The automotive industry faces its greatest transformation since mass production began: transitioning to electric vehicles while competing with new market entrants. This analysis explores how manufacturers are leveraging Design-to-Value principles to overcome these unprecedented challenges.
The context: regulatory pressure and industrial realignment in North America
The North American automotive industry is undergoing a complex transformation fueled by evolving regulations, changing consumer preferences, and growing geopolitical tensions. In the U.S., the Inflation Reduction Act (IRA) of 2022 marked a turning point by offering substantial tax credits to support both the adoption and local production of electric vehicles (EVs). However, eligibility for these incentives is conditional on the domestic sourcing of key components and raw materials, pushing automakers to restructure their supply chains and ramp up investment in North American battery and EV manufacturing. At the same time, several U.S. states are enforcing their own stricter emissions standards, creating a fragmented and challenging regulatory environment. While internal combustion engine (ICE) vehicles still account for over 90% of new car sales, pressure is mounting to accelerate the shift to electrified fleets—a transition that is not only technological, but also economic and political in nature.
The industrial and economic consequences of this shift are already being felt. In 2024, many automakers and component suppliers reported declining financial results, prompting job cuts and renewed calls from industry leaders to ease the pace of regulatory change. Understanding the operational implications of this new environment is essential to grasping the strategies being adopted by automotive players—such as Design-to-Value.
With ICE efficiency gains reaching a plateau and alternatives like hydrogen still under development, battery electric vehicles (BEVs) have become the primary path forward. The global electric vehicle market size was valued at USD 1,328 billion in 2024 and is projected to grow at a compound annual growth rate (CAGR) of 32.5% from 2025 to 20301—highlighting the scale and urgency of the transformation ahead.
IEA (2024), Electric car sales, 2012-2024, IEA, Paris https://www.iea.org/data-and-statistics/charts/electric-car-sales-2012-2024, Licence: CC BY 4.0
Learning from China’s electric journey
China has demonstrated how policy-driven incentives can accelerate the adoption of BEVs. Between 2009 and 2020, China’s central government allocated nearly $30 billion in subsidies for electric vehicles, leading to a surge in production from 500 units in 2009 to 5.4 million in 2023 (57% of global production).
Moreover, China leveraged this transition to establish technological and capacity leadership in key areas of the BEV supply chain, including battery technology and raw materials. However, with domestic demand slowing since the COVID-19 pandemic, Chinese car and battery manufacturers are now targeting Europe, intensifying competition for local players.
Challenges facing carmakers
The shift to BEVs presents multiple challenges for manufacturers and consumers alike:
- Range anxiety: BEVs generally offer lower autonomy than ICE vehicles, and longer recharge times require changes in consumer behavior.
- Charging infrastructure: Networks are expanding but remain sporadic, particularly in rural areas, leaving consumers uncertain about accessibility.
- Cost: BEVs cost approximately 40% more to produce than ICE vehicles with similar specifications, largely due to high battery costs. This makes them less affordable, even with subsidies.
- Trade and tariff uncertainties: the shifting U.S. tariff climate—especially regarding vehicles and components imported from China or manufactured in Mexico—adds unpredictability to the cost structure of BEVs. As the U.S. government considers new protectionist measures to boost domestic manufacturing, global automakers face increased regulatory and financial risk when planning their production and sourcing strategies.
Design-to-Value as a strategic lever
This is not the first time that the automotive industry has faced external pressure that drives up costs and threatens sales volumes. As the pioneer of both Fordism and lean manufacturing, the industry has a long history of adapting and striving for performance.
This relentless drive for performance has moved beyond traditional operational excellence to encompass every aspect of the business, from product development to customer engagement.
Not surprisingly, this industry has been one of the early adopters of the Design-to-Value approach. This approach aims to maximize overall product value and customer satisfaction by balancing performance and cost, providing a more holistic approach to product development.
Recent examples highlight how Design-to-Value is reshaping BEVs:
- Autonomy: ICE vehicles have maintained a range of around 400 miles for decades, thanks to energy-dense fuel. Achieving this with batteries would require expensive chemistry and significantly increase vehicle weight. To balance cost and range, many BEVs now target 300 miles, using more affordable technologies like LFP batteries, while premium models focus on maintaining higher ranges to meet customer expectations.
- Segment: for urban vehicles, manufacturers are shifting from small, highway-compatible cars (e.g., LEAF) to larger SUV vehicles like the Chevrolet Blazer EV and Rivian R1S.
The path ahead
The automotive industry is facing an exceptionally challenging situation with a fast-paced, regulation-driven technology shift towards a solution that is industrially and technologically dominated by China. Design-to-Value is now more than ever a critical lever for the automotive industry to remain competitive. To succeed, this approach must extend beyond its traditional focus on products to redefine project strategies of the industry, particularly in the following areas:
- Batteries: with batteries accounting for almost half of material cost, and ongoing technology leaps (NMC to LFP chemistry, solid-state and other types of chemistry), designing future batteries to meet customer performance expectations requires a deeply integrated approach that goes beyond simply replacing fuel.
- Supplier integration: from batteries (for BEV) to software and sensors (for autonomous or connected vehicles), innovations and technological breakthroughs often rely on third-party suppliers. These partners must be central to the project design and development phase to maximize their potential and ensure products are optimized using the best available technologies.
- Customer-facing entities: the scale of the upcoming changes reshapes how customer needs are understood. Segment definition through Design-to-Value can enable paradigm shifts towards technical solutions that address new customer trends – such as pay-per-use models.
In today’s globalized economy, industries across all sectors face similar disruptions. By embracing tailored and network-wide approaches like Design-to-Value, companies can unlock new opportunities for growth and sustainability.
Learn more about how Avencore supports its clients in applying the best value creation leverage through a six-step process : From Design-to-cost to Design-to-Value