At a glance, it may seem that the automotive industry is going strong and has nothing to worry about. In the United States, it serves as the most significant component of retail sales (about 20% of the total). It contributes almost 3% to the gross domestic product and employs nearly 18 million people.

However, under the surface, things are not as optimistic: The entire industry already faces some very serious challenges, which will play an even more significant role over the next decade. The very fact that the industry is such a big contributor to the economy means that anything that happens to it will have a major impact on the world as a whole.

So what are these challenges? Let us take a closer look.

1. Environmentalist pressure and fuel dependence

For a long time, the automotive industry has been caught between a rock and a hard place; or, more specifically, between customers’ demands and the pressure from environmentalists and governmental regulations. As transportation is responsible for about 30% of CO<sub<2 emissions in the European Union, car manufacturers are forced to continuously work to decrease CO₂ emissions from their new models, which in turn increases their price and decreases their performance and safety (because the most common approach to meeting new requirements is lowering the car’s weight, which means using lighter and flimsier materials). This makes production of vehicles using fossil fuels an increasingly expensive and unpromising venue, especially when combined with the general instability of the oil market (a recent attack on a Saudi oil plant shows how a single event can disrupt it for months).

2. Rise of car sharing

The automotive industry has to take into account the general trend against individual car ownership. This no longer concerns just the people who travel by air and hire a car to move around in a new city at their leisure. New rental services are different because they are primarily used by locals – people only who rent cars for short periods of time when they need them. This means that people are buying fewer cars, and the total number of cars will still be less than if every individual owns a vehicle. This trend is likely to grow more important in the coming years, and the automotive industry has to find ways of staying profitable in spite of it.

3. Electric vehicles

As electric vehicles produce over 50% less CO₂ emissions than average gas-powered vehicles, governments and environmentalists strongly promote them. This means that car manufacturers need to invest in developing this technology if they want to stay in business once the stranglehold of CO₂ regulations tightens around their necks. The companies that can’t produce solutions that are cheap and efficient enough are likely to go out of business.

4. Chinese market

For a long time, the Chinese automotive market has been the most profitable in the world. Dealing with it was risky, but staying away was riskier still – any car manufacturer that ignores China loses share in a rapidly growing and extremely promising market. The situation remains more or less the same now, with allowance for the changing economic situation. The rapid growth that often disrupted any initial plans was replaced by slower growth, an extremely fragmented market, savage competition, more restrictions related to air pollution and traffic congestion, and the emergence of the used car market.

5. Smart, connected, and self-driving vehicles

The emergence of the Internet of Things and AI in vehicles may change the car industry forever. Cars that drive and interact with each other without human participation will completely change the way people travel, It won’t happen overnight but, once it starts, it will not stop until this model completely replaces the old paradigm. So far, multiple car manufacturers are making inroads into this realm but progress is relatively slow, and none of them have advanced far enough to completely ensure the safety of everyone on the road. The company that first achieves this will have the chance to become the dominant force in the car market for decades to come – which means that all leading manufacturers have to invest huge amounts of resources into this project if they want to remain relevant in the future.

The automotive industry’s challenges lie in both the technological and economic spheres, and there are no clear-cut ways of overcoming them. It remains to be seen how manufacturers will deal with them, and if these changes will lead to a radical restructuring of the market.

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