The automotive landscape is entering a prolonged period of structural change that will reward foresight and punish complacency. Executives, suppliers and new entrants must adjust to a new competitive geometry driven by four dominant forces. We summarize these forces in the PACE framework and explain why integrating them into strategic planning is essential for any organization that aims to remain relevant across the next decade and beyond. The analysis that follows highlights how markets, technology and business models will evolve and what practical moves can protect margins and capture upside.
Our view is framed by detailed market modeling and engagement with industry practitioners worldwide. The projections are directional and emphasize persistent themes rather than single-year forecasts: a shift from globalization toward regional concentration, a rapid acceleration in electrification, deeper embedding of software and connectivity into vehicles, and broad adoption of automation and AI across engineering, manufacturing and aftersales. Together these dynamics will alter where value is created and who controls it, forcing players to rethink product strategy, go-to-market models and partnerships.
The PACE framework: four trends to prioritize
The industry transformation can be captured by four interlocking trends that we label Polarized, Automated, Connected and Electrified. Polarized describes the divergence of regional markets and the re-emergence of strong regional ecosystems rather than a single global market. Automated encompasses the spread of autonomous capabilities and the integration of AI for process and product optimization. Connected signals the move toward vehicles as digital platforms—a reality driven by the software-defined vehicle or SDV concept. Electrified captures the ongoing displacement of internal combustion platforms by battery electric vehicles; our central scenario assumes a base-case battery electric vehicle share of 71 percent by 2040, with a downside case at 64 percent.
Each trend creates distinct opportunities and risks. For instance, electrification enlarges demand for high-voltage batteries and electric powertrains while shrinking legacy ICE components. Likewise, connectivity shifts value toward over-the-air updates, data services and in-car ecosystems. Collectively, these trends compress traditional product lifecycles and open new revenue models, but they also intensify competition from players that excel in software, batteries and regional scale.
Mobility and markets to 2040
Private vehicles versus mobility services
Contrary to some narratives that predict the rapid demise of private ownership, our analysis indicates that privately owned vehicles will remain central to global mobility outside the densest megacities. While mobility-as-a-service will grow in big urban areas, these zones account for a small fraction of total vehicle miles traveled worldwide. Overall mobility demand is expected to expand at roughly 2–3 percent annually in many regions, driven by demographic and economic development. The industry should therefore plan for a dual reality: persistent demand for privately owned vehicles alongside selective growth in shared, subscription and fleet-based models.
Regional trajectories and pockets of growth
Regionally, Western markets along with Japan and Korea are approaching or have passed their peak vehicle volumes, whereas China and the Global South will be the main engines of unit growth. Our analysis anticipates an increase in vehicle sales in China on the order of about six million units through 2040, while emerging markets in the Global South will attract manufacturers seeking volume-driven opportunities despite lower per-unit profit pools. These geographical shifts will reshape sourcing, manufacturing footprints and R&D allocation as companies chase competitive advantage where demand grows fastest.
What manufacturers and suppliers must do
Responding to the PACE dynamics requires a mix of strategic repositioning and operational change. OEMs should accelerate investments in SDV architectures and cloud-connected services to capture recurring revenue, and reweight R&D toward battery systems, power electronics and software. Suppliers must realign portfolios: areas linked to ICE drivetrains will contract, while modules for electrified powertrains, battery systems and vehicle electronics should expand. Successful players will combine domain expertise with scale and the ability to partner across ecosystems.
Geopolitical and macroeconomic pressures will likely shift power toward Chinese firms that benefit from scale in batteries, software and integrated supply chains, but Western OEMs can still regain ground by focusing on premium integration, differentiated software experiences and close ties with suppliers. Across the board, early strategic choices—whether to build, buy or partner for software, battery cells and autonomous stacks—will determine who captures the largest share of future profit pools.
For leaders, the message is clear: treat the next two decades as an endurance challenge that rewards steady, deliberate adaptation. Prioritize flexible architectures, regional manufacturing footprints and new monetization models while preserving operational rigor. If you want the full dataset, modeling assumptions and strategic playbook that underpin these conclusions, register to receive the comprehensive “Automotive Outlook 2040” publication.
