Comprehensive analysis of transformation pressures and existential fears: How the automotive supplier industry is being put to the test.

A threatening situation for numerous companies

The crisis in the automotive supplier industry has become increasingly apparent in recent years and has developed into a threatening situation for numerous companies. Many firms face existential challenges, often stemming from a combination of global, technological, and political influences. In times of supply chain disruptions, rising energy prices, and a fundamental shift towards electromobility, many suppliers are finding it difficult to survive in the market. At the same time, they are often caught between the demands of car manufacturers and end-customer demand, which significantly impacts their profit margins and their economic stability. The following discussion not only examines the causes and the complex interplay of the various crisis factors but also suggests approaches that companies and policymakers could take joint countermeasures.

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Transformation pressure due to electromobility

“The automotive industry is currently undergoing a profound transformation,” explained an industry expert. This transformation began several years ago when it became clear that the combustion engine would be replaced or at least supplemented by alternative drive systems, particularly electric drives, in the medium term. A significant challenge for suppliers is recognizing this transformation in a timely manner and diversifying and adapting their products, business models, and production processes accordingly. Many companies that previously manufactured traditional components for combustion engines are now faced with the question of how to restructure their portfolio to remain competitive in a world of high demand for electric vehicles.

Geopolitical tensions and global crises

At the same time, geopolitical tensions and global crises are increasing, severely impacting the industry. Trade conflicts, intensified competition in the global market, and general uncertainty in economically and politically unstable times force suppliers to adapt to ever-new challenges. The COVID-19 pandemic, for example, led to massive supply chain disruptions and material shortages. While the effects are only becoming apparent in some regions with a time lag, they are still being felt in many places. The war in Ukraine and other geopolitical conflicts have also led to increased uncertainty as well as energy and raw material shortages.

Challenges specifically for German suppliers

In this context, the importance of the German automotive industry, which traditionally plays a vital role in the national economy, is repeatedly emphasized. However, German suppliers in particular are under increasing pressure, as energy-intensive production in Germany is often more expensive than in many other countries. While some large automakers are able to pass on their costs or mitigate them through global production networks, numerous suppliers are more dependent on individual markets. This puts them at greater risk if sales markets shift or production launches are delayed.

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Impact on the entire value chain

“The supplier crisis is a challenge for the entire value chain,” summarized a manager at a major automaker. When suppliers go bankrupt, OEM production also grinds to a halt. After all, automakers depend on punctual, smooth, and high-quality deliveries. If financial difficulties lead to bottlenecks or even complete failures in the supply chain, entire production lines can grind to a halt. This can result not only in significant costs but also in reputational damage.

Examples of the current crisis situation

A telling example of the current crisis is the mbw Group, which had to file for insolvency. According to industry insiders, delayed production launches, planning uncertainties, and increased costs for energy, materials, and personnel led to massive financial difficulties. What is particularly striking is that many of these factors were either beyond the control of the suppliers themselves or only partially within their control. Another well-known case is that of WKW, where a failed investor deal ultimately led to insolvency. These cases illustrate that even seemingly well-established suppliers can find themselves in dire straits through no fault of their own within a short period of time.

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To examine the causes of this crisis more closely, it helps to look at the various factors that interact:

High energy prices

Firstly, high energy prices in Germany are particularly burdensome for industries that require large amounts of electricity and heat for their production processes. Suppliers who, for example, process metals, treat surfaces, or manufacture complex components are therefore especially affected by the increased electricity and gas prices. For a long time, it was common practice to pass on at least some of these price increases to end customers. However, in an increasingly competitive market, this is no longer possible without limitations. Many suppliers are forced to bear a large portion of the additional costs themselves.

