Stagnating demand in Western markets, the end of the ‘global car,’ and the cost of electrification reset profit margins - the triple conundrum facing car makers and suppliers, says AlixPartners analysis

• After decades of globalization, an era of regionalization is now firmly embedded, driven by geopolitics and the rise of low-cost, high-tech vehicles from China 
• China’s ambition to enter new markets challenges traditional automakers and suppliers alike, with Europe’s Chinese-brand share forecast to reach 16% by 2030 following a 25% sales increase this year
• The ‘New ICE Age’ in the U.S. creates near-term cash-flow opportunities, but also an existential challenge of eroding long-term competitiveness if companies squander the window
• An ideal ‘USMCA 2.0’ would focus on competitiveness with China rather than Mexico or Canada, minimize the costs added to U.S. vehicles, and support investments in resiliency and affordability, through pre-competitive technology and capacity cooperation with the proceeds from tariffs 
• The hidden compliance costs for ‘USMCA 2.0’ could add up to $2,000 per vehicle in annual costs 
• U.S. new-vehicle sales in 2026 forecast to fall 2.5% to 15.8 million, rising to 16.8 million by 2030 as new vehicles continue to be affordable only to the affluent 
• China sales are forecast to fall 10% this year to 24.6 million, rising to 26.2 million in 2030 
• AI-defined vehicles represent the next frontier in automotive technology, but data centers are expected to double their share of key memory demand to almost 50% by 2028—leading to elevated price levels as auto companies expand use 
• Stagnant Western-market volumes are leading automotive companies to pursue new, ‘adjacent’ sectors such as defense, humanoid robotics, and energy storage, but many lack the manufacturing scale and setup to meet the requirements

 

DETROIT, LONDON, and SHANGHAI (June 25, 2026) – The solidification of the automotive industry’s next era has begun, with the regionalization of vehicle architectures and supply chains, as well as supply uncertainty and trade risks. These present major near-term challenges for auto companies as they reset on electric vehicles, face China’s increasing dominance, and address the transition beyond software-defined vehicles (SDV) to AI-defined vehicles (AI-DV), says an industrywide analysis from AlixPartners, the global consulting firm.

The 23rd annual AlixPartners Global Automotive Outlook projects demand to fall in major markets in 2026, including China and the U.S. China’s intense local competition and ongoing “involution” are also expected to drive Chinese automakers to seek growth in new markets.
 
Sales volumes present a more nuanced picture. While China’s volumes are projected to show a modest recovery followed by gradual growth in the coming years, volumes in the U.S. and Europe are forecast to stagnate.
 
The Outlook also expects continued volume pressure to drive a further decline in sales for foreign automakers in China, increasing pressure on non-Chinese OEMs and suppliers to refocus on competitiveness in their home markets without China as a reliable profit centre.

The Outlook states that U.S. government actions, USMCA 2.0, tariffs, limitations on Chinese-originated hardware and software, are creating the need for two value streams for auto companies: a USMCA-compliant version and a “global-spec” version, with significant technology and components from China. 

“The auto industry’s new regionalization era lands virtually every company in this industry at a critical crossroads, weighing which markets, technologies, and partnerships to invest in at a time when significant disruption is the only constant,” said Mark Wakefield, global automotive market lead at AlixPartners. 

“The USMCA renegotiation may lead to added cost to U.S. vehicles, with a larger piece of a smaller pie for the U.S., or an opportunity to create a ‘Fortress North America,’ with the U.S. at the center of a resilient and competitive industry with a supply chain leveraging the strengths and installed capacity in Mexico and Canada, and pre-competitive cooperation in the U.S. on the key areas such as battery supply chains, semiconductors, autonomy, and electrical architectures.” 

This year’s Outlook analyzes a global industry where individual markets are heading in seemingly opposite directions. While China is firmly committed to electrification, the US appears headed for a “New ICE Age,” where sales of internal-combustion-engine (ICE) and hybrid vehicles remain dominant. That age will eventually melt, with the Outlook forecasting 36% of global sales will be plug-in electrified vehicles in 2030. 

“ICE and hybrid buyers in the US present significant margin opportunities for companies in the near-term, but that could present a major longer-term risk,” said Dan Hearsch, global co-leader of the automotive and industrial practice at AlixPartners. “Becoming complacent within a protectionist wall could inevitably open the door to Chinese companies to take share in the U.S. marketplace through joint ventures, licensing or other indirect methods.”

The Outlook projects that Chinese automakers will export nearly 10 million vehicles in 2026, up from 7.1 million in 2025. But exports are seen as just the first phase of Chinese expansion, with the eventual target being localized assembly. Bridging these two approaches may include technology licensing, local contract manufacturing, and joint ventures in some protected regions, according to the Outlook.

“These Chinese automakers’ preference is for their existing supply base, and internal suppliers, to join them abroad,” said Stephen Dyer, Asia-Pacific Leader of the automotive and industrial practice at AlixPartners. “This makes it challenging for traditional suppliers with installed capacity in home markets to break into those customers, with successes coming only from leveraging established supply relationships in China – as the operating models of suppliers are now virtually all ‘China for China’ anywhere that Chinese automakers build or buy capacity,” 

This comes at a time when the Outlook sees Chinese-brand vehicles securing a 17% market share in Europe (including Russia) by 2031, including a 25% jump to 2.3 million units this year, with particularly strong growth in Germany and France.

The Outlook also focuses on longer-term challenges that automakers must confront today. It predicts a shift from the jump to SDV to the next frontier of AI-DV, where the vehicle learns and heals rather than relies on over-the-air (OTA) fixes. This can deliver value through product-development efficiency as well as better vehicles, says the Outlook. 

“The race to create smarter vehicles represents an exhilarating opportunity for the industry’s aggressive movers, but the race to secure the building blocks for that future is going to be a major challenge.” said Andrew Bergbaum, global co-leader of the automotive and industrial practice at AlixPartners. “Semiconductors are the world’s most coveted vehicle component, forcing automotive companies to vie with data centers and countless hardware makers to secure adequate chip supply at reasonable costs.” 

With AI data-center demand representing a significant headwind to the cost of this transition, the Outlook projects that data centers will claim 50% of available microchip supply over the next three years. To mitigate supply challenges, the Outlook suggests that auto companies pursue partnerships, undertake product-step redesigns, and partner with key technology companies through joint ventures and equity stakes.

Another strategy the Outlook expects to gain traction is diversification into adjacent sectors that provide auto companies with new growth pathways without needing to dislodge existing supply capacity. These include battery-energy storage solutions; automation; and defense. However, the Outlook finds that many automotive players are not yet prepared to capitalize on these opportunities. 

“The auto industry has long been interested in diversification, with forays into sectors that include the aftermarket, commercial vehicles, aerospace and powersports,” said Xing Zhou, DACH (Germany-Austria-Switzerland) co-lead of the automotive and industrial practice at AlixPartners. “Tomorrow’s strategy will be a balancing act of weighing market attractiveness versus fit for auto companies seeking growth. In cases where transferable products and process knowledge exist, the biggest constraints will be certification and customer access.”

###

About AlixPartners
AlixPartners is a results-driven global consulting firm that specializes in helping businesses successfully address their most complex and important challenges. Our clients include companies, corporate boards, law firms, investment banks, private equity firms, and others. Founded in 1981, AlixPartners is headquartered in New York, and has offices around the world. For more information, visit www.alixpartners.com.

Contact: 
Tim Yost
+1.248.227.1694
[email protected]