Global Shifts in the Automotive Sector

This chapter introduces the dynamic transformations currently taking place in the global automotive industry. It highlights key technological innovations such as the transition from the internal combustion engine (ICE) to electric vehicles (EV), advances in autonomous driving, and increased vehicle connectivity. It raises important questions about the impact of these innovations on traditional automakers, market structures, and global supply chains. The chapter places these technology changes in the context of the industrial policies shaping the future of the industry, with a particular focus on the evolving competition between established automotive giants and new market entrants from emerging economies, above all China. The broader implications of these changes are explored through the lenses of global value chains, productive models, and international core-periphery dynamics.

The chapter analyses the transformation of global car markets since the 2000s, focusing on the growing dominance of emerging markets and the shift towards electric and connected vehicles. The problem addressed is the potential for emerging countries, particularly China and India, to challenge the traditional dominance of Western Original Equipment Manufacturers (OEMs). Key research questions include how these market shifts are influencing the global automotive landscape and whether emerging countries can take the lead in electric vehicle (EV) production and innovation. The study also explores the interplay between market geography, technology transitions, and the strategies of OEMs. The major findings indicate that emerging markets, especially China, have seen rapid growth in car demand, outpacing traditional markets like the US, Europe, and Japan. Furthermore, China’s proactive policies, particularly in the electric vehicle sector, have given its domestic OEMs a significant advantage, especially in producing affordable Battery Electric Vehicles (BEVs). Western OEMs, constrained by high costs and legacy strategies, are struggling to produce competitively priced EVs. The study concludes that emerging markets, supported by state policies, are becoming key players in the global automotive industry.

The current transformation of the global auto industry requires incumbent carmakers to make a rapid and complex shift towards CASE—the connected, autonomous, shared and electric vehicle. Some observers hypothesised that the incumbents would find it difficult to acquire the capabilities needed to develop and incorporate these technologies into their products. In fact, the incumbents have managed to do this so far, and the role of alliances made with battery manufacturers and electronics hardware and software companies in enabling access to the new technologies is clear. But the incumbents face new challenges. Affordability has become a critical obstacle to the continued expansion of electric car sales, and incumbents need to reduce costs both to expand the market and to meet the challenge posed by Chinese carmakers. Incumbents also need to negotiate the policy and regulatory environment that will play a key role in the implementation of CASE.

The introduction of Industry 4.0 concepts has been among the key developments in the automotive industry in the last decade. Building upon previous organizational changes, these concepts aim to increase the productivity and flexibility of manufacturing operations. In the policy discourse, Industry 4.0 has sometimes been seen as an opportunity for high-wage manufacturing locations to develop new competitive advantages over low-wage countries and stop or potentially reverse relocation processes. Building on these debates, this chapter focuses on three central questions: (1) What differences and similarities can we observe between the major automobile-producing countries in the implementation of Industry 4.0 production systems? (2) What specific changes in process organization in the automotive industry have resulted from the adoption of Industry 4.0 concepts? (3) How has the adoption of Industry 4.0 concepts affected the international division of labor in the automotive sector? Overall, the analysis indicates that the arrival of Industry 4.0 production concepts has not yet radically reshaped the strategies of companies in major car-producing countries, nor has it significantly shifted the existing divisions of labor between high- and low-wage economies in the automotive sector. Meanwhile, new types of productivity and efficiency challenges are emerging in the automotive sector related to new product and production technologies, and their impacts remain uncertain.

This chapter investigates the recent transformations of the European Union’s policies in the automotive sector since the Covid crisis. The first section introduces structural data pertaining to the automobile industry in the region. The second section focuses on the set of public policy measures developed at the EU level since the outbreak of the Covid-19 crisis, which has marked a renewed interest in developing a strategic industrial policy to restructure the industry in order to confront three major challenges: Greening, digitalisation and the rise of the Chinese automobile industry. The third section highlights the lack of coordination between these industrial and commercial policies, which is revealing internal tensions between member states, business actors and EU institutions. Finally, we open the discussion on a possible return to defensive protectionism by the European Union.

