- A deepening sense of uncertainty: 63% of suppliers express a negative outlook, a significant decline in overall industry sentiment.
- Squeezed profitability: 75% of suppliers expect continued low profits, with 42% expecting to operate at break-even or face losses in 2025.
- Intensifying global competition: 57% report increasing pressure from Chinese component imports.
Uncertainty and profitability pressures
Central to these concerns is the uncertainty around new projects and the demand for electric vehicles (EVs) in Europe. Vehicle manufacturers (OEMs) are urging suppliers to reduce costs, while the European market faces challenges in maintaining its competitive edge.
As a result, profitability projections are increasingly pessimistic: 42% of suppliers now expect to operate with marginal or negative profitability, up from 35% six months ago. Only one in four suppliers anticipates profitability exceeding 5%, a decline from earlier predictions.
Benjamin Krieger, CLEPA’s Secretary General, underscores the sector’s concerns, stating: “This is not the time to downplay the challenges. Suppliers are grappling with shrinking margins and a lack of investments. Three quarters of our industry are now operating at low profitability levels. Delays in policy action will make the situation more severe. We need to shift Action Plan discussions to concrete steps, ensuring an effective implementation of technology neutrality, and fostering an innovation-friendly environment. If we fail to act now, Europe risks being remembered not for the powerful industry it built, but for the one it lost to other regions.”
Declining production volumes threaten jobs and investments
The survey also reveals a concerning drop in production volumes, with 62% of suppliers facing challenges in maintaining sufficient plant utilization. One in four suppliers report that most of their plants are operating below capacity, leading to difficult decisions about restructuring.
Looking towards the midterm (2025-2030), 37% of suppliers expect the need to reduce the number of plants in response to declining production volumes, a significant increase from 24% a year ago. This potential contraction poses a threat to jobs, innovation, and long-term investment in the sector.
Moreover, 33% of suppliers caution that bankruptcies among smaller Tier 2 suppliers, along with suppliers leaving the automotive industry, will have a significant impact on their operations, a sharp rise from 20% last year.
Main strategic challenges: the battle for competitiveness
Decreasing competitiveness is mentioned by 72% of suppliers as one of their main strategic challenges. 71% report significant difficulties in passing on rising costs to OEMs, while 69% identifies demand unpredictability as a major challenge.
Automotive suppliers, as intermediaries in the supply chain, are the first to absorb cost pressures and face difficulties negotiating price adjustments with OEMs. While some contracts include indexation clauses, many do not, forcing suppliers into complex negotiations.
Additionally, geopolitical instability is creating further headwinds. 58% of suppliers cite rising global tensions as a major concern. 58% of suppliers identifies geopolitical instability as having a severe impact on their business. In particular, Trump’s tariffs threaten to heavily affect EU automotive suppliers, both in their European as in their North American business. Only 19% of suppliers indicate that they can pass on the cost of tariffs to their OEM customers, while 54% will be required to negotiate contracts with OEMs.
How can European suppliers stay competitive?
Automotive suppliers identify three major levers to improve EU competitiveness: access to affordable energy (65%), competitive labour costs and productivity (59%) and a competitive technology offering (43%). Other factors include availability of critical raw materials and talent, as well as improvement of the regulatory environment and access to capital.
Suppliers identify their advanced technological expertise and innovation capacity (62%) as well as the power of their brand and trust (50%) as their main assets over Chinese competitors. Additionally, 41% of suppliers highlight their deep experience with regulatory compliance as a strength in an increasingly complex market.
About CLEPA
CLEPA, the European Association of Automotive Suppliers based in Brussels, represents over 3,000 companies, from multi-nationals to SMEs, supplying state-of-the-art components and innovative technology for safe, smart and sustainable mobility, investing over €30 billion yearly in research and development. Automotive suppliers in Europe directly employ 1.7 million people in the EU.
For further information, please contact:
CLEPA’s Senior Communications Manager Clara Guillén at c.guillen(at)clepa.be
About McKinsey
McKinsey is a global management consulting firm committed to helping organizations accelerate sustainable and inclusive growth. We work with clients across the private, public, and social sectors to solve complex problems and create positive change for all their stakeholders. We combine bold strategies and transformative technologies to help organizations innovate more sustainably, achieve lasting gains in performance, and build workforces that will thrive for this generation and the next.
For further information, please contact:
Senior Manager of Communications Martin Hattrup-Silberberg: martin_hattrup-silberberg@mckinsey.com