Material shortages and price increases

Secondly, material shortages and price increases play a major role. During the pandemic, supply chains collapsed or were severely disrupted in many places, making it difficult to procure essential intermediate products. Many companies struggled, and continue to struggle, with delays. At the same time, the prices of raw materials such as steel, aluminum, copper, and rare earth elements have increased. This has led to immense cost pressures. Suppliers must better plan their inventories, adjust storage capacities, and are often forced to resort to more expensive alternative products when certain materials are unavailable or difficult to obtain.

Volatile markets

Third, the markets themselves have become more volatile, especially regarding vehicle sales. While electromobility is on the rise, it is not yet clear how quickly it will replace the combustion engine. "Consumers are currently more hesitant to buy new vehicles," explained one market researcher. Uncertain economic prospects, higher inflation, and increased living costs reduce purchasing power and make major investments like buying a car less attractive. For suppliers, this has a direct impact on planning and production processes. When manufacturers reduce or postpone their orders, it leads to underutilization in factories.

Reorientation for electromobility

Fourth, suppliers who have previously specialized primarily in components for combustion engines must develop new skills and products as quickly as possible. The shift to electromobility often means that their existing products will be in less demand in the future or may even become completely obsolete. In the past, it was sometimes sufficient to accompany the evolution of combustion technology and adapt individual components. Now, however, a revolution is underway that requires fundamentally different components: battery systems, control and regulation technology for electric drives, and lightweight materials to compensate for the increased weight of the batteries. Many suppliers are therefore investing large sums in research and development, must completely realign their production processes, and need suitable, highly qualified personnel – a process that cannot be accomplished overnight.

Challenges of just-in-time production

Fifth, just-in-time production, long considered a prime example of efficient supply chains, has revealed its pitfalls in times of crisis. Disruptions or failures at a single link in the chain have an immediate impact on all downstream companies. For suppliers who rely on maximum predictability and continuity, even a slight delay in the delivery of raw materials can lead to serious production stoppages. While this vulnerable structure is not new, it has been further exacerbated by global crises and increasing risks.

Restrictive capital allocation

Sixth, suppliers struggle with restrictive access to capital and often face a more challenging capital situation compared to large automotive manufacturers. Banks and investors have become more cautious when it comes to financing companies whose business models do not appear clearly future-proof in times of change. For suppliers, this means they face additional hurdles when seeking fresh capital, for example, for new projects or the modernization of their production facilities. This, in turn, slows down the urgently needed transformation process, further weakening their competitiveness.

Internal factors

In addition to external factors, internal factors often play a role. Management errors, an overly rigid corporate culture, or a failure to adapt company structures to new market demands can also contribute to the emergence or exacerbation of a crisis. Some suppliers may have realized too late that they need to diversify more to avoid dependence on just a few major customers. "If a supplier has only two or three large clients and one of them drastically reduces its orders, this can immediately trigger an existential crisis," explained a management consultant.

Personnel planning and development

Another aspect is personnel planning and development. Automotive suppliers increasingly need skilled workers with expertise in electromobility, digitalization, and new technologies. However, the shortage of skilled workers in Germany and other industrialized countries is a growing problem. "We are desperately searching for engineers who can drive our new projects forward," reported one supplier looking to enter battery production. If companies fail to find these urgently needed talents in time, this, in turn, delays important innovation projects.

Global competition

Given the global economic situation, German suppliers are also facing increasing competition from abroad. In markets like China, production costs are sometimes significantly lower, and at the same time, companies there have further developed their manufacturing technologies in recent years and are constantly improving their quality standards. "Chinese competitors are entering the market at very attractive prices," noted one market researcher. This puts additional pressure on German suppliers. Automakers are increasingly relocating their production to countries where they can benefit from lower labor costs, lower energy costs, and more favorable tax policies.

The situation is therefore highly complex and requires different approaches to solutions. Some measures are already being implemented or at least in the planning stages:

1. Flexibility and adaptability

Numerous suppliers are trying to diversify their product range, develop new technologies, and get involved in pioneering projects at an early stage. "We've learned that we can no longer rely solely on combustion engine components," said one managing director who has since converted a significant portion of his production capacity to components for electric vehicles. However, this requires not only technical expertise but also a willingness to change processes and ways of thinking within the company.

