towards Chinese players—that are putting established companies, especially those in the West, under pressure. However, the report’s authors say that there is still a lack of visibility over what the situation will look like in 2040.

The study authors came up with two possible scenarios. In the first, Chinese OEMs will have grown fast in all markets globally, accounting for more than half of the growth anticipated by 2040 and reaching a 70-75% market share in China, 15-20% in Europe, and 5-10% in North America. Western OEMs will suffer from stagnating or declining sales volumes, growing cost pressure, and a major need for restructuring.

“In this pessimistic scenario from a Western view, the industry may reach a tipping point by 2040 in which Chinese OEMs have won the race,” said Hasenberg.

However, he does see possibilities for the second, more positive scenario to be realized. In it, Western car manufacturers will have captured 36% of the growth pool by 2040, while Chinese OEMs will retain a 65% share of their domestic market but only 5-10% in Europe and less than 5% in North America.

“Western OEMs are still investing heavily in technology, they have a good brand image, and their production and distribution networks are strong,” concluded Mogge. “But they do need to be much more efficient. If Western OEMs also radically change their approach, for example by making greater use of standardized hardware and software platforms from third parties, they may be able to become cost-competitive again. This would result in a new balance of power globally by 2040, one in which all players have the opportunity for growth.”

The full Automotive Outlook 2040 study can be found here.