Profit Structure Shaken by Electrification, China's Offensive, and Changes in Trade Environment

The global automaker industry is facing a double burden of slowing sales growth and deteriorating profitability. Analysis has emerged indicating that it has become difficult to maintain the high profitability of the past as investments in electrification transition and increases in software (SW) development costs, expansion of supply by Chinese companies, and strengthening of protectionist trade policies work together in a complex manner.

Kim Han-sol, Senior Researcher at the Korea Automotive Research Institute, diagnosed in an industry analysis report released on the 30th that the recent deterioration in profitability in the global automotive industry has a structural character.

According to the report, the combined operating profit of 20 major global automakers recorded $196 billion in 2023 and has since shifted to a declining trend. By 2025, it shrank to $59 billion, down 62.9% year-on-year. The operating margin also declined from 7.9% in 2023 to 2.3% in 2025.

Electrification Investment and Intensified China Competition

The report cited the burden of operating multiple powertrain systems that occurs during the electrification transition as the background for the deterioration in profitability.

As the transition to battery electric vehicles (BEV) progresses more gradually than expected, automakers are facing a situation where they must simultaneously maintain production systems for internal combustion engine vehicles (ICE), hybrid vehicles (HEV), and electric vehicles. In this process, platform development and production facility investment costs continue to occur.

Additionally, investments in autonomous driving, software-defined vehicles (SDV), and artificial intelligence (AI) are also expanding. However, the analysis indicates that as the monetization pace of related technologies falls short of expectations, the cost burden increases while revenue generation is delayed.

Moreover, the expansion of Chinese companies into overseas markets is also intensifying global competition. Chinese automakers are increasing production volumes despite accepting lower profitability, and are rapidly expanding their market share in Europe.

Profitability Recovery Difficult with Sales Increases Alone

The report forecasts that the competitiveness of automakers in the future is likely to be determined more by production flexibility and investment efficiency than by sales volume expansion.

In particular, the analysis highlighted that establishing a multi-powertrain production system capable of producing internal combustion engine vehicles, hybrid vehicles, and electric vehicles in a single factory is important to respond to differences in electrification speed by region.

Additionally, the report suggested that in the process of investing in future technologies such as SDV and AI, joint development and standardization strategies are needed to reduce redundant investments and concentrate resources on fields requiring core competencies.

The report evaluated that the future task of the automotive industry is not simply sales expansion but securing the execution capability to link future investment results to actual sales and profits while maintaining profitability of existing operations.