2. Innovation and Research

Many suppliers are investing in the development of new materials, lightweight construction concepts, and intelligent systems to differentiate themselves from the competition. Software solutions and digital services related to the car are also gaining in importance. Furthermore, there is a trend toward connected vehicles and autonomous driving functions, which requires additional expertise in artificial intelligence and data analysis.

3. Diversification of the customer base

A one-sided dependence on a few large OEMs is increasingly recognized as a risk factor. Some suppliers are looking to other sectors, such as aerospace or medical technology, to reduce their dependence on the automotive industry. Others are actively seeking collaborations with foreign manufacturers to gain a foothold in new markets.

4. Stronger collaboration and cooperation

To reduce costs and achieve synergies, some suppliers are entering into collaborations with competitors. This new openness can manifest itself, for example, in joint research projects or the shared use of production facilities. "In times of crisis, it helps to form alliances instead of fighting each other," said an industry expert.

5. Political support

In some cases, government funding programs are being launched to strengthen companies' innovative capacity. Improved access to financing, targeted infrastructure measures, and investments in education and research can relieve the burden on automotive suppliers. At the same time, there are debates about whether subsidies for specific technologies (for example, electric or hydrogen drives) are appropriate and how they can be used most effectively without creating distortions of competition.

6. Efficient restructuring

Companies that get into financial difficulties often need a structured insolvency or restructuring process to consolidate and continue operations. It is crucial that these procedures are carried out quickly and effectively to preserve as many jobs as possible and prevent the loss of expertise. However, this process can be quite lengthy if investors withdraw, the company's situation is unclear, or it is burdened with high debt.

7. Strategic investments in personnel

To master the transition to the age of electromobility, new qualifications and expertise are essential. Therefore, some suppliers are focusing on targeted training, retraining, and further education to prepare their workforce for future demands. Furthermore, they are striving to attract highly qualified specialists by offering not only attractive salaries but also flexible work arrangements and modern corporate cultures.

Risks and opportunities for suppliers in the automotive industry

The examples of the mbw Group and WKW demonstrate how quickly a company can find itself in a precarious situation. If an agreed-upon investor deal falls through or if rising material and energy prices cannot be offset, often just a few weeks are enough to pull the rug out from under the company. In these cases, insolvency proceedings make headlines and create uncertainty throughout the entire supplier industry. Those cooperating with the affected companies must quickly find alternatives to avoid their own supply disruptions. This dynamic can escalate rapidly if several links in the supply chain simultaneously slide into crisis.

Dependence between OEMs and suppliers

“The supplier crisis is an indicator of how vulnerable the entire automotive ecosystem has become,” commented a management consultant specializing in industrial transformation processes. The relationships between OEMs and suppliers are traditionally close, but in many cases, the dependencies appear to be greater than manufacturers would like. A failure at a specialized supplier providing a particular component that is not easily replaced can shut down entire production lines at an OEM. This makes close coordination and cooperation between manufacturers and suppliers all the more important in order to mitigate crises early on.

Opportunities through electromobility

Electromobility is both a driver of the crisis, requiring investment and technological change, and it also offers opportunities. Companies that develop the necessary expertise early on and create products needed for new vehicle concepts can gain a competitive edge. Battery research, charging infrastructure, lightweight construction techniques, and drive components for hybrid and electric vehicles are areas where suppliers can distinguish themselves. New markets are emerging, not only in the passenger car segment, but also for commercial vehicles, buses, two-wheelers, and micro-mobility concepts such as e-scooters.

