Car Suppliers Lose Faith in upswing, Shift Investments Abroad

The mood remains bad

October 6, 2025, 8:51 a.m. | Listen Article

BERLIN – The outlook for German car suppliers remains bleak, with manny companies postponing or relocating investments due to a weak economy and growing concerns over international trade.A recent industry survey reveals widespread pessimism,casting a shadow over the sector’s potential for recovery.

According to a report by the Association of the Automotive Industry (VDA),nearly half of the companies surveyed rated their current business situation as “bad” or “very bad.” this negative sentiment extends to future expectations, with over 60 percent of suppliers planning to curtail investments – either by postponing them, shifting them abroad, or cancelling them altogether. Only a small fraction,roughly 20 percent,intend to maintain their current investment plans,with virtually no companies planning an increase.

The primary driver of this downturn is escalating global trade tensions, particularly the imposition of US tariffs on industrial products. More than half of the surveyed companies reported being considerably impacted by these tariffs. VDA President Hildegard Müller emphasized the need for decisive action, stating, “The Federal Government and the EU Commission have to set clear priorities in favor of the international competitiveness of the business location. The industrial location must be at the top of the agenda.”

The lack of optimism is reflected in future projections. While almost 60 percent of companies anticipate no change in their situation, 18 percent foresee a further deterioration. Only one in five suppliers expects an improvement.

The VDA survey, encompassing 158 companies within the automotive supply chain, paints a concerning picture of an industry grappling with uncertainty and diminished confidence. The shift in investment strategies signals a potential long-term impact on Germany’s industrial landscape, as suppliers increasingly look beyond domestic borders for growth opportunities.

What specific geopolitical factors are contributing to the automotive supplier skepticism regarding economic recovery?

Dismal Outlook Persists: Car Supplier Skepticism Toward Economic Recovery

The Automotive Supply Chain: A Barometer of Economic Health

The automotive industry, and crucially its vast network of suppliers, often serves as a leading indicator of broader economic trends. Currently,signals from these suppliers paint a decidedly pessimistic picture. Despite some positive consumer spending data in select sectors, a pervasive skepticism regarding a robust and sustained economic recovery is taking hold. This isn’t simply about cyclical downturns; it reflects deeper anxieties about geopolitical instability, persistent inflation, and evolving consumer behavior. The automotive industry forecast for the next 12-18 months is cautiously pessimistic, with suppliers bracing for continued volatility.

Key indicators of Supplier Concern

Several key indicators point to this growing unease within the car supplier ecosystem:

* Reduced Capital Expenditure: Major automotive component manufacturers are significantly scaling back planned capital expenditures.This isn’t just a pause; it’s a strategic recalibration reflecting a lack of confidence in future demand. Investment in new technologies, like electric vehicle (EV) components and advanced driver-assistance systems (ADAS), is being carefully scrutinized.

* Inventory Management: Suppliers are adopting a “just-in-case” rather than “just-in-time” inventory strategy. This means holding larger buffer stocks, increasing warehousing costs, and tying up capital – a clear sign they anticipate potential disruptions and demand fluctuations. This contrasts sharply with the lean inventory practices of the past decade.

* Order Book Weakness: While order books aren’t empty, the rate of new orders is slowing considerably, particularly for non-essential vehicle features and upgrades. This suggests consumers are prioritizing affordability and necessity over discretionary spending. Automotive parts suppliers are reporting longer sales cycles and increased price sensitivity.

* Labor Market Adjustments: Some suppliers are initiating hiring freezes or even small-scale layoffs, despite ongoing skilled labor shortages in certain areas. This is a preemptive measure to align costs with anticipated revenue.

The Impact of Geopolitical Risks & Inflation

The ongoing geopolitical landscape, including conflicts in Eastern Europe and tensions in the South China Sea, is a major driver of supplier anxiety. These events disrupt supply chains, increase raw material costs, and create uncertainty about future trade flows.

* Raw Material Costs: The price of critical materials like lithium,nickel,and cobalt – essential for EV battery production – remains volatile and elevated. This impacts profitability for suppliers and ultimately translates to higher vehicle prices for consumers.

* Supply chain Disruptions: Continued disruptions to global shipping and logistics networks add to the cost and complexity of sourcing components. The reliance on single-source suppliers, particularly in politically sensitive regions, is being re-evaluated.

* Inflationary Pressures: Persistent inflation erodes consumer purchasing power and forces automakers to absorb higher production costs or pass them on to buyers. This creates a arduous balancing act and dampens demand. Automotive supply chain inflation is a importent concern.

The EV Transition: Possibility & Uncertainty

The transition to electric vehicles presents both opportunities and challenges for suppliers.While the demand for EV components is growing rapidly, the pace of adoption is uneven and subject to government policies and consumer incentives.

* Investment in EV Technologies: Suppliers are investing heavily in developing and manufacturing EV-specific components, such as batteries, electric motors, and power electronics. Though, the return on these investments is uncertain.

* Reskilling the Workforce: The shift to EVs requires a significant reskilling of the workforce.Suppliers need to train employees in new technologies and manufacturing processes.

* Legacy Component Demand: The decline in demand for traditional internal combustion engine (ICE) components poses a threat to suppliers that are heavily reliant on this market. diversification is crucial.Automotive component manufacturing is undergoing a fundamental shift.

Case Study: Continental AG – A Cautionary tale

Continental AG, a major German automotive supplier, provides a compelling case study. In late 2023 and early 2024, the company announced significant restructuring plans, including plant closures and job cuts, citing weak demand and the need to adapt to the EV transition. This demonstrates the real-world impact of the challenging economic environment and the pressures facing suppliers. Their experience highlights the importance of proactive cost management and strategic diversification.

Practical Tips for Automotive Suppliers

Navigating this challenging environment requires a proactive and adaptable approach. Here are some practical tips for automotive suppliers:

1. Diversify Your Customer Base: Reduce reliance on a single automaker or region.
2. Invest in Innovation: Focus on developing cutting-edge technologies and solutions.
3. Strengthen Supply Chain Resilience: Identify and mitigate potential disruptions.
4. Manage costs Aggressively: Implement cost-saving measures without compromising quality.
5. Embrace Digitalization: Leverage data analytics and automation to improve efficiency.
6. Monitor Economic Indicators: Stay informed about key economic trends and forecasts. Automotive industry analysis is critical for informed decision