Automotive Industry: Transformation, Challenges, and the Future of Leadership

The global automotive industry is undergoing one of the most profound transformations in its history. Driven by the need for greater sustainability, the rapid evolution of technology, and shifting consumer expectations, the industry faces complex challenges that will require both a strategic repositioning of companies—and leaders capable of navigating a highly volatile landscape, especially in developing countries like Brazil.

In this piece, we explore the key challenges and trends shaping the sector’s transformation, discussing how leadership must adapt and sharing insights from top industry leaders. They offer perspectives on the future of mobility and the strategic role of leadership in addressing critical issues—from energy transition, business profitability, and technological transformation to digitalization, talent retention, and leadership succession.

The transition to electric vehicles (EVs) is one of the biggest challenges facing the automotive industry. While EVs have strong consumer appeal from a sustainability standpoint, scaling them economically and technically remains a significant hurdle. Challenges include the massive infrastructure overhaul required throughout the supply chain, high production costs, and market resistance to replacing familiar solutions. Leaders must balance the benefits of innovation with financial feasibility.

In Brazil, hybrid solutions—combining gasoline, biodiesel, ethanol, and electric power—are seen as more viable in the short and medium term. Biodiesel is already blended into fossil diesel, and ethanol, particularly second-generation ethanol, is considered a competitive advantage for the country. Not only does ethanol efficiently reduce the carbon footprint, but it is also deeply integrated into Brazil’s automotive culture, with an industrial base capable of producing vehicles for a consumer-friendly market segment. Hybrid cars with a range of up to 745 miles (1,200 km) are already being positioned as the future, but finding the right balance between technological adaptation, energy efficiency, and cost remains a long journey.

These challenges place industry leaders in a delicate position. While driving technological advancements—especially in energy efficiency, which both society and markets expect—they must also manage short-term investor expectations and ensure business sustainability.

While advances in technology enhance products and add value for consumers, they also have a direct impact on the value chain and automakers’ profitability. As a result, the industry’s business model is also undergoing transformation.

The shift to EVs and digitalization is forcing leaders to rethink their approach. Increasing profit margins is crucial to offset substantial investments in new technologies and infrastructure, as well as the potential loss of revenue from after-sales services. For instance, the electrification transition brings benefits such as lower carbon emissions and reduced maintenance needs, which in turn decrease the demand for service infrastructure. Currently, after-sales services (maintenance, parts, and accessories) contribute significantly to automakers’ revenues, but this segment could see its profitability drop by up to 50% over the next 10 to 15 years.

Adding to the complexity, EV profitability remains constrained, as low production scale keeps unit costs high. This increases market resistance, requiring leaders to refine their consumer marketing strategies—precisely at a time when they also need to cut costs and optimize expenses across personnel, facilities, and supply chains.

Given these challenges, automakers must adopt new business models to boost profitability. Strategic partnerships with mobility sector players and an expanded ecosystem of services—beyond traditional offerings—will be essential to counterbalance revenue losses and electrification hurdles.

Finally, shifting global competition—especially with the rise and international expansion of Chinese automakers, particularly in the EV market—will require industry leaders to engage more actively in public policy discussions to ensure fair competition and support domestic manufacturing. Brazil and other Latin American countries must decide whether they want to remain competitive in the automotive industry or rely on imports—decisions that will demand leaders with strong negotiation skills to engage with government agencies and regulators.

Another key factor in the sector’s transition is the shift from a hardware-focused industry to one increasingly centered on software. This transformation is driven by embedded digital technology in vehicles and the automation of manufacturing facilities, reshaping how factories operate.

Modern automobiles are becoming software-driven. Features such as infotainment systems, driver-assist technologies, and connected vehicles are turning cars into highly customizable platforms—much like smartphones—tailored to individual user needs and preferences.

Consumer expectations are evolving rapidly, requiring leaders to reassess their strategies and business models, whether in product development or new ownership formats. For example, demand is rising for mobility solutions beyond traditional ride-hailing apps, such as car-sharing and rental options instead of long-term financing.

Technology is also transforming the purchasing experience. Traditional showroom visits are increasingly supplemented by digital journeys, with most research and interactions occurring online before consumers step into a dealership. This shift requires industry leaders to develop innovative digital platforms that align with expectations for a more connected and personalized experience.

Digital transformation is also driving operational efficiency gains, reducing costs and lead times—an essential competitive advantage for legacy automakers competing with agile startups and factories equipped with cutting-edge technology.

However, upgrading the industry’s technological landscape requires more than just investments in proprietary assets and technology. Strengthening the supply chain, keeping pace with market evolution, and ensuring a well-trained workforce are just as critical.

Talent development and retention pose significant challenges, particularly as the automotive industry competes with tech firms, startups, and other sectors more attractive to younger generations.

The perception of the automotive sector as traditional and conservative makes it harder to attract young talent seeking dynamic and innovative work cultures. However, those who join quickly realize they are part of an industry that directly impacts society and the global economy, addressing real challenges in mobility, sustainability, and innovation.

The ability to influence consumer behavior and drive product innovation is increasingly appealing to professionals seeking disruptive environments. The growing customization of vehicles—akin to smartphones—is a tangible example of this transformation, redefining mobility while attracting young professionals eager to make an impact in innovation ecosystems.
 

To remain attractive to new talent and professionals from outside the industry, the automotive sector must address structural challenges, including rigid organizational hierarchies (“command and control” cultures), traditional office setups, and limited workplace flexibility.

Creating a culture that balances collaboration, performance, and a more dynamic environment will be essential for attracting and retaining talent. Equally important will be adopting flexible work models that align industry productivity needs with new generational expectations—not only to enhance competitiveness in recruiting but also to build teams ready for the future of automotive leadership.

For the first time in its history, the automotive industry is reflecting on how future generations—including senior leaders in a few decades—will view it as an attractive long-term career opportunity. This reflection extends to leadership styles and mindsets in historically hierarchical environments. It is an invitation for senior leaders to adopt a more adaptive approach, whether in developing young talent or fostering open dialogue and idea exchange.
 

Investing in succession planning and leadership development is essential to prepare the next generation for the sector’s challenges. Yet, the industry has been slow to advance in this area, with executive development remaining limited.

Automotive leadership has traditionally required a multidisciplinary vision, balancing technological innovation, commercial strategy, and people management. However, today’s leaders must go further, developing agility in decision-making, uncertainty management, digital fluency, and external partnerships to bring a broader mobility and digitalization perspective to their business strategy.

Tomorrow’s leaders must embrace resilience, openness to new ideas, and active listening—critical skills to adapt a highly operational industry to an increasingly dynamic market.
 

The success of tomorrow’s automotive industry hinges on leaders’ ability to navigate the complex intersections of sustainability, talent retention, and innovation—and implement solutions at the necessary speed. Those who adapt quickly will be best positioned to drive innovation and maintain competitiveness.

The next few years present a window of opportunity for leaders who can align adaptability, innovation, and purpose—placing themselves at the forefront of an evolving market.
 

Ultimately, the future of the industry belongs to leaders who can balance technological ambition with economic and social responsibility. In this pivotal moment, transforming leadership isn’t just a competitive advantage—it’s an existential necessity.

Suzana Pacheco, a former consultant of Egon Zehnder, co-authored this article.