Political uncertainties and technological issues

However, risks remain, some of which will be politically determined: Which type of drive system will be promoted in the medium to long term, and which technology will prevail in which markets? Battery-electric vehicles dominate in some countries, while others are focusing more on fuel cell technology. One question that remains unanswered is whether synthetic fuels, so-called e-fuels, will become relevant for passenger cars on a larger scale or will they only be developed for use in aviation and shipping. Each scenario requires different technical components and creates new opportunities and risks for suppliers.

Strategic alignment and risk management

In times when change is so heavily influenced by global factors, a clear strategic direction is essential for suppliers. "A company must be aware of where it wants to be in five or ten years," emphasized a corporate strategy expert. Developing scenarios and aligning with several possible futures helps in this regard. Companies that focus all their resources solely on battery-electric vehicles could find themselves in a dead end when a technological leap occurs toward hydrogen – or vice versa. Diversifying one's own competencies is therefore a form of risk management.

Digitalization as the key to success

To remain competitive in the long term, the digitalization of internal processes is essential. Many suppliers are not only faced with the question of how to future-proof their physical products, but also how to become more efficient and faster using data, automation, and networked production processes. Modern manufacturing concepts, such as Industry 4.0, enable close communication between machines, predictive maintenance, and flexible adaptation to fluctuating production volumes. However, this requires significant investment and highly skilled personnel in fields such as IT, mechatronics, and robotics.

Sustainability as a competitive factor

Alongside digitalization, sustainability is a rapidly growing issue. Environmental regulations and societal expectations necessitate that suppliers optimize their production not only in terms of cost and quality, but also with regard to ecological standards. Energy efficiency, recycling concepts, and the reduction of the carbon footprint are becoming increasingly important. Many automakers now evaluate their suppliers based on clear sustainability criteria and favor those that meet stringent environmental management requirements. For some companies, this can be an opportunity to position themselves as pioneers and create a key differentiator.

Transformation and employee development

Despite all the difficulties and uncertainties, the transformation of the automotive industry also offers opportunities for restructuring and future-proofing. Numerous traditional suppliers have successfully demonstrated their ability to make the leap from conventional components to highly complex e-components or software. "We see our future in intelligent and networked systems for vehicles," said one managing director of a medium-sized company. This optimism is important, but it shouldn't obscure the fact that the transformation process remains a tightrope walk for many businesses.

Skills shortage and training

Training, professional development, and recruitment are crucial factors. The demand for personnel with technical expertise is so high that a genuine shortage has emerged. At the same time, requirements have increased because technologies are rapidly evolving, and employees frequently need cutting-edge knowledge in areas such as electrical engineering, software development, and data analysis. Introducing or expanding dual study programs, collaborating with universities, and implementing targeted professional development programs could be solutions for attracting a sufficient number of qualified personnel. The goal is to prepare the workforce for change and offer them career prospects to prevent them from leaving the company.

The importance of small and medium-sized enterprises (SMEs)

Small and medium-sized enterprises (SMEs) are of particular importance, traditionally considered the backbone of the German economy and innovation. Many SME suppliers have specialized in specific niches and have successfully built up a high level of expertise in their field over decades. However, they often lack the resources and financial reserves to make significant leaps in transformation. They cannot operate with enormous development budgets or simply convert entire production lines to new technologies without incurring considerable risks. Strategic alliances or mergers with other companies would be beneficial here, enabling them to achieve economies of scale and share development costs.

The challenge of networking

“We need to network more effectively and stop focusing solely on our own, often limited, budgets,” emphasized a spokesperson for a medium-sized supplier association. At the same time, the cultural differences between companies shouldn't be underestimated. Successful cooperation requires trust and a certain willingness to compromise. Nevertheless, the pressure is so great that many companies have now become more open to such collaborations.

Political responsibility and framework conditions

Another aspect that is frequently mentioned is political responsibility. Policymakers can create framework conditions that facilitate the transition for suppliers. Tax incentives for investments in research and development, infrastructure modernization, the expansion of renewable energies to provide affordable and clean energy in the long term, and funding programs for regional innovation clusters are just a few examples. The rapid expansion of the charging network for electric vehicles also indirectly benefits suppliers of components for e-mobility, as it increases the demand for electric vehicles.

