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Established manufacturers struggle with high production expenses and excess capacity, while companies such as BYD or Xiaomi are able to produce vehicles at roughly one-third of the cost.
The reasons for this disadvantage are multifaceted. Higher labor costs in Western markets play a role, but structural factors are even more decisive: new entrants rely heavily on automation, advanced manufacturing technologies, and compact, fully digitalized factories. They also benefit from low-cost suppliers in Asia, whereas many Western OEMs continue to depend on expensive, traditional supply chains. Moreover, legacy players often operate with complex structures and high overhead, while new competitors employ leaner organizations, make greater use of data and artificial intelligence, and are quicker to adopt modern practices.
A survey of nearly 400 executives further shows that many companies underestimate the urgency of the situation. Although senior leaders are aware of the problem, actions are often limited to incremental measures that yield only small annual efficiency gains of a few percentage points. Only a minority of incumbents are truly forward-looking and willing to make long-term investments in transformation.
To remain competitive, legacy automakers must undertake fundamental change. This includes identifying inefficiencies through rigorous benchmarking, investing in automation and more efficient equipment, and shifting supplier portfolios toward lower-cost providers. Equally important are leaner organizational structures, a cultural shift toward performance and discipline, and the reduction of production capacity where demand is unlikely to recover. Finally, new vehicle platforms must be developed from scratch—simpler, more modular, and with fewer variants—to dramatically improve efficiency.
The key message is clear: incremental fixes will not close the widening cost gap. Only bold, comprehensive transformation will enable traditional automakers to secure their competitiveness in the future.
