Critical Shifts:
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The Rise of "Two-Spec" Supply Chains: Trade risks, tariffs, and USMCA restrictions are forcing automakers to build dual value streams. Companies must now develop a highly compliant North American version alongside a "global-spec" version that heavily leverages cost-efficient Chinese technology.
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The "New ICE Age" vs. Global Reality: While China pushes full steam ahead on electrification, the U.S. is experiencing a temporary "New ICE Age" where internal combustion and hybrid vehicles remain highly profitable. However, complacency is a trap: plug-in electrics are still projected to hit 36% of global sales by 2030, and hiding behind protectionist walls leaves Western OEMs vulnerable to indirect Chinese entry.
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China's Leap from Export to Local Assembly: Facing extreme local competition ("involution"), Chinese automakers are projected to export nearly 10 million vehicles in 2026. Their ultimate goal is localized assembly abroad, bringing their own "China for China" supplier networks with them, making it incredibly difficult for traditional domestic suppliers to break in.
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The Next Frontier—AI-Defined Vehicles (AI-DV): The industry is already transitioning beyond software-defined vehicles (SDVs) to AI-defined vehicles that "learn and heal" autonomously rather than just receiving over-the-air (OTA) updates.
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The Microchip Crunch 2.0: Auto companies are about to face a massive supply headwind from tech giants. Big Tech's AI data centers are projected to consume 50% of the available global microchip supply over the next three years, requiring automakers to aggressively redesign products and form deep joint ventures to secure silicon.
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The 23rd annual AlixPartners Global Automotive Outlook projects demand to fall in major markets in 2026, including China and the U.S. China’s intense local competition and ongoing “involution” are also expected to drive Chinese automakers to seek growth in new markets.
The solidification of the automotive industry’s next era has begun, with the regionalization of vehicle architectures and supply chains, as well as supply uncertainty and trade risks.
These present major near-term challenges for auto companies as they reset on electric vehicles, face China’s increasing dominance, and address the transition beyond software-defined vehicles (SDV) to AI-defined vehicles (AI-DV), according to the study.
Sales volumes present a more nuanced picture. While China’s volumes are projected to show a modest recovery followed by gradual growth in the coming years, volumes in the U.S. and Europe are forecast to stagnate.
The Outlook also expects continued volume pressure to drive a further decline in sales for foreign automakers in China, increasing pressure on non-Chinese OEMs and suppliers to refocus on competitiveness in their home markets without China as a reliable profit center.
The Outlook states that U.S. government actions, USMCA 2.0, tariffs, limitations on Chinese-originated hardware and software, are creating the need for two value streams for auto companies: a USMCA-compliant version and a “global-spec” version, with significant technology and components from China.
“The auto industry’s new regionalization era lands virtually every company in this industry at a critical crossroads, weighing which markets, technologies, and partnerships to invest in at a time when significant disruption is the only constant,” said Mark Wakefield, global automotive market lead at AlixPartners.
“The USMCA renegotiation may lead to added cost to U.S. vehicles, with a larger piece of a smaller pie for the U.S., or an opportunity to create a ‘Fortress North America,’ with the U.S. at the center of a resilient and competitive industry with a supply chain leveraging the strengths and installed capacity in Mexico and Canada, and pre-competitive cooperation in the U.S. on the key areas such as battery supply chains, semiconductors, autonomy, and electrical architectures.”
This year’s Outlook analyzes a global industry where individual markets are heading in seemingly opposite directions. While China is firmly committed to electrification, the US appears headed for a “New ICE Age,” where sales of internal-combustion-engine (ICE) and hybrid vehicles remain dominant. That age will eventually melt, with the Outlook forecasting 36% of global sales will be plug-in electrified vehicles in 2030.
“ICE and hybrid buyers in the US present significant margin opportunities for companies in the near-term, but that could present a major longer-term risk,” said Dan Hearsch, global co-leader of the automotive and industrial practice at AlixPartners. “Becoming complacent within a protectionist wall could inevitably open the door to Chinese companies to take share in the U.S. marketplace through joint ventures, licensing or other indirect methods.”
The Outlook projects that Chinese automakers will export nearly 10 million vehicles in 2026, up from 7.1 million in 2025. But exports are seen as just the first phase of Chinese expansion, with the eventual target being localized assembly. Bridging these two approaches may include technology licensing, local contract manufacturing, and joint ventures in some protected regions, according to the Outlook.
“These Chinese automakers’ preference is for their existing supply base, and internal suppliers, to join them abroad,” said Stephen Dyer, Asia-Pacific Leader of the automotive and industrial practice at AlixPartners. “This makes it challenging for traditional suppliers with installed capacity in home markets to break into those customers, with successes coming only from leveraging established supply relationships in China – as the operating models of suppliers are now virtually all ‘China for China’ anywhere that Chinese automakers build or buy capacity,”
This comes at a time when the Outlook sees Chinese-brand vehicles securing a 17% market share in Europe (including Russia) by 2031, including a 25% jump to 2.3 million units this year, with particularly strong growth in Germany and France.
The Outlook also focuses on longer-term challenges that automakers must confront today. It predicts a shift from the jump to SDV to the next frontier of AI-DV, where the vehicle learns and heals rather than relies on over-the-air (OTA) fixes. This can deliver value through product-development efficiency as well as better vehicles, says the Outlook.
With AI data-center demand representing a significant headwind to the cost of this transition, the Outlook projects that data centers will claim 50% of available microchip supply over the next three years. To mitigate supply challenges, the Outlook suggests that auto companies pursue partnerships, undertake product-step redesigns, and partner with key technology companies through joint ventures and equity stakes.