This analysis explores the implications of the transition toward the production of battery-electric vehicles (BEVs) for the future evolution of the “German model” in the automotive industry. Our main argument is that the ongoing BEV shift creates significant new adjustment pressures and leads to several incremental changes that may undermine key characteristics of the German “global quality production” strategy. First, it remains unclear to what extent German carmakers will manage to reproduce their earlier “premium” profit strategies within the BEV market—in particular, given the increasing price competition in the sector and the ability of several foreign companies (especially Chinese carmakers) to produce high-quality vehicles at lower costs. Second, the role of German production plants and workers within the emerging transnational BEV value chains remains uncertain. Given the high domestic production costs, growing international competition, and increasing policy pressures from abroad, establishing a strong BEV manufacturing base in Germany will largely depend on a timely and effective government support strategy. Third, also the significant dependence of German producers on distant foreign markets creates new kinds of challenges. In particular, maintaining a strong market position in China may require companies to reshape their global production networks and sacrifice the previous centralization of product development and innovation activities in Germany.

The chapter analyses the post-Covid attempt made by the French government to rebuild the French automotive industry via electrification after twenty years of structural decline. It identifies the upmarket drift of new car sales in Europe and the associated process of relocation of small and compact car production towards low-wage countries integrated in the European Union from 2004, as the two main causes of structural decline. Past attempts made by different French governments to prevent the relocation process have failed because they did not address the upmarket drift and its consequences for the competitiveness of French Original Equipment Manufacturers. The current attempt to use a rapid transition to electromobility as an industrial policy tool to bring back automotive production to France has suffered so far from the same shortcomings. Nevertheless, the more generalised problems faced by electrification in Europe are now spurring a reorientation of both French and European policies towards the promotion of smaller, more affordable, and sustainable battery electric vehicles, opening up more favourable conditions for the French automotive sector. It remains to be seen though how far this reorientation will go and what type of commitment French OEMs are ready to make towards their domestic base in this new configuration.

This chapter analyses the causes and consequences of the decline of the automotive industry in Italy. It focuses on the central negative role played by the ownership and management of Fiat-FCA and shows how the creation of Stellantis is further increasing the vulnerability of the Italian automotive sector in the context of the international restructuring driven by electrification. It discusses the consequences of this development on the Italian component industry and how public policies have failed to address the decline or support the transition towards electrification. The chapter also analyses in greater detail the subordinate position taken by Italian automotive suppliers in the European value chain, and its important consequences for permanent geographical and organisational reorganisation. It discusses the additional threats that this transformation and the current fast transition towards battery electric vehicles pose to production and employment levels in Italy.

This chapter explores the transformation of China’s automotive industry amidst the challenges of the Covid-19 pandemic and increasing geopolitical tensions, particularly with the United States. The research investigates the shift from traditional car manufacturing, characterized by joint ventures between state-owned enterprises and foreign corporations, to a more fragmented and specialized production model. The major research questions are how the geopolitical and pandemic-driven disruptions have accelerated the vertical disintegration of the automotive value chain in China and how they transformed the production networks, particularly in the battery sector. The findings suggest that China’s New Energy Vehicle sector has not only become a global leader but also exhibits a new form of production organization. Specialized producers of key components, especially batteries, dominate important parts of the value chain and challenge the role of established car manufacturers, leading to the formation of new alliances and competitive dynamics. However, this shift also poses significant economic and social challenges, including overcapacity, monopolistic tendencies, and vulnerability to protectionist policies and geopolitical conflicts.

