Counterpoint Research attended the 2025 edition of Reuters Automotive Europe event which was held in Stuttgart – coincidentally the birthplace of the automotive industry in the 19^th century where Karl Benz and Gottlieb Daimler invented the car in 1886.

The event was also held in the week following the Shanghai Auto Show, and the Chinese auto industry cast something of a shadow over the event – not least because around a quarter of the 400 attendees were freshly returned from experiencing the vibrancy of the Chinese auto industry.

The participants were a mix of car OEMs – some European, some Korean, some US and a few Chinese, tier suppliers, semiconductor companies, connectivity providers, banks, and a supporting cast of various other players – including Counterpoint Research. The attendee profile was relatively senior – both in job function and age.

Key learnings from the event:

1. The European car industry knows it needs to change. This is an important step in making any transition. But there is significant unclarity on how, or even if, it can change.
2. Software will eat the car industry as it has many other industries. Digital platforms will provide a way for the user experience to evolve through the ownership of a car, providing new business opportunities.
3. AI will also deliver multiple new capabilities in all facets of the automotive ecosystem, but the data needed to develop AI is not widely available to all parties in the value chain.
4. One aspect of AI is in the evolution of ADAS towards more fully autonomous systems, but the transition will take time given the needs for rigorous safety as well as the complex regulatory environment in Europe.
5. Chinese auto makers are a threat, but also an opportunity. The European car industry feels that it has wittingly or unwittingly transferred its engineering know-how to China, but it has the potential to retake knowledge and capability.
6. There are reasons for optimism – European car makers have deep brand heritage built on decades of innovation. The ability to translate this into value-adding user experiences is clearly there for the taking.

1. Can the European Automotive Industry Change?

This was an overriding theme at the event with many discussions either directly or indirectly on the topic. There is a recognition at the individual level that what got the European industry through its first 150 years of existence is not the same as what it will take to survive the next 50 years, or possibly even its next 15! The automotive industry has a fundamentally engineering-led model which focuses primarily on hardware with the Start of Production (SOP) as a critical milestone around which everything revolves. In a software-led model, the SOP remains important but rather the focus is on delivering a ‘Minimum Loveable Product’, as one attendee put it, and this is then continuously updated throughout the life of the car.

However, the software led approach requires a significantly different organizational structure and approach. When you have become successful over decades by taking an engineering-led approach, shifting to a new model is non-trivial. The most pessimistic scenario was that it is impossible for companies to change. Personally, having lived through the rise and fall of Nokia, I can attest to what seems solid and everlasting can be entirely gone in just a few years. Fortunately for the auto players, the clock speed of the auto industry is slower than it was in the smartphone market, so OEMs may have more time, as well as some level of protection from governments, but survival should not be taken for granted.

2. Software will drive cars

Related to the European auto industry’s need to change is the rise of software as the driving element in how cars are designed and the role of software in defining the users’ experience.

As has happened in many industries, software is an increasingly critical part of the design of vehicles. The vision is one where hardware remains important but the use of advanced software platforms allows for the car to improve over time, adapting to the users’ needs. While a conventional car is in its optimum condition when it leaves the factory, a software-defined vehicle will continue to be updated, potentially with new features and capabilities, and will learn and adapt to individual user’s mobility and lifestyle patterns. Furthermore, these additional services both enhance the consumer experience and generate additional revenue streams.

One amusing discussion was in how cars should behave if drivers curse them, or speak badly to them. Mercedes revealed that it has filters to prevent it from saying bad things about its own brand, but there was no consensus on how a car should respond if sworn at.

And it’s not just in passenger vehicles, presentations from Ford Pro and Volvo Trucks emphasized that software is a key element in delivering transportation-as-a-service where downtime is second only to the purchase of the vehicle as a driver of cost, so shifting to an AI-driven, software-first approach, can reduce operational costs.

According to Augustin Friedel from MHP, moving to a software-first approach is critical for automakers, but he acknowledged that it will be difficult for incumbent automakers, necessitating:

• Prioritizing investment in software and AI so that it is meaningful proportion of R&D spend – comparable with the investments Chinese auto players are making.
• Aggressively invest in developing and acquiring AI and software talent.
• Becoming more vertically integrated – and invest in developing the elements that will create long-term differentiation while standardizing or outsourcing what will be non-core.
• Partnering with any other players – large or small – that can support the shift. This might be start-ups, suppliers or even current competitors.

But these are critically important – and it’s not too late provided they act now!

