Global auto industry paradigm shift driving US$660b transformation opportunity - EY value pools analysis

• Three value megapools - electrification; software defined vehicles; and circularity — to reach US$660b market value by 2030
• Value shifts from traditional areas to transitional and growth opportunities
• Battery-powered electric vehicles to reach 50% of all global sales by 2041, two years later than previously expected

The global automotive industry is on the cusp of a $660b revenue opportunity, as it shifts its focus away from internal combustion engine (ICE) vehicles to electric vehicles (EVs), according to new EY analysis.

The automotive sector is moving away from its traditional value pools, a strategic shift that is driven by evolving customer demand, emerging technologies and tightening regulations. This will see the value in the industry shift from manufacturing and transactional sales to the complete vehicle lifecycle and will open opportunities for automakers, battery manufacturers, suppliers, energy companies, and investors to shift to new areas of focus.

EY analysis has identified three key areas — known as “megapools” — that offer the highest revenue growth potential:

1. Supercharge the future (batteries, charging and energy storage): The latest predictions from the EY Mobility Lens Forecaster show that by 2040, the number of registered EVs (battery electric vehicles and plug-in hybrid electric vehicles combined) on the road globally is expected to surpass non-EVs. Batteries and charging are foundational to steering a successful EV transition.
2. Redefine the vehicle architecture (software defined vehicles): The shift from hardware to software-defined vehicle (SDV) architectures will not only unlock new revenues in technology and data-based services but also drive cost efficiencies, enhance faster software delivery and improve the quality of fleets.
3. Close the loop (battery and vehicle circularity): Moving towards fully circular models aimed at reusing and recycling materials promises a greener automotive industry and solves an increasingly geopolitical war for rare minerals.

Martin Cardell, EY Global Mobility Solutions Leader, says:

“The global automotive industry is undergoing a paradigm shift, with value moving away from manufacturing and transactional sales to the complete vehicle lifecycle. The industry is going to have to refocus on new growth areas, while areas of activity – like combustion engine parts and maintenance – will rapidly fall away. Leaders across the industry need to carefully examine their business models and focus on where they can grow and where they need to reduce activities that are set to become outdated. To succeed in these new areas, companies should embrace innovation, optimize their data strategies and focus efforts on training and nurturing skilled talent. They must choose between becoming either a leader or a fast follower. It’s time to put themselves in the driver’s seat and gear up for the great value shift.”

The value shift is already underway

The EY analysis shows that the great automotive value shift is already underway and gaining momentum. There is an urgency for the players within the mobility ecosystem to optimize today's business while simultaneously innovating for tomorrow. The decision is not whether to engage with the value shift, but how to do so successfully to maximize revenues. 

Developing a reliable and diversified battery supply chain is crucial; China currently owns around three-quarters of global battery metal refining capacity, and various regions are imposing localization regulations (such as the US Inflation Reduction Act). Speeding up the EV transition requires vehicles with greater range, reliability and safety, and lower costs in a fiercely competitive market, as well as a robust charging infrastructure. Significant investments are planned in battery production and charging infrastructure across Europe; automakers have begun integrating vertically to optimize the energy density, lifecycle and thermal stability of their EV batteries.

Winning the great value shift

Understanding the great value shift is only the start — translating it into lasting competitive advantage calls for a complete strategic rethink. Companies in the market must focus on four pivotal actions to win the value shift race: building a culture of innovation; redefining strategy and customer experience; unlocking the value and potential of data; and nurturing future workforce skills.

As the value shift develops, so will the search for talent in these new areas intensify with the focus around skills shifting away from mechanical engineering and toward software and chemical engineering. Innovation in battery, robotics, artificial intelligence (AI) and data will become indispensable. Industry leaders must foster a high-performance culture centered on continuous learning, as workers must be upskilled and reskilled to remain competitive and support sector growth.

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About the EY Global Advanced Manufacturing & Mobility Sector

Urbanization, changing consumer expectations and emerging digital technologies are reshaping what’s possible, from the production and distribution of goods to the transportation of people. To succeed in this new world of mobility and smart manufacturing, incumbents must transform themselves at unprecedented speed — to think like an innovative startup, tap into new talent and engage the customer. With experience across the value chain and key technology alliances, our teams show clients how to create efficiencies now while adopting digitization and optionality for long-term growth. Automotive, transportation, aerospace, defense, chemicals and industrial products companies can draw on the strength of our network of cross-industry players and put our diverse range of approaches to use today to equip their businesses for tomorrow.