How AI is transforming the automotive industry – and the customer experience
AI is transforming the auto industry with driver assistance systems and autonomous driving, quality control, and production.
It’s been a bumpy ride for the automotive industry for a few years now. Supply chain shortages alongside inflation that slowed consumer spending and raised production costs have plagued the industry. As it forges ahead, what are the automotive trends to watch in 2025?
Electrification and autonomous vehicles will remain megatrends transforming the industry, forcing automakers, suppliers, and dealers to adapt to new technologies and ways of doing business. In order to remain competitive, industry players will have to move fast.
With established automakers facing nimble startups in the mobility race, building new business should be a priority for auto executives, according to McKinsey & Company. Data-driven connectivity services and on-demand mobility could add up to $1.5 trillion to the automotive revenue pool by 2030, they said.
2025 automotive trends
As auto leaders plan for growth, they’ll be leaning on artificial intelligence. AI is impacting every aspect of the industry, and everything inside and outside of the car.
The automotive AI software market is expected to reach around $200 billion by 2032.
Examples inside the vehicle include advanced sensors to virtual assistants, intuitive interaction with in-car infotainment, vehicle safety, and the relationship between vehicles and the environment. Outside of the vehicle, examples include customers being able to visualize car configurations in seconds, tools for dynamic pricing, improved supply chain management, and more efficient production.
Stellantis and Mercedes-Benz have integrated ChatGPT to allow passengers to interact more naturally with their vehicles. These systems act as virtual travel companions, offering insights on destinations and local attractions.
AI plays a big role in the automotive trends for 2025:
- Autonomous driving: The pace of driverless car development will accelerate as the industry counts on growing consumer confidence in autonomous driving.
- Electrification: Electric vehicles will gain more traction, boosted by growing consumer demand, supportive regulations, and advancements in battery technology.
- Connectivity + the rise of the software-defined vehicle: Connectivity is set to transform the driving experience by integrating vehicles into the IoT ecosystem, using data to enable a highly personalized journey.
- Changing customer preferences: Automakers will focus on the customer more than ever in order to deliver the right services and experiences by understanding the customer’s perspective and their individual preferences.
- Resilient supply chain + smart manufacturing: The automotive industry is strengthening its supply chain by diversifying suppliers, adopting advanced technology, and prioritizing sustainable practices.
- Servitization: Automakers are exploring new revenue models beyond selling products. This servitization trend will grow in 2025, as companies for ways to sell everything as a service.
- Sustainability: With sustainable sourcing, EV production, and the focus on e-mobility, the automotive industry is taking steps to reduce its environmental impact.
- Smart cities: Smart cities are set to have a profound impact on the automotive industry, reshaping business models and consumer behavior.
1. Autonomous driving trend speeds ahead
Despite years of excitement around emerging technology for autonomous driving, the pace of developing driverless cars and deploying them has been slower than originally anticipated. Expect that to change in 2025.
Recent advances in technology have sped things up. The market for autonomous cars is expected to balloon from $60.3 billion in 2025 to $449 billion by 2035, achieving a compound annual growth rate (CAGR) of 22.2% during this period.
But the automotive industry has some work to do in breaking down barriers to widespread acceptance, as the greater public has mixed feelings about the autonomous driving trend.
A Pew Research study found that 44% of Americans view self-driving cars as a bad for society. However, those under 50 were more open to riding in an autonomous vehicle compared to those over 50 (47% vs. 25%).
In 2025, building customer confidence in the safety and reliability of autonomous vehicles through demonstrations, transparency about the technology used, and increased safety will be essential for earning public acceptance and achieving growth. Projections suggest autonomous driving could save 3,200 lives and prevent 53,000 serious accidents by 2040.
2. Automotive trends: E-vehicles race to the top
The electrification of vehicles aligns naturally with the rise of autonomous driving, thanks to shared technological compatibility, environmental benefits, and economic advantages. Electric vehicles (EVs) are gaining traction as a viable alternative to traditional combustion-engine cars.