3. AI is part of the digital transformation

No event these days, in any industry, is complete without a fulsome discussion of the impact of AI. And the automotive industry is no different. And the impact on the automotive industry is likely to be profound. However, investment by automotive companies lags that of organizations in other sectors such as pharmaceuticals, retail and more. Among western automotive companies, only Tesla has invested significantly in building in-house AI data centers, while other firms are relying on partnerships with the big AI players and hyperscalers, reckoning, presumably, that AI is not a core competence. This may be a reasonable assessment, but it may mean they cede control to others. Again here, the old school engineering-led automotive environment skill-set and approach is invested in incremental change, knowledge and experience that is proprietary/ core competence rather than a shared and open source approach – so AI (and its current imperfections) does not align with the legacy mindset!

Source: Counterpoint Research

Representatives from Audi, Microsoft and ETAS discuss the impact of AI

Based on the discussions at the event, AI will play a meaningful role in almost every part of the automotive industry value chain, from R&D, product concepting, design and development, sourcing, manufacturing, sales and marketing, retailing, customer experience including ADAS & AD, after sales service, all the way through to recycling and material recapture. Counterpoint’s recent insight blog explains how an AI start-up Secondmind is accelerating automotive production cycles.

But developing AI relies on the acquisition, classification and utilization of data. Data is plentiful, but it is not evenly distributed throughout the automotive industry. For example, the latest generation cars are creating tons of data, but many automotive suppliers do not have access to this data. And even the OEMs themselves struggle to turn raw data into actionable intelligence or relevant business models where customers would find it useful i.e. a lack of relevant use cases.

One clear call was for data to be open sourced allowing many different players within the value chain to access, classify and utilize the mass of data that exists for the common good of all players, rather than keeping it siloed where it rapidly loses value.

4. Autonomous futures – progressing, but slowly

An application for AI is to takeover more and more of the driving function. There was only one session dedicated to discussing ADAS and AD although, of course, the topic came up in other talks. The focus of the discussion was more on safety than how quickly the industry can make the transition to higher levels of autonomy. Indeed, when asked, the panel was unwilling to make forecasts of the adoption of different levels of autonomy – although a range of 5-10% of sales volume achieving level 3 or higher by 2030 was mentioned, though with many caveats. Level 2+ is likely to be the dominant ADAS level for several years. This is understandable in the European OEM context, where the mind-set is perfection, although in the case of ADAS and AD, the punitive implications are a significant risk which automakers are not prepared to take in a hurry. A Xiaomi-type crash in Europe would seriously hinder the autonomous march – so taking things slowly and thoroughly may be the better approach. The other aspect is the threat to current competencies (driving attributes – chassis, steering) on which OEMs sell products as well as threat of fully autonomous vehicles to personal vehicle ownership and therefore market size.

5. The Chinese Threat

A keynote interview with MariaGrazia Davino, Regional Managing Director for DACH and Eastern Europe, BYD was a highlight of the event. BYD has recruited more European executives than it has had in the past. This was seen as necessary as, after a promising start in Europe, sales have not progressed due to treating the region as a single market, failing to secure enough dealerships, and not offering hybrid models. But BYD’s long-term intention is clear. It is building local manufacturing sites in both Hungary and Türkiye, it is establishing new sales organizations in key markets. These will act as the primary points of business, capable of developing, for example, relationships with banks for financing lease options that are critical in many European markets. The sales organizations are also building new dealer networks across the region.

Source: Counterpoint Research

MariaGrazia Davino, BYD speaks to Victoria Waldersee, Reuters

In terms of product, BYD is likely to launch range-extender hybrid models, which are key to opening especially Eastern European markets, where charging infrastructure is currently poor. In addition, BYD will focus on both entry-level, or A-segment cars as well as bringing its premium Denza brand to Europe.

Outside of the BYD discussion, there was a generally held view that it is difficult for European car manufacturers to compete with the speed and innovation cycles of Chinese automakers.

6. Reasons for Optimism

However, some at the event were more optimistic, emphasizing European automaker’s deep brand heritage and history of innovation. However, while this heritage is undeniable, to unlock its potential may require new ways of working together, for example to collaborate on the development of standardized elements for areas where there is no competitive edge to be obtained – a simple example might be the software that opens and closes a window. Car makers would need to identify what is core to differentiation and what is merely contextual capability. This is a path that many other industries have been down, such as telecommunications, which is built on a huge number of open source and shared standards.

Overall, it was an interesting event with a lot of rich and stimulating discussions, notwithstanding the slightly somber mood.