Automakers at a Crossroads: Stagnant Sales and Mounting AI, Electrification Investments Squeeze Profitability

"Flexible Production and Strong Investment Execution Are Key"

There is an analysis suggesting that finished vehicle manufacturers are facing an unusual decline in profitability due to slowing sales growth. The reasons are identified as the increasing burden of investments in future technologies, expanded supply from China, and changes in trade conditions, each of which is acting as an independent factor.

Since the pace of electrification varies by region globally, there is a growing need for diverse powertrain management. Experts point out that a flexible production system is necessary, one that can maintain the profitability and operating rate of existing businesses while enabling new production capacities to be utilized according to demand.

Hansol Kim, Senior Research Fellow at the Korea Automotive Technology Institute, stated in his report, "Profitability Trends and Implications for the Finished Vehicle Industry," that "the recent decline in profitability among finished vehicle manufacturers is somewhat unusual even when taking into account the characteristics of the industry."

According to the Center of Automotive Management (CAM) in Germany, in the first half of this year, the sales of 25 finished vehicle manufacturers decreased by 1.0% year-on-year, while earnings before interest and taxes (EBIT) dropped by as much as 16.3%.

Researcher Kim noted, "The automotive industry is a capital-intensive sector that requires repeated large-scale investments in production facilities and research and development, so profit fluctuations tend to be pronounced in response to economic changes. Nevertheless, operating profit margins for most companies dropped significantly last year, even though global sales and production increased."

He identified as reasons: the growing burden of investing in future technologies such as electrification, artificial intelligence (AI), and software (SW), and intensifying global competition due to the expanded overseas supply by Chinese automakers.

Researcher Kim stated, "With regional differences in demand and regulations becoming more pronounced, companies must maintain internal combustion engine and hybrid (HEV) businesses while simultaneously investing in electric vehicle (BEV) platforms, batteries, and production facilities. As new fields such as ADAS, autonomous driving, software-defined vehicles (SDV), and AI require strengthened capabilities, investment continues in securing software and AI capacity separately from existing hardware development, resulting in delays in profit generation."

He continued, "In the first half of this year, Chinese finished vehicle manufacturers increased their sales in Europe by about 65 percent, and their market share rose from around 7 percent to 11 percent. The entry of Chinese automakers into Europe is not limited to exports; it is also evolving into building local production bases. Therefore, competitive pressure is highly likely to persist in the medium to long term."

Researcher Kim added, "For finished vehicle manufacturers to recover profitability, it is important to increase sales as well as to achieve production flexibility and investment returns. Rather than simply restoring profitability to previous levels, it is critical to sustain future investments based on the profitability of existing businesses and to ensure that these investments are effectively connected to actual sales and profit."

This content was produced with the assistance of AI translation services.