This shift towards e-mobility is driven by growing consumer demand, supportive regulations, and advancements in battery technology.
Deloitte projects that by 2025, 18% to 36% of all vehicles sold will include alternative powertrains such as battery electric vehicles (BEVs), plug-in hybrids, or fuel cells.
EVs could account for over 20 million in sales by 2025, representing as much as 23% of the global light-vehicle market and nearly 20% of total global vehicle sales, according to estimates. By contrast, sales of combustion engine vehicles are expected to sharply decline, potentially disappearing in major markets such as China, North America, and Germany by 2030.
To encourage EV uptake, governments are introducing subsidies and tax incentives, while automakers are teaming up with tech firms to achieve “emissions-free” technology and advance carbon-neutral mobility for a sustainable future.
However, widespread EV adoption depends on overcoming infrastructure challenges, such as availability of charging stations. High prices are another barrier. Fortunately, advances in battery technology over the next few years are likely to reduce battery costs, making EVs more affordable and accessible.
3. Connectivity and the rise of the software-defined vehicle
Connectivity is set to transform the driving experience by integrating vehicles into the internet of things (IoT) ecosystem, using data to enable a highly personalized journey.
Imagine your car “shopping” for you, suggesting errands optimized by proximity, recommending a coffee stop when it senses your fatigue—and even paying for it in advance! The connected vehicle trend aims to make every moment of your drive more efficient and enjoyable.
The software-defined vehicle (SDV) trend goes a step beyond connectivity, relying on software updates rather than hardware changes to maintain peak performance.
Traditional vehicles require mechanical maintenance and can face recall delays due to parts shortages, with back-ordered components sometimes taking months to arrive. SDVs can be continuously improved, updated, and customized with over-the-air (OTA) updates, much like the software updates for smartphones or laptops. These updates deliver new features, performance enhancements, and bug fixes directly to the vehicle without any need for a visit to the shop.
The global connected car market is projected to grow significantly, from $56 billion in 2020 to $121 billion in 2025, according to Statista.
Experts anticipate that over 400 million connected vehicles will be in use next year, fueled by partnerships between tech companies and automakers.
For example, automaker Stellantis teamed up with Amazon to develop its “smart cockpit,” an electronic platform set to be featured in vehicles across the company’s 14 brands.
In essence, connectivity is poised to redefine how consumers interact with their vehicles and how automakers compete in the market.
4. Automotive industry adapts to 2025 customer preferences
The growth of connected vehicles and personalized driving experiences means that automakers will focus on the customer more than ever. In order to deliver the right services and experiences, they need to understand the customer’s perspective and their individual preferences.
Connected vehicles provide real-time insights into customers, vehicles, and usage. In customer-facing processes, companies can apply digitization, automation, and AI to provide cohesive experiences across all sales channels.
Automakers are partnering with tech companies to develop smart features, integrating vehicles with IoT, and offering services such as remote updates, safety enhancements, and urban infrastructure connectivity.
This automotive customer-centric trend comes as consumer auto buying preferences continue to shift. Younger demographics, especially Gen Z, increasingly favor eco-friendly, tech-focused mobility options.
A Cars.com survey found that 54% of Gen Zers would consider buying an EV compared to 41% of Gen Xers. Gen Zers cited long-term financial advantages and reduced environmental impact as reasons they might buy an EV.
e-mobility: Driving the industry toward a carbon-neutral future
Carbon-neutral e-mobility involves a range of practices + solutions across industries, including responsible mining, closed-loop recycling, efficient fleet management, and circular logistics.
5. Resilient supply chain: 2025 automotive trend
The automotive industry is strengthening its supply chain by diversifying suppliers, adopting advanced technology, and prioritizing sustainable practices. This trend helps manufacturers avoid supply chain disruption so they can meet consumer demands reliably.