Criticism of government programs

Criticism sometimes comes from the business community, which complains that government programs are often too bureaucratic or too narrowly defined. "We need targeted aid so that it actually reaches the companies that need it," said one business representative. Ongoing dialogue is necessary to align funding instruments with the real needs of businesses. At the same time, it must be considered that government aid can never solve all problems if there are fundamental business misjudgments or a lack of willingness to adapt.

A glimpse into the future

A look into the future suggests that there will likely be no quick and easy solution to abruptly end the supplier crisis. Instead, we will witness a structural transformation that may extend over one or two decades. The automotive industry is one of the largest and most innovative sectors worldwide, yet it is undergoing an unprecedented upheaval. A changed mobility landscape is emerging, encompassing not only electric drives but also autonomous vehicles, car-sharing models, and other mobility concepts. New players, for example from the tech sector, are entering the market and intensifying competition.

Adaptation and survival

“Those who want to survive in this game have to reshuffle their cards,” said an economics professor. For suppliers, this means maintaining their traditional strengths, such as high quality standards and precise manufacturing, while simultaneously being open to new ideas, collaborations, and technologies. Companies are challenged to streamline their processes, react more quickly to changes, and actively acquire knowledge that goes beyond traditional mechanics.

Opportunities for the European automotive industry

If this succeeds, automotive suppliers could become a crucial factor in the competitiveness of the European automotive industry. They possess valuable experience, established networks, and a deep understanding of vehicle manufacturing. With the right strategy, they could not only maintain their position in the global market but also assume pioneering roles in specific segments, such as highly specialized e-components, sustainable materials, or digital services related to vehicles.

Lessons learned from the crisis

Ultimately, the supplier crisis reveals weaknesses that have built up over years, but it also presents an opportunity for a necessary new beginning. Many companies have already recognized that they must abandon old paths to emerge stronger from these upheavals. They are investing in new business areas, expanding their expertise, seeking partners, focusing on digitalization and sustainability, and repositioning themselves in a rapidly changing global market. This process is painful, but if consistently implemented, it can lead to a more resilient, competitive, and innovative supplier landscape.

The role of suppliers

“Ultimately, it will become clear who is willing to take the risk of change,” said a veteran industry insider. Automakers need a robust supply chain and innovative partners to help them shape the future of mobility. Suppliers are therefore not peripheral figures, but rather at the heart of these developments. If they succeed in establishing themselves in new technological fields, their influence on the industry will remain unbroken. If, however, they fail to keep pace, they risk bankruptcies and the loss of highly skilled jobs.

Structural change in the automotive industry

In summary, the crisis among automotive suppliers is not merely a short-term phenomenon, but rather an expression of a comprehensive structural transformation affecting almost all areas of the industry and many segments of society. Companies must adapt their strategies, policymakers must create supportive frameworks, and employees must actively participate in shaping this transformation. Only by pooling resources and sharing a common understanding of goals and measures can the path to a successful future be paved. Traditional strengths such as quality, precision, and reliability can be combined with new innovations in fields like digitalization, electromobility, and sustainable production. Ultimately, this could lead to the development of a robust and competitive supply chain that can withstand even turbulent times and contribute to maintaining the automotive industry as a key economic sector.

This analysis thus achieves a key finding

The supplier crisis is not the end of a success story, but rather the beginning of a new chapter in which adaptability, cooperation, and technological leadership are more important than ever. Those who tackle this development decisively and consistently look ahead have the best chance of assuming a leading role in the new world of mobility. Conversely, those who hesitate and rely too long on outdated methods risk being overtaken by international competitors. For Germany, as well as for other industrialized nations, it will become clear how well politics, business, and society work together to shape this transformation and lay the foundations for a sustainable and future-proof automotive supplier industry.

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