Executive Summary: ISG Provider Lens™ Automotive and Mobility Services and Solutions - Europe 2025
03 Jul 2025
by Harish B
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Europe’s auto/mobility sector faces green transition, EV adoption, digitalization and supply chain resilience
The European automotive and mobility services sector is undergoing a profound transformation as it navigates a complex landscape shaped by technological innovation, regulatory shifts, evolving consumer expectations and global economic pressures. The sector is experiencing a pivotal moment, with 2025 marking a year of significant opportunity and considerable turbulence. The green transition is central to this transformation, a continentwide imperative fundamentally altering the industry’s priorities, business models and competitive dynamics.
The accelerated shift toward electric vehicles (EVs) and hybrid powertrains is central to the ongoing changes. Driven by the EU’s ambitious climate targets and the planned phase-out of internal combustion engine (ICE) vehicles by 2035, automakers are rapidly scaling their investments in EV technology and sustainable manufacturing practices. This is not merely a matter of compliance but a strategic necessity as consumer demand for cleaner, more sustainable mobility solutions rises. In the first quarter of 2025, battery electric car sales in the EU grew by nearly 24 percent, capturing over 15 percent of the total market share, a clear indicator of the direction in which the market is moving. The green transition extends beyond the vehicles, encompassing the entire value chain. Automakers are not only redesigning vehicles to accommodate new powertrains, but also investing in battery recycling, sustainable sourcing of raw materials and developing robust charging infrastructure to support widespread EV adoption.
Digitalization and automation are redefining both the manufacturing process and the in-car experience. Adopting Industry 4.0 principles, characterized by smart factories, the IoT, AI and advanced robotics, enables manufacturers to
enhance efficiency, reduce costs and improve product quality. These technologies facilitate real-time monitoring, predictive maintenance and flexible production lines that can quickly adapt to changing market demands. The rise of software-defined vehicles (SDVs) is another critical trend. Increasingly, the value proposition of new vehicles depends on their digital capabilities, from advanced infotainment systems to autonomous driving features. European manufacturers are pressured to regain leadership in software and AI-powered mobility, as overseas competitors benefit from assertive industrial strategies and substantial state support.
Global supply chain risks and dependencies on imported raw materials and batteries further complicate the competitive landscape. The European Commission has acknowledged the need for decisive action to secure the industry’s competitiveness and resilience. This includes localizing battery production, securing access to critical raw materials and strengthening the region’s position in strategic technologies such as autonomous driving and connected vehicle platforms. The industry also faces a fierce battle for talent as the skills required for the future of mobility increasingly center on digital, engineering and sustainability expertise.
Consumer preferences are evolving rapidly, with a growing emphasis on personalized and flexible mobility solutions. Urbanization and changing attitudes toward car ownership fuel the rise of new business models such as carsharing, subscription services and ride-hailing platforms. These alternatives are desirable in densely populated cities, where traditional ownership is less practical and environmental concerns are more acute. As a result, manufacturers and mobility service providers are rethinking their value propositions, seeking new revenue streams beyond conventional vehicle sales. Integrating digital platforms and data-driven services is becoming a key differentiator, enabling companies to offer tailored mobility experiences and build longterm customer relationships.
The regulatory environment in Europe is both a driver of innovation and a source of significant challenge. Introducing stricter emissions standards, such as the FitFor55 program and the forthcoming Euro 7 regulations, is compelling manufacturers to accelerate the transition to low and zero-emission vehicles. At the same time, new safety regulations and digital compliance requirements are adding complexity to vehicle design and homologation processes. The commercial vehicle sector is particularly affected by these changes, experiencing declining order volumes and increased pressure to replace aging fleets with cleaner alternatives. Local initiatives, such as France’s Crit’Air program, are further incentivizing the shift by linking vehicle usage rights and costs to emissions performance.
The economic context remains challenging, with sluggish growth, cost pressures and geopolitical volatility affecting both supply and demand. Factory closures and production cutbacks have become more common, reflecting the industry’s need to adapt to lower volumes and shifting market dynamics. However, these challenges also spur innovation, as companies seek to differentiate themselves through partnerships, investment in R&D and the pursuit of operational excellence. The ability to adapt quickly and collaborate across the value chain is emerging as a critical success factor.
Another dimension of the industry’s evolution is the increasing focus on the circular economy and lifecycle sustainability. Manufacturers are exploring new approaches to product design, such as modular architectures and recyclable materials, to minimize environmental impact and comply with emerging regulations. Battery recycling and second-life applications are gaining traction as essential components of the EV ecosystem, addressing concerns about resource scarcity and waste management. The shift toward sustainable mobility also influences procurement practices, leading to increased scrutiny of suppliers’ environmental and social credentials.
The role of data and connectivity is expanding rapidly, transforming vehicles into platforms for digital services and real-time interaction. Over-the-air (OTA) updates, remote diagnostics and telematics are becoming standard features, enabling manufacturers to maintain and enhance vehicles throughout their lifecycle. This connectivity also opens the door to new business models such as usage-based insurance, predictive maintenance services and personalized in-car experiences. The challenge for European companies is to harness the value of data while ensuring privacy, security and compliance with stringent EU regulations.
Talent and workforce transformation are the pressing issues as the industry transitions to new technologies and business models. The demand for digital skills, engineering expertise and sustainability knowledge is outpacing supply, prompting companies to invest in training, reskilling and forming partnerships with educational institutions. The social dimension of the transition is also under scrutiny, with policymakers and industry leaders seeking to ensure a just and inclusive shift that supports workers and communities affected by the decline of traditional manufacturing roles.
The competitive environment is being reshaped by the entry of new players, particularly from Asia, who are often faster to market and benefit from scale advantages in key technologies such as batteries and software. European companies respond by strengthening collaboration through joint ventures, alliances and cross-sector partnerships. The ability to innovate at speed, leverage digital platforms and build resilient supply chains will determine the leaders in the next phase of industry evolution.
The European automotive and mobility industry is at a crossroad, facing a convergence of technological, regulatory and market forces driving unprecedented change. The transition to electric and connected vehicles, the rise of new mobility services and the sustainability imperative are redefining the industry’s future. Success will depend on innovating, adapting and collaborating across the ecosystem, leveraging Europe’s strengths in engineering, design and regulatory leadership while addressing the challenges of global competition, supply chain resilience and talent development. As the sector moves forward, it is poised to play a central role in shaping the future of mobility services in Europe and across the globe, by setting new standards for sustainability, digitalization and customer-centricity.
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