The global and local automotive industry is undergoing an unprecedented shift. While Western carmakers battle long, complex supply chains, legacy manufacturing processes, and uncertain regulations, Chinese EV disruptors such as BYD, XPeng, Geely and Chery Jaecoo, Exeed and others are moving at light speed. These brands are developing new EV models in as little as 18 months from concept to production, often using vertical integration, AI-driven production models and aggressive software innovation to rewrite the playbook for success, developing software, then hardware.
In 2024 alone, China’s BYD reported record electric vehicle (EV) and hybrid sales and is projected to surpass these figures in 2025 by a huge margin. Meanwhile, Honda, Nissan and Mitsubishi’s attempt to stay competitive through merger has failed due to power politics and lack of ‘fit’, and VW is in discussions to offload production capacity in Europe and in China. The message is clear: traditional OEMs must transform or risk becoming regional, niche players, losing the volumes their existing factories and business models require, as well as reduced volumes affecting residual values, with the consequent effects on leasing rates, leasing being a, if not the principle source, of vehicle sales.
Speed & agility over legacy
Chinese automotive brands’ fast development and innovation cycles are a manifestation of their fundamentally different approach to vehicle development and automotive value chain management. Their ability to move at this accelerated pace is driven by modular vehicle production and platforms, flexible supply chains and rapid prototyping processes that allow for swift adaptation to market demands. In contrast, traditional manufacturers remain encumbered by long, rigid development timelines that stretch across many years, limiting their ability to respond to emerging trends and customer expectations. Please note, however, when one looks at the BMW Shengyang Tiexi plant, here is one legacy company focusing on automation, which others might emulate.
To remain competitive, established carmakers transition from these legacy structures to a more agile, software-integrated production model. This means embracing leaner operating models, using data and technology to foster more cross-functional collaboration and innovation with speed and integrating AI to reduce time-to-market while maintaining quality. None of them are easy feats and will require vast amounts of resources allocated to change management.
Vertical integration
One of the most significant threats that Chinese EV disruptors wield over legacy automakers is their deep vertical integration. Unlike traditional OEMs, which rely on extensive networks of external suppliers, companies like BYD have tight control over their supply chains, spanning battery production, software development and even the sourcing of raw materials and rare earths for their battery production, although owning your own lithium mine is somewhat unusual. This approach not only reduces costs but also creates supply chain resilience which allows them to respond swiftly to market shifts and changes in consumer demand.
Established OEMs still rely heavily on highly-fragmented supplier ecosystems which makes cost reduction and innovation difficult in a short period of time, and fairly inflexible to changes in production volumes. To regain a competitive footing, legacy automakers need to either open up their value chain with more transparency to fuel innovation and speed or invest in proprietary capabilities such as in-house battery production and advanced software development to ensure vertical integration in EV battery production. It is being done, but too slowly in my view.
Compete on experience and connectivity, not just on price and branding
The future of automotive competition is no longer centered on horsepower or fuel efficiency – it’s about software and connectivity, and in some cases, then adding horsepower. The most successful disruptors in the EV market such as Tesla, (some could argue it’s a technology company or an electricity company, rather than a carmaker), invest heavily in software development and integrate digital connectivity, real-time updates/OTA (over-the-air), and in-vehicle HMI personalization as part of the consumer travel and driving experience.
Chinese consumers are very much the early adopters of connectivity as a core feature and buying decision in EVs, as well as comfort being important for them. Based on our own proprietary research, the younger generation in North America are demonstrating the same preferences and looking for those options from their own native and other auto OEMs.
These EV-native brands treat software as a core product, allowing them to roll out over-the-air (OTA) – downloadable - updates that improve vehicle performance, enhance safety and unlock new customer features over time. In contrast, many traditional OEMs still treat software (almost) as an afterthought, often requiring customers to visit dealerships for updates or limiting digital services to premium models or selected models within a particular vehicle range. Mercedes is reportedly delaying its electric CLA sedan due to software issues. Software needs to come first in this new paradigm, and OEMs must continuously evolve through cloud-based services and seamless integration with the driver’s digital ecosystems to compete.
With the continued decline in sales from established OEMs and a consistent increase of market share from Chinese EV brands, brand heritage and design prestige are also becoming obsolete. Beyond connectivity and personalization, OEMs need to also offer connected services and brand experiences beyond the points-of-sale. For example, Xiaomi is establishing itself as an IoT mogul that expanded its product line beyond smartphones to include a wide range of devices, such as smart TVs, air purifiers and now EVs, which they position as a digital cockpit rather than vehicles. All their ‘devices’ can be controlled using Xiaomi smartphones, creating an integrated ecosystem where users can enjoy a connected and cohesive experience.
The automotive landscape is shifting faster than ever, and traditional OEMs can no longer afford to move at legacy speed with the old mindset. The rapid rise of Chinese EV disruptors has exposed deep inefficiencies in existing automakers' operations, from long product development cycles to rigid supply chains and an outdated, transactional approach to customer relationships. To remain competitive, they must rethink their entire operating model and value chain – embracing agile, data-driven production, investing in proprietary supply chain capabilities and using software as a core product rather than an afterthought. More importantly, OEMs must stop treating customer relationships as a one-time transaction and instead build a connected ownership ecosystem that extends well beyond the point of sale.
