Europe’s Car Suppliers Face Challenges with Trump Tariffs: Absorbing Costs Unlikely

Auto Suppliers Brace for Potential Tariff Impact: Industry Faces Uncertainty

Leading european automotive suppliers are expressing serious concerns about the potential impact of tariffs on their operations, particularly in light of a challenging economic landscape.These tariffs, particularly those threatened on goods from Europe, pose a significant threat to an already strained industry.

Executives Warn of Inability to Absorb Costs

Valeo and Forvia, two prominent French car suppliers, have issued warnings about their inability to absorb the costs associated with potential tariffs. The concerns stem from the financial pressures already impacting the automotive industry. As Christophe Périllat, Valeo chief executive, stated on a Friday, “There are no margins in the car industry and in particular among car suppliers to absorb even a part of these tariffs . . . I don’t know what the carmakers will do.” He indicated that these costs would inevitably be passed on to clients.

Patrick Koller, his counterpart at Forvia, echoed this sentiment. At a results presentation,Koller highlighted the “significant tariff risk” Forvia faces for its operations in Mexico. “We’re almost absent in Canada . . . but we’ve got significant flows from Mexico to the US,” he explained.

Threat to Automotive Supply Chain

The potential tariffs come at a precarious time for the automotive industry. Companies are grappling with:

• A slowdown in car demand.
• The expensive and ongoing transition to battery-powered vehicles.
• Increased competition from emerging Chinese EV start-ups.

These challenges have already put significant pressure on profit margins and led to cost-cutting measures, including job losses.

Stock Market Reaction

The market reacted swiftly to these warnings. Shares in Valeo experienced a sharp decline of 15 percent, while Forvia shares fell by almost a fifth in early trading on Friday. both companies had reported falling profits the previous evening and that morning, respectively, and projected largely flat sales for 2025. Shares of German automotive suppliers Continental and Schaeffler also felt the impact, sinking nearly 2 and 3 percent, respectively.

limited Adaptability

Business leaders have emphasized the limited capacity to adapt to tariffs in the short term. Périllat noted, “We can’t adapt in terms of industrial footprint or the footprint of our suppliers in the space of a few days or months; that takes years. In the US, we’ve got a historic base with experienced factories.” He added that “Today, we’re trying to understand because it’s complex and it changes every day.”

Impact on European Jobs

The European automotive supply chain has already experienced increasing job cuts as companies prioritize cost-cutting measures. Layoffs by European car suppliers doubled across the continent in 2024, according to figures from the European Association of Automotive Suppliers. The German sector alone saw approximately 11,000 jobs lost that year, according to industry group VDA.

Financial Pressures

Customary automotive suppliers have seen profit margins decline by an average of between 3 and 5 percent in the five years leading up to 2022, according to analysis by Lazard and Roland Berger. This decline is attributed to the substantial costs involved in developing products for electric vehicles and a slowdown in European sales amid rising living costs.

Navigating Uncertainty

The automotive industry stands at a crossroads. The potential tariffs add another layer of complexity to an already challenging environment. Companies must proactively assess their supply chains, explore diversification strategies, and engage in open communication with policymakers to mitigate potential risks. Subscribe to industry updates to stay informed on this evolving situation and prepare your business for the road ahead.

How does Dr. Schreiber suggest that automotive suppliers can mitigate the risks associated with tariffs?

Automotive Industry in Turmoil: A Discussion on Tariffs with Dr. Martina Schreiber

Navigating the Storm: A Conversation with Dr. martina Schreiber on Tariffs and the Automotive Industry

The automotive industry, already grappling with transformative challenges, now faces the specter of tariffs. In this exclusive interview, Dr. Martina Schreiber, chief Strategy Officer at EuroAutoSupply, shares her insights on the impacts, the industry’s adaptability, and potential strategies for navigating uncertainty.

Dr. Schreiber, thank you for joining us today. Let’s start by addressing the elephant in the room: how significant a threat are tariffs to the automotive industry?

Thank you for having me. Tariffs pose a substantial threat to the automotive industry.Given the narrow profit margins and the already stressful business habitat, suppliers simply cannot absorb the additional costs. This could lead to a ripple effect, with suppliers passing on these costs to automakers, ultimately impacting consumers.

We’ve seen warnings from top executives about the industry’s limited adaptability. How challenging is it for suppliers to adjust their supply chains in response to tariffs?

The automotive supply chain is highly integrated and complex, making it challenging to adapt quickly. It takes time, sometimes years, to alter the footprint of factories or suppliers. Moreover, the situation is complex and Keep changing, making it hard for companies to plan and prepare.

Speaking of jobs, how do you think tariffs will impact employment in the European automotive sector?

The job market in the automotive industry is already strained due to cost-cutting measures and the shift towards electric vehicles. Tariffs could exacerbate this situation, leading to further job losses. We’ve seen double-digit job cuts in 2024, and I fear that figure could increase.

Given these challenges, what strategies do you recommend for automotive suppliers to mitigate the risks associated with tariffs?

Companies should proactively assess their supply chains, identify potential bottlenecks, and explore diversification strategies.This might involve sourcing components locally where possible,investing in automation to reduce labour costs,or investing in research and progress to create innovative,cost-effective products.

Dr. Schreiber, what’s one piece of advice you’d give to policymakers to help the industry navigate these uncertain times?

Open dialog and clarity are key. Policymakers should engage regularly with industry leaders to understand the nuances of the supply chain and the potential impacts of their decisions. Uncertainty breeds anxiety, and clear, consistent dialogue can help alleviate that anxiety and promote informed decision-making.

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