The automotive industry has experienced significant globalisation since the 2000s, particularly through the integration of Global Value Chains (GVCs). However, this has led to ambivalent outcomes for catching-up. The Indian and Brazilian automotive sectors represent two industries in large emerging economies that have not successfully caught up to core countries, in contrast to China. In this chapter, we examine economic and social upgrading in the Indian and Brazilian automotive industries. We consider historically developed positions, industry characteristics and current key developments, including the impact of the Covid-19 pandemic, companies’ strategies and the role of state programmes, particularly industrial policy—with a primary focus on the current key trajectory towards electrification. We conclude that India has achieved stronger market success and earlier electrification than Brazil, but has a significantly worse record in terms of social upgrading. In contrast, the Brazilian sector lacks substantial economic upgrading but shows historically developed strong social upgrading. Later in the chapter, we provide explanatory factors for these findings.

This chapter provides an overview of the status of the U.S. automotive industry’s progress toward electrification, as well as the policy drivers and implications involved. The pace of electrification in the United States has trailed that of Europe and China, driving urgency in government policies intended to incentives automakers and consumers to make the change, while penalizing products with negative environmental impact. This chapter explores the implications of global shifts toward vehicle electrification in the United States, the complex political and economic considerations of an electric vehicle battery supply chain that is currently dominated by China, and recent U.S. trade, environmental, and industrial policy responses. The research examines how the shift in policies currently supports the growth of EV and battery manufacturing in the United States as well as resulting investment patterns and their regional distribution.

In October 2020, the Japanese government committed to achieving carbon neutrality by 2050. Alongside digitalization and the new post-pandemic living and working normality, carbon neutrality constitutes the third mega-trend the Japanese automobile industry must adapt to. However, the industry is confronted with serious socio-economic challenges in the domestic market. Japan’s demographic structure is changing dramatically. The unprecedented aging of its society will also accelerate the fast-proceeding urbanization processes of the three metropolitan areas, Tokyo, Nagoya, and Osaka, and the continuous depopulation of rural areas. Both processes will further diminish the importance of the car for individual mobility and the importance of the domestic automobile market for Japanese manufacturers. Against this background, the Japan Automobile Manufacturer Association began to develop new mobility concepts more than a decade ago. Key to all these concepts is automated driving technology. This chapter raises three questions. How are socio-economic changes affecting the Japanese automobile market and the development of new mobility concepts? What impact will these new mobility concepts have on the electrification of the car market? And how will they influence Japanese manufacturers’ global strategies?

Africa currently occupies a peripheral position within the global automotive industry. Apart from South Africa and Morocco, vehicle assembly is mainly small-scale, and the continent relies heavily on used vehicle imports. However, the market potential is substantial, and regional integration initiatives, such as the African Continental Free Trade Area (AfCFTA) are improving prospects for large-scale investment. Consequently, several countries are developing strategies to promote domestic and regional production. These developments are taking place at a time of rapid technological transition. While African demand for New Energy Vehicles (NEVs) is still low, there are several encouraging developments. These may be in manufacturing vehicles for export and/or import replacement, in the two-wheeler or truck and bus segments, or in the minerals-to-battery value chain where a key question is the potential for adding value to Africa’s abundant critical minerals. In Africa’s rapidly growing urban centres, innovative ‘Mobility as a Service’ (MaaS) business models are being rolled out leading to many local innovations. These opportunities need to be developed in line with each country’s national development priorities, market access potential, and the broader structural transformation trajectory of their economies.

The global automotive industry is currently undergoing major restructuring processes as a result of fundamental changes in product technology—in particular, the shift to low- and zero-emission drives. This final chapter of the edited volume summarizes the main dimensions along which the evolution of the global automotive production system can be captured. We highlight the following four aspects of the ongoing transformation: (1) the globally heterogeneous trends in the adoption of new automotive technologies, particularly the shift from the internal combustion engine to new powertrain technologies; (2) the return of industrial policy and the strong regulatory government involvement in shaping the trajectories of regional vehicle markets; (3) the changing competition patterns between the globally dominant carmakers in the face of the entry of new competitors specialized in the production of electric vehicles and their key components; (4) the evolving geography of automotive production, with significant adjustments to the pre-existing landscape of regionalized but globally interconnected production hubs. While the future structure of an emerging global automotive system focused on the production of alternative powertrain vehicles remains open, these four dimensions help us understand the logic of the ongoing shift.