The automotive industry is undergoing a seismic shift. Where once the heart of a vehicle was its mechanical engine, today the transformative force lies in artificial intelligence (AI). As AI integrates into every facet of vehicle design, production, and user experience, it is quickly becoming the “engine” that powers innovation and competitive advantage. Notably, Chinese OEMs are emerging as leaders in developing these AI engines, setting the pace for the industry at large.
AI: The New Engine for the Automotive Industry
Historically, the automotive industry relied on mechanical engineering breakthroughs to drive performance and efficiency. Today, digital technologies have ushered in an era where data, algorithms, and machine learning models are just as critical. AI now underpins a wide range of applications—from autonomous driving systems and in-car personalization to generative design, software copilots, and smart factory operations.
For example, Stellantis has recently reinforced its strategic partnership with Mistral AI to enhance customer experience, streamline vehicle development, and optimize manufacturing processes. This collaboration, detailed in Stellantis’ February 2025 press release, underscores the automaker’s commitment to leveraging advanced AI models to drive efficiency and innovation across its global production networks.
Similarly, Mercedes-Benz is partnering with Google to integrate AI-powered conversational search directly into its navigation systems. By strengthening its MBOS with two powerful AI engines—ChatGPT and Gemini—Mercedes-Benz is setting new benchmarks for intuitive, voice-activated user experiences.
Moreover, the rapid integration of advanced AI models into vehicles is reshaping in-car digital ecosystems. Within just five days, fourteen OEMs—including global giants like GM and Nissan—have adopted DeepSeek that upgrade conversational AI with enhanced knowledge and reasoning capabilities, ultimately elevating user experience.
Further reinforcing these trends, BMW is now deploying advanced humanoid robots in its factories to boost efficiency and product quality. According to BMW Group’s news release, these sophisticated robots—equipped with AI and sensor technologies and supplied by Figure AI, a leading robotics company supported by OpenAI—collaborate with human employees on tasks such as material handling, assembly assistance, and quality control. Disruptors like Tesla and XPeng are also developing their own humanoid robots as part of future product lines.
Together, these global examples—from Stellantis, Mercedes-Benz, and BMW, as well as the rapid deployment of innovative AI solutions by multiple OEMs—demonstrate that AI is transcending simple feature enhancements. It is fundamentally re-engineering how vehicles are designed, built, and experienced, positioning AI as the new engine driving the automotive industry's future.
Chinese OEMs: Leading the AI Revolution
When it comes to AI adoption in the automotive sector, Chinese OEMs aren’t just participants—they are leading the charge. Several key factors underpin this leadership:
Aggressive Innovation and Investment
Chinese manufacturers like BYD, Li Auto, Geely, and Xiaomi are channeling massive resources into AI R&D. BYD, for example, employs over 5,000 engineers and operates one of the largest driving datasets in China, fueling its continuous development of advanced driving features. At a recent AI Talk event, Li Auto’s CEO Li Xiang declared his ambition to transform from a traditional carmaker CEO into an AI enterprise leader, committing half of a 10-billion-yuan R&D budget to artificial intelligence. Similarly, at a recent Xiaomi press conference, Lei Jun revealed plans to invest 30 billion yuan in AI R&D by 2025. Such bold investments in proprietary technology and data infrastructure are essential in driving rapid AI adoption and innovation.
Supportive Ecosystem
Robust government backing, a dynamic tech startup scene, and an integrated supply chain enable rapid prototyping in China. Key ecosystem partners such as Momenta and Horizon Robotics are emerging as critical enablers for autonomous driving software and hardware. Thanks to their low cost and high performance, these collaborations accelerate technology transfer and give Chinese OEMs a competitive edge by quickly integrating state-of-the-art autonomous driving capabilities.
Technology Leadership in Real-World Deployments
Chinese OEMs are setting new industry benchmarks with breakthrough implementations. Li Auto’s OTA 7.0 update has established a new standard for transparency and user trust by employing explainable AI (XAI) to enhance vehicle safety and functionality. Likewise, Geely’s recent unveiling of its Full Domain AI for smart vehicles illustrates a holistic approach that seamlessly integrates advanced AI across design, manufacturing, and on-road performance. These concrete deployments are redefining vehicle intelligence and safety, forcing global competitors to rethink their strategies.
Global Trends and Observations
The global automotive industry is in the midst of an AI transformation. Traditional OEMs in Europe and North America have long relied on incremental improvements and established supplier relationships. However, the rapid pace of AI development—driven largely by Tesla and Chinese innovations—is reshaping the competitive landscape.
Integration Across the Value Chain
AI’s impact extends far beyond the vehicle’s dashboard. It influences every layer of the automotive tech stack—from underlying hardware (GPUs, NPUs, and AI accelerators) to the model layers enabling software copilots, virtual assistants, and advanced autonomous features. Insights shared during Mercedes-Benz’s 2025 Capital Market Day illustrate how AI is being infused into every phase of the automotive lifecycle, optimizing operations and driving cost efficiencies.
Spectrum of OEM Strategies
In SBD’s recent research report 215 - AI for Automotive Guide, we categorize OEMs into various personas—from “Established Vehicle Innovators” to “Technology Disruptors.” While many legacy automakers are making gradual improvements, those with a robust innovation culture—exemplified by many Chinese OEMs—are setting the stage for disruptive advancements. The agility with which companies like Li Auto and BYD integrate advanced systems underscores the strategic shift toward speed and adaptability.
Recommendations for Global Car Makers
As the automotive world races toward an AI-driven future, global OEMs must act swiftly to remain competitive. Key recommendations include:
Embrace a Holistic AI Strategy: Integrate AI across all layers of the organization—from product development and design to manufacturing and after-sales support—driving innovation much like a well-tuned engine propels a vehicle.
Invest in Strategic Partnerships and Talent Development: Cultivate deep technical expertise and form partnerships with leading technology providers to accelerate innovation, drawing lessons from Chinese innovators.
Adopt Agile Innovation Practices: Utilize rapid prototyping, continuous testing, and iterative development to swiftly integrate AI and adjust to market feedback.
Focus on Long-Term Transformation: Invest in scalable AI infrastructure, develop proprietary technologies, and build robust data ecosystems to ensure long-term competitiveness.
Conclusion:
AI is no longer a supplementary feature—it is the new engine powering automotive innovation. From advanced autonomous driving and in-car personalization to smart factories and humanoid robotics, AI is fundamentally re-engineering how vehicles are designed, built, and experienced. Chinese OEMs, driven by aggressive investments, a supportive ecosystem, and breakthrough real-world deployments, are setting new benchmarks for the global industry. Now is the time for global car makers to take decisive action: adopt comprehensive AI strategies, forge key partnerships, and invest in scalable technologies to secure their competitive future in an increasingly digital world.
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