[Market Brief] The global auto market is experiencing a slow and steady recovery. Can physical AI bring a turning point?

What we want you to know:

In the previous tech industry quick report “Who Benefits from AI Dividends? Big Tech Earnings Have the Answer,” we mentioned that semiconductors related to AI, memory, and consumer electronics are generally stable and healthy. However, automotive and industrial semiconductor manufacturers continue to have high inventory turnover days, with inventory clearance taking noticeably longer. The main reason behind this is that after the supply chain disruptions in the automotive sector ended around 2021-2022, suppliers replenished inventories to high safety levels to maintain buffer stocks, leading to inventory buildup pressures. Additionally, the high-interest-rate environment in the U.S., the K-shaped economic recovery, and uneven regional economic recoveries (especially in Europe) have caused global auto demand to recover slowly post-pandemic.

Looking ahead to 2026, where will the global auto market go? Are automotive semiconductor companies’ performances worth期待ing? When will inventories return to healthy levels? Will the acceleration of autonomous driving bring a new wave of investment into the automotive field?

1. Global Auto Market Outlook 2026: Moderate Growth Driven by K-Shaped Economy

Overall, since the pandemic, the three major auto markets—U.S., China, and the European Union—have recovered at different speeds, with China recovering the fastest, followed by the U.S. In 2025, sales reached 133% and 95% of pre-pandemic levels in 2019, respectively, while the EU’s recovery was slower, only reaching 83% of pre-pandemic levels in 2025. Below, we will analyze the outlook for the auto markets in these three regions in 2026.

1. United States: Maintaining a Healthy, Moderate Recovery Trend

First, regarding the U.S., we believe two key factors will influence the auto market in 2026:

1) Higher contribution from high-income groups to auto demand. As of Q2 2025, the distribution of new car buyers in the U.S. has shifted rapidly toward high-income households, with those earning over $150,000 annually increasing by 45 percentage points. After the alleviation of supply chain shortages in 2022, this group became the main driver of U.S. auto demand. Conversely, households earning between $75,000 and $150,000 decreased by 30 and 7 percentage points, respectively. We believe the K-shaped economic recovery in the U.S. has led high-income asset holders, heavily invested in the stock market, to restore consumer confidence quickly under the wealth effect, supporting auto demand in 2026.

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FAQs: Let MM AI answer your questions

What is the expected growth rate of the global auto market in 2026 under the K-shaped economy?
💡In 2026, the global auto market is expected to recover gradually and at a low speed. China’s sales are projected to stay flat, the U.S. is expected to grow by about 0.8%, and Europe, due to a lower base, is expected to grow by 1.8%.

When will automotive semiconductor inventories return to healthy levels?
💡Automotive semiconductor inventories are expected to take another six months to adjust. Although downstream auto brands are currently at healthy inventory levels, widespread replenishment and production cycles have not yet resumed.

Can AI and autonomous driving be the solution to sluggish traditional auto demand and slowing electrification?
💡AI, through data center power consumption and autonomous driving, is bringing a turning point to the automotive semiconductor industry. Automotive semiconductor manufacturers benefit from providing high-efficiency power management solutions to meet the huge power demands of data centers. Additionally, autonomous driving is seen as the core of “physical AI,” driving demand for higher-performance computing chips and increasing the “semiconductor content per vehicle.”

Will the accelerating trend of autonomous driving bring a new wave of investment into the automotive sector?
💡The acceleration of autonomous driving is expected to bring a new wave of investment. Tesla considers autonomous driving a strategic priority, with Robotaxi and FSD (Full Self-Driving) profits expected to expand in 2026. Moreover, China’s more open autonomous driving policies have increased market penetration.

How do the autonomous driving strategies of China and the U.S. reflect their rivalry?
💡The autonomous driving strategies of China and the U.S. exemplify the competition over productivity and technological dominance. China’s open policies have rapidly increased the penetration of L2 and above autonomous driving, while the U.S. reduces dependence on Chinese technology and components through policy restrictions, forming a “one product, two supply chains” global system.

How will automakers’ adjustments in capacity and electrification strategies impact automotive semiconductor demand?
💡Automakers’ capacity adjustments and electrification strategies will impact semiconductor demand. Under U.S. tariff uncertainties, automakers adopt more cautious production and inventory management. The decline in EV subsidies has also led automakers to downplay electrification plans, affecting potential demand growth.