Confidence dips in global automotive sector as car makers face slower growth and higher costs

While performance remains the most important selling point, a seamless and hassle-free customer experience has moved up to second place. The emphasis on a smooth customer experience extends from buying the car to having seamless operating software in it, but the latter is a challenge for manufacturers. The car’s hardware is usually reliable, the software less so.

The software-defined vehicle provides an opportunity to supply all sorts of driver applications. But consumers are not likely to sign up for software subscriptions if the products aren’t compelling. In this year’s survey, OEM executives in particular are less confident than in previous years that they can generate subscription revenue. How good is cybersecurity? Widely publicized breaches have raised concerns about automotive cybersecurity. In our survey, executives are still confident that auto makers provide adequate cybersecurity and customer data protection, but they may be over-confident.

After the disruptions of the past few years the new norm in supply chain management is becoming “just in case,” rather than “just in time.” Companies are pursuing a wide range of strategies to build resilience and things are far better than two years ago. Still, there is a high level of concern about the continuity of supply for many commodities and components over the next five years. But not in China. As we saw across the survey, in many important areas, China is different. This was particularly true in supply chain. Chinese executives are considerably less worried about continuity of supply, likely because the country has been setting much of the supply of key commodities, particularly raw materials for EV batteries.

In the latest survey, automakers indicated that they feel less prepared than in the previous year for advanced technologies, such as artificial intelligence, digital twins, and advanced robotics. Only 12 percent of auto executives said they felt extremely well prepared, down from 22 percent the year before.

The change is likely associated with the rapid advances in artificial intelligence, particularly generative AI, which is expected to bring automation to white-collar jobs. Automakers are going to have to train more workers to take advantage of AI in all its forms and must compete with other industries to hire people with the requisite skills.

When it comes to powertrain technology, this year more companies seem to be hedging their bets. Hybrid technologies have jumped from fourth to second place overall in technology.

Faced with so many challenges and opportunities, executives should recalibrate strategies—and act. KPMG’s Global Automotive Executive Survey team has outlined four key priorities for top leaders to better position them in the altered automotive business:

1. Manufacturers should hedge their bets about the trajectory of both the internal combustion engine and all the alternatives. However, if they spread themselves too thin they risk losing to competitors that more successfully predict the future and focus more narrowly. The answer, then, is to entertain heretical theories, employ a diverse array of talent with different perspectives, and make your best bets.
2. Generative AI has captured the imagination of business leaders across industries and is vastly expanding access to AI. We believe AI technology will likely touch virtually every aspect of the automotive business, from the way autos are designed and manufactured to how they are sold and driven. The critical question for auto executives, then: Is your AI strategy sufficiently comprehensive and forward-looking
3. Car manufacturers have tended to go it alone when it comes to developing automotive technologies, often with unspectacular results. Given the array of business opportunities and the limited pool of skills, auto companies have little choice but to look outside for the ideas and know-how they need to supercharge their R&D operation.
4. The EV transition highlights important differences in national auto markets. Demand for electric vehicles is soaring in parts of Europe, the US,.and China. In other big markets, such as India, Latin America, and Africa, the growth of electric cars will be slower, hampered by low incomes and poor infrastructure. Global automakers cannot afford to ignore these regions because of their growing populations and diverse needs. At the same time, automotive companies must continue to build resilience to ongoing geopolitical turmoil and changes in the global economy that affect supply chains and markets.