Traditionally, the automotive industry has been slow to develop, but 2024 seems to be a turning point. Many automaker CEOs have resigned, facing unprecedented pressure to survive. Even as the use of semiconductors per vehicle continues to increase, the performance expectations of many semiconductor suppliers in 2024 are still not optimistic. In this context, it is particularly important to understand the changing trends in the automotive industry. This article summarizes five key trends that TechInsights believes will impact the automotive electronics industry in 2025 and beyond.
Trend 1: Transformation of vehicle architecture – China leads the way
In the past, every function in a car was managed by a separate electronic control unit (ECU), but now functions are being consolidated into domain controllers, zone controllers, and even a single high-performance computing (HPC) unit. In 2025, with China's rapid electrification and the proliferation of blank paper designs, China is expected to dominate this architectural change, with more than three-quarters of regional controllers and HPC coming from China. With the gradual disappearance of these traditional control boxes, the revenue of the relevant suppliers will be affected. The number of automotive ECUs worldwide is expected to peak by 2027, and revenue will be driven by consolidated regional and HPC units.
Trend 2: Electric vehicle sales continue to grow
Although the battery electric vehicle (BEV) market did not grow as expected in 2024, the global market will still grow by 20% in 2024 and is expected to accelerate in 2025. The rapid expansion of the Chinese market and the promotion of Chinese automakers have made China the largest source of global demand for BEV semiconductors. Support for BEVs in the U.S. has weakened, but demand growth in China and elsewhere will fill the gap. As a result, suppliers need to re-examine their growth strategies and focus on the needs of Chinese OEMs.
Trend 3: The spread of Level 2 autonomous driving
While fully autonomous driving is still not widespread, Level 2 automation is fast becoming mainstream. This technology provides steering, braking and acceleration support to the driver, but still requires driver supervision. It is expected that by 2025, close to 25% of new cars will achieve this level of automation. In the future, the focus will be on developing super cruise systems and finding more revolutionary paths to higher levels of automation. TechInsights predicts that the ADAS processor market will exceed $12 billion by 2031, showing strong growth.
Figure: Key trends in the automotive industry in 2025 (Source: WSJ).
Trend 4: Application of artificial intelligence in the cockpit
The use of AI in automobiles has been around for decades, but in recent years, with the development of autonomous driving technology and the rise of generative AI, AI applications in the automotive industry have ushered in a new upsurge. Especially when it comes to in-car experience, generative AI has begun to be widely used in the field of digital assistants. This presents a huge opportunity for suppliers. The key to success is the ability to support hybrid edge/cloud architectures and effectively address the potential risks of generative AI.
Trend 5: The impact of inventory is gradually fading
From 2022 to 2023, automotive semiconductor suppliers experienced unprecedented growth, mainly due to the replenishment of inventories by automakers after the pandemic. However, in 2024, the situation will be reversed, and the decline in production and poor sales of some electric vehicles will lead to excess inventory and orders will start to slow down. The automotive semiconductor market revenue is expected to decline by $6.4 billion from 2024 to 2025, but the situation will gradually improve. Suppliers need to keep a close eye on supply and demand dynamics and ensure that the right supply agreements are in place with customers.
Summary: Structural change and the Chinese market will dominate the future
The automotive industry in 2025 will be determined by structural changes, electrification, the drivers of the Chinese market, and changes in the supply chain. While the concept of "software-defined vehicles (SDV)" is frequently popped, architectural changes are actually the key to achieving SDV. Chinese OEMs play an important role in this process, and global suppliers must keep an eye on the changes and needs of the Chinese market to develop a suitable growth strategy.