To reduce reliance on single sources, automakers are diversifying their supplier base. Integrating AI and IoT into the supply chain enables real-time monitoring and faster response to disruptions.
Nearly 42% of auto executives surveyed by SAP said improving or expanding supplier and partner networks is a top priority in their business growth plans.
Last year, the carmaker Renault Group renewed its partnership with the prestigious École des Ponts ParisTech in order to accelerate innovation in the supply chain using AI.
Sustainable sourcing is another trend, with renewable materials reducing risks. By adopting flexible, tech-forward, and sustainable practices, the automotive industry is building a robust supply chain capable of withstanding challenges, from natural disasters to global pandemics.
6. Auto industry leans into servitization
Like other manufacturers, automakers are exploring new revenue models beyond selling products. This servitization trend will grow in 2025, as companies find ways to sell everything as a service.
The global XaaS market is expected to grow to $3,221.96 billion by 2030, up from $699.79 billion in 2023.
In the automotive industry, business networks will be key for expanding into a services model. The network can provide bundled mobility services and subscriptions based on vehicle data. Examples include insurance packages, helping customers reduce their carbon footprint, and connecting them to maintenance services.
Servitization provides ongoing revenue while improving the driver experience and reducing environmental impact. Automakers can leverage it to support both vehicle ownership and alternatives like leasing and renting.
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7. Driving towards sustainability
With sustainable sourcing, EV production, and the focus on e-mobility, the automotive industry is taking steps to reduce its environmental impact, but has a long way to go: It’s responsible for more than 10% of global carbon dioxide emissions, according to a World Economic Forum report.
However, the industry is demonstrating a commitment to change with a relentless focus on increasing electric vehicle adoption and supply chain decarbonization, the report noted.
Circular economy practices such as battery recycling and increased traceability also are helping to make auto supply chains more sustainable.
Industry collaboration plays a big role here. For example, Catena-X developed a uniform, secure data exchange system with multiple partners, including carmakers, suppliers, and others, to enable end-to-end traceability.
AI innovations also increase efficient, eco-friendly mobility by optimizing vehicle routes, improving traffic flow, and guiding fuel-saving and emission-reducing driving practices.
8. The smart cities effect
Smart cities are set to have a profound impact on the automotive industry, reshaping business models and consumer behavior. Smart cities are urban areas designed to leverage technology, data, and connectivity to improve efficiency, sustainability, and residents’ quality of life.
Increased connectivity will make vehicles part of the broader city infrastructure, enabling real-time data sharing to improve traffic flow and safety. For example, San Francisco, Phoenix, and Beijing were among the first cities to embrace driverless or robot taxis. These cars use the highest level of autonomy, relying on sensors and AI to detect their surroundings, read and analyze the information from the environment, then decide on an action and implement it.
By 2030, more than one in three kilometers driven could involve sharing concepts, and autonomous mobility could account for up to 40% of a smart city’s overall traffic.
Smart cities will influence everything from vehicle connectivity and urban mobility to operational strategies. As vehicle design, manufacturing, and urban planning evolve with smart city initiatives, automakers must keep up with this growing trend.
Smart City to Future City: Addressing the 21st century urbanization challenge
Cities around the world are competing on the global stage for investment and top talent. By becoming a smart city, they become more appealing.
The road ahead for the auto industry
While there are a lot of opportunities ahead for automakers and others in the industry, there will be plenty of challenges. Cost pressures, increased competition, and globalization will remain constant pressures on auto leaders as they look to remain competitive.
The growing trend of shared mobility also looms large as more people use shared transportation methods instead of owning cars. This will be a factor in slowing the growth rate of global auto sales from 3.6% in recent years to about 2% by 2030, according to McKinsey & Company.
The decline will be offset by shared vehicles that need more frequent replacement as well as growth in emerging markets like China, they said.
Auto brands that stay on top of these trends and continue to innovate can build a resilient business as we head towards a more electrified, autonomous, connected, and sustainable future.