The heart of the global automotive industry was established in Detroit at the beginning of the 20th century by three major auto giants. The revolutionary T-car assembly line ushered in a new era in large-scale automobile production, transforming cars from unattainable luxury goods into mass-produced goods entering millions of homes. During the glory days of the Model T in Detroit, no other place in the world mass-produced combustion-engine vehicles at such a high rate. Given the turmoil caused by US trade policy, it's clear that automakers need new strategies. Automakers are opting for a "wait and see" approach, opting for restraint, "not yet reacting." With the situation more uncertain than ever, it remains to be seen whether future investments will focus on Asia, Europe, or the Americas.
The world's four major automotive cities—Detroit, Stuttgart, Turin, and Korona—remain the heart of the automotive industry. Shenzhen has taken its place among these cities in this new era. The automotive sector's recent R&D efforts, driven by advancements in artificial intelligence, electric vehicles, and ecosystem development, make it inevitable that countries will invest in "auto cities" to become centers in this field in the future.
The US's departure from established trade practices is leaving a lasting impact on the global automobile industry. Automakers are trying to plan for the future with new strategies. A new era in production: Geographic diversification. Automotive manufacturers now believe that greater geographical diversification of production is necessary. This approach means reducing dependence on any country's trade rules and expanding production across different regions. In this context, the principle of "produce where you sell"—that is, producing in the markets where vehicles are sold—is becoming increasingly important. While not yet fully established, it is clear that value creation is increasingly shifting to the regions where vehicles are marketed.
The US's recent, rapidly changing trade and economic policies are making it difficult for the automotive sector to manage this process without developing new strategies. The constant uncertainty created by these policies can be considered the beginning of a new era for manufacturers and suppliers who must engage in long-term planning and coordinate complex supply chains. The newly emerging ecosystem is deepening the uncertainty in the automotive sector, posing a significant challenge for automakers already grappling with numerous challenges. Some manufacturers, seeking to avoid high tariffs in the long term, are considering relocating their production to the US or other locations. Some premium brands are exploring new factory construction and considering different partnership models.
Consequently, rising costs inevitably lead to higher prices. This could lead to a decline in global demand, leading to a decline in revenues and profits. While the US tariffs are only one component of the economic agenda, they alone trigger market volatility, threatening the very foundations of global trade. Global vehicle sales in 2024 are projected to reach 74.6 million units, a 2.5% increase compared to 2023. While total global vehicle production in 2024 is projected to reach 75.5 million units, EU vehicle production remains significantly weaker, falling by 6.2%. Production in North America decreased by 3.2%, with 11.4 million cars produced last year. Automobile production in South America is expected to increase by 1.7% in 2024 compared to 2023. Brazil, which produced approximately 1.9 million cars and saw a 6.3% increase, led the way in this increase. China, with a strong 5.2% increase, further solidified its position as the world's largest automaker with a 35.4% market share, while production in Japan and South Korea decreased by 8.6% and 1.2%, respectively.
While tariffs encourage local production, manufacturers appear to be experiencing various disruptions in the process of restructuring their supply chains. For example, the US electric vehicle market, expected to reach $233 billion by 2032, is noteworthy. Limited access to the US market forces Chinese manufacturers to turn to alternative regions such as Europe and Southeast Asia. In Asia, India is benefiting from the changes created by tariffs by increasing local production through various programs.
Major European automakers are facing increasing tariffs on their exports to the US, encouraging them to increase intra-European sales and explore new partnerships. Southeast Asian countries, meanwhile, are attracting investment thanks to manufacturers seeking duty-free zones for component production and assembly. Meanwhile, Latin America, with its proximity to the North American market, stands out as a potential hub for electric vehicle component production.
