The auto industry is nearing a new inflection point that may expand its market and change the nature of the business: Artificial intelligence is enhancing user experience, improving safety and lowering costs.
Adoption of vehicles with partial to full automation is poised to accelerate in developed markets, jumping from 8% in 2024 to 28% by 2030, according to Morgan Stanley Research forecasts.
“One in four cars sold globally may be equipped with smart-driving technology in five years, versus one in eight cars now,” says Tim Hsiao, who covers Greater China auto stocks at Morgan Stanley.
This progress could create a market opportunity of $200 billion for automakers, hardware and software companies. By 2035, that figure could reach $300 billion to $400 billion.
“Carmakers and some tech heavyweights are not just trying to disrupt the auto market,” says Hsiao. “They are aiming to reshape how mobility works, how vehicles interact and how they can serve users on the road and beyond as carmakers seek to monetize more time from passengers' daily lives.”
New Revenue Streams
This transformation of the car industry means new sources of revenue coming from hardware and software. Initial revenue growth may stem from one-time hardware purchases and upgrades, which consist of vehicles and their components, including AI computing platforms, sensor systems and vehicle connectivity. The software used in smart-driving vehicles may require licensing, updates and services, bringing in another stream of revenue and profits.
As driver-assistance systems can autonomously stop, steer, accelerate and change lanes in highways or in complicated urban traffic, humans will spend fewer hours on the wheel.
“That free time can be reallocated to work activities, generating a potential productivity value of as much as $110 billion a year,” says Adam Jonas, who leads research on humanoids and embodied AI at Morgan Stanley, noting that additional free time could in turn boost spending around leisure activities and create monetization opportunities for in-car entertainment and connectivity services.
China’s Lead
High-growth emerging markets, led by China, will drive the adoption of self-driving vehicles, as well as developed markets, particularly the U.S. and Europe.
In China, about 60% of passenger cars should be equipped with smart driving functions by 2030, which would represent sales of up to 15 million, from an estimated 6 million in 2025.
“China is likely to account for half of the global smart-driving market in volume by 2030,” Hsiao says.
Robotaxis, which are fully automated, should account for 8% of China’s total taxi and ride-sharing fleet in five years, a total of 360,000 units. One-third of those are likely to operate in major cities, such as Beijing, Shanghai, Guangzhou and Shenzhen.
The Path to Mass Adoption
Mass adoption of vehicles with self-driving capabilities will be essential for carmakers and tech companies to reach full market potential. But first, they will need to overcome barriers, such as concerns about safety, costs and policy.
“Safety and reliability concerns have been largely addressed by several research papers and data points demonstrating that autonomous vehicles can reduce accident frequency and crash severity when properly used,” Jonas says. “The next challenge will be to build trust and ensure a quality co-driving experience between humans and machines.”
Cost reductions, both in hardware and software, have been crucial to boost self-driving penetration. Increasing cooperation between the supply chain from emerging markets, especially China, and global automakers can further lower cost and accelerate adoption.
In Morgan Stanley’s bull case scenario, which implies more collaboration to develop self-driving technology, adoption could reach 36% by 2030, with sales of up to 36 million units. By contrast, less collaboration would lead to a bear case scenario, with a much lower adoption rate of 20% by 2030, or sales of up to 18 million units.
“Multilateral collaborations are starting to happen, pairing emerging markets’ hardware and local data with the algorithms and computing power of global automakers,” Jonas says. “The pace of adoption will depend on whether global automakers compete or cooperate to lower costs.”
Regulation also plays an important role to accelerate adoption. Global automakers and legislators in major economies are ramping up efforts to set standards on safety, environmental and even cybersecurity features for autonomous vehicles.
“China is making the boldest moves, aggressively rolling out urban navigation on autopilot and robotaxis, backed by government support and a tightly knit supply chain,” Hsiao says.
Disruption for Other Industries
The development of self-driving vehicles creates a new market for a number of industries but can significantly change the landscape for others. Here are examples of the impacts Morgan Stanley Research expects:
- Car ownership: Consumers could question whether it makes sense to own a car that sits idle 90% of the time when they can subscribe to autonomous fleets.
- Collision repair services: As smart-driving software packages continue to improve, a reduction in accidents and higher vehicle safety could lower the frequency of collision repairs.
- Auto insurance: Auto insurers also could be disrupted as accident rates decline and liability shifts from individual drivers to fleets or even tech companies.
- Logistics: The trucking industry could be headed for a dramatic transformation, in which improving logistics and supply-chain efficiency may impact the employment outlook for truck drivers.
- Energy redistribution: Autonomous fleets could turbocharge EV adoption, potentially punishing fossil fuel prices, but straining power grids. That could boost the market for energy storage systems.
For deeper insights and analysis, ask your Morgan Stanley Representative or Financial Advisor for the full report, “From Horsepower to Brainpower – AI Takes the Wheel,” (July 27, 2025).
