Chinese automakers possess a competitive advantage in software and electrification, due to vertical integration and efficient development processes. Gartner predicts that software and electrification will continue driving the automotive industry's transformation in 2025, but uncertainties around emission regulations and trade tensions, particularly with China, will present challenges. Gartner anticipates a 17% growth in electric vehicle shipments in 2025 and over 50% of vehicle models being electric by 2030. Geopolitical factors are expected to slow the adoption of connected, autonomous, shared, and electric vehicle technologies, while overcapacity may lead to plant closures in Europe and North America, shifting production to lower-cost countries.
“Software and electrification will remain the two main drivers of the automotive sector’s transformation. However, in 2025, automakers will face uncertainties regarding emission regulations and growing trade tensions between China and the West, particularly in the electric vehicle (EV) market,” said Pedro Pacheco, VP Analyst at Gartner.
17% growth in electric commercial vehicles
Evolving emission regulations in the U.S. and EU are creating uncertainty for automakers, potentially making some hesitant to prioritise electric vehicles. Gartner's 2025 projection is a 17% growth in shipments of electric buses, cars, vans, and heavy trucks.
“Drone manufacturers and Chinese telecommunication companies are already feeling the impact of international sanctions, and robots are likely to follow,” said Bill Ray, Distinguished VP at Gartner. “The ubiquity of intelligent, updatable software, remotely accessible cameras and the integration of data gathering into the automotive business model make it inevitable that geopolitics will fragment the market and, therefore, slow adoption,” said Bill Ray, Distinguished VP at Gartner.
Electrification by 2030
Gartner forecasts that more than half of all vehicle models marketed by automakers will be electric by 2030. Trade barriers imposed by the U.S. and EU against Chinese electric vehicles are anticipated to slow the adoption of CASE (Connectivity, Autonomy, Software, and Electrification) technologies in these regions. This is because Chinese electric vehicles are generally considered more advanced in these areas.
Chinese automakers possess a competitive advantage in software and electrification, due to vertical integration and efficient development processes. This allows them to offer advanced and affordable electric vehicles. However, escalating trade barriers could lessen this advantage and reduce the availability of competitive electric vehicle options for consumers.
Tie-ups to accelerate electrification
Many legacy original equipment manufacturers (OEMs) have formed partnerships with Chinese OEMs to acquire their vehicle electrical/electronic (E/E) architecture. This is due to the difficulties traditional automakers have faced in developing their own software capabilities. Consequently, many traditional automakers have become increasingly reliant on the software and hardware expertise of Chinese electric vehicle manufacturers.
Production overcapacity has been a persistent issue for car factories in Europe and North America. The recent increase in import tariffs on Chinese electric vehicles imposed by the U.S. and EU is expected to worsen this problem. In response, Chinese automakers might establish factories in Europe, the U.S., or free-trade partner countries like Morocco or Turkey to maintain competitive pricing.
Gartner predicts this scenario will likely result in the closure or sale of several underutilised automotive factories. This could trigger a domino effect, leading to the closure of supplier factories and reshaping the car manufacturing landscape in the U.S. and Europe. Low-cost countries could become major hubs for automotive production capacity and supply chains.
Trade restrictions to limit adoption rate
Trade restrictions targeting Chinese electric vehicles are anticipated to slow down the adoption of new technologies in the U.S. and the EU. Chinese electric vehicles are often viewed as leaders in these advancements. These barriers could also impact the variety and competitiveness of electric vehicles available to consumers.
