The automotive industry is entering another period of structural upheaval, driven by shifting regulation, tightening margins and recalibrated expectations around electrification and autonomy. As past certainties unravel, flexibility, digital continuity and cost discipline are emerging as the real fault lines that will determine which manufacturers endure.
The automotive industry has a habit of believing it has finally found its future, only to discover a few years later that the assumptions underpinning that confidence no longer hold. The current moment feels uncomfortably familiar. Market contraction, shifting regulation, geopolitical friction, and diverging regional strategies are forcing carmakers to reassess not only what they build, but how they build it.
Mark Barrott, Partner and Mobility Consulting Lead at Plante Moran, has seen this cycle before. Reflecting on the last major reshuffle of automotive strategy in the mid-2010s, he recalls an industry flush with confidence and capital, convinced it had cracked the code of its next decade.
“The biggest issue the industry was facing at that point was finding warehouses big enough to house all the cash being generated by those big initiatives,” Barrott explains, recalling the era when ACES, also known as CASE, Connected, Autonomous, Shared and Electric, was accepted almost without question as the inevitable direction of travel.
What followed was a collective miscalculation. Connectivity delivered incremental value but never became universal. Autonomous vehicles remain confined to test programmes and niche deployments. Shared mobility faltered under economic pressure and social disruption, with the pandemic effectively puncturing its momentum. Electric vehicles surged, stalled, and now sit in a far more contested position than many had forecast.
That earlier period matters because it offers a cautionary tale. The industry did not fail because it lacked ambition or investment. It failed because it mistook alignment for certainty. Today’s upheaval carries the same risk.
Flexibility becomes the real differentiator
If one lesson has emerged clearly, it is that adaptability now matters more than conviction. The manufacturers most likely to succeed are not those betting everything on a single drivetrain or market model, but those designing operations capable of absorbing volatility without breaking.
Bill Sarver, Global Director for Smart Manufacturing in Automotive, EV, Battery and Tire at Rockwell Automation, sees this playing out most clearly on the factory floor. The question manufacturers are asking has shifted fundamentally. “How do I get to a lot size of one with mass production,” he says. “That challenge is global. It does not matter whether you are an EV manufacturer in China personalising vehicles down to the stitching in the seats, or a traditional OEM trying to build SUVs, passenger cars and EVs back to back on the same line.”
This requirement for extreme flexibility is reshaping technology investment decisions. Fixed automation designed around a narrow product mix is giving way to architectures that prioritise reconfigurability, visibility and speed of change. The aim is not efficiency at steady state, but resilience under disruption.
At the centre of that shift sits the digital thread. While hardly a new concept, the integration of ERP, MES, PLM and supply chain systems is taking on renewed urgency as product complexity rises and regional divergence accelerates.
Craig Resnick, Vice President of Consulting at ARC Advisory Group, frames the digital thread less as a technology project and more as a risk-management mechanism. “It is about making sure the vehicle produced is of top quality and does not require recalls further down the line,” Resnick explains. “When customer complaints rise, manufacturers need to be able to trace that signal back through dealer repair data, into design systems and engineering decisions, and respond before defects escalate into reputational damage.”
The emphasis is increasingly on predictability rather than optimisation. Visibility across the lifecycle allows manufacturers to anticipate disruptions rather than react to them, an increasingly valuable capability in a market where supply chains remain fragile and geopolitical shocks are no longer exceptional.
AI transforms operations quietly, not visibly
Artificial intelligence inevitably enters the conversation, but not in the way popular narratives might suggest. While autonomous driving continues to capture headlines, most manufacturers have moderated their expectations and redirected investment toward less visible, but more immediately valuable, applications.
Barrott is clear that much of what constitutes transformation today will never be obvious to the consumer. “A lot of transformation is not something drivers will see,” he says. “It happens in construction decisions, in how many components you can remove from a vehicle, how many welds, rivets and fasteners you can eliminate. That is cost transformation.”
AI is being applied across engineering, planning, quality and production to simplify designs, consolidate parts and reduce labour intensity. These changes may lack the drama of self-driving cars, but they address the pressures manufacturers feel most acutely: margin erosion, affordability constraints and rising operational complexity.
Resnick reinforces the point, noting that AI-driven insights only deliver value when embedded within a well-managed operational framework. “Companies are looking for the ability to control costs while gaining a much stronger sense of predictability,” he says. “That comes from understanding how your supply chain behaves, how your plants perform, and where variability enters the system.”
In that sense, AI becomes an amplifier of existing capability rather than a substitute for it. Without clean data, disciplined processes and integrated systems, its impact remains limited. With them, it becomes a powerful lever for operational resilience.
The electric vehicle recalibration
Few areas illustrate the industry’s shifting ground more starkly than electric vehicles. The enthusiasm that replaced CASE with a near-singular focus on electrification now looks increasingly fragile, at least in certain markets.
In the United States, the withdrawal of federal incentives has had an immediate effect. EV tax credits expired at the end of September, and sales dropped sharply in the months that followed. The political reversal has exposed how heavily demand had relied on policy support rather than organic consumer readiness. “Consumers are voting with their feet,” Barrott observes. Concerns around vehicle price, charging infrastructure and long-term ownership costs remain unresolved for large segments of the market.
The average price of a new car in the US now sits just below $50,000, a figure that stretches affordability even before considering the premium often associated with electric models. Public accounting and business advisory firm Plante Moran forecasts a dip in overall auto sales in 2026, driven primarily by these economic pressures.
The longer-term risk, Barrott warns, is strategic rather than cyclical. A sustained pullback in EV investment in North America could leave domestic manufacturers technologically exposed if competitors in China or Europe solve challenges around range, charging speed or battery cost.
That divergence is already visible. Chinese manufacturers continue to invest heavily, supported by domestic policy alignment and scale advantages. Europe maintains regulatory pressure despite uneven consumer adoption. The global industry is fragmenting into distinct trajectories rather than converging on a single solution.
Manufacturing in an era of permanent transition
What emerges from this moment is not a clear roadmap, but a recognition that volatility itself has become structural. The industry is no longer transitioning from one dominant paradigm to another. It is learning to operate in a state of continuous recalibration.
Technology, particularly AI and digital manufacturing platforms, offers a means of coping with that reality, but not escaping it. The winners will be those who treat flexibility as a core design principle, not an afterthought, and who invest in systems that allow rapid reconfiguration without sacrificing quality or control.
The irony is that the most transformative changes now underway are the least visible. They sit in software layers, in data flows, in engineering decisions that quietly remove cost and complexity from products long before they reach the showroom.
The automotive sector has been here before, convinced it could see ten years ahead. This time, the challenge is not to predict the future, but to remain operationally credible no matter which version of it arrives.
