Automotive

The industry is facing a combination of unclear demand and constant cost pressure; coupled with financing challenges at high debt levels

What drives the industry according to public sentiment?

The industry faces significant topline uncertainty due to continuously declining demand and a pronounced slowdown in electrification, particularly across Europe. Pricing pressure is intensifying as the cost pass-throughs of 2022-2023 give way to increasing strain on price levels.

New entrants from China are reshaping the competitive landscape, especially in the electric vehicle market, while Europe and North America experience stagnation, driving a volume shift to Asia. At the same time, cost pressure is escalating, with increased fixed and structural costs compressing already thin margins—challenges that cannot be resolved through efficiencies alone.

Regulatory uncertainty regarding the transition from internal combustion engines (ICE) to battery electric vehicles (BEV), combined with fluctuating subsidy policies, continues to hinder adoption rates across Europe. Furthermore, the changing role of banks is influencing financial dynamics, with high debt levels stemming from poor results and rising financing costs. While banks are currently smoothing these pressures, the long-term implications remain uncertain.

How can business leaders take position according to BCG experts?

Adapting the cost structure to align with "new normal" production volumes is critical. This can be achieved by leveraging AI to streamline overheads and enhance efficiency. Equally important is maintaining an “always on” approach to footprint optimization, ensuring the development of the most cost-effective program or site alignment while maximizing the advantages offered by low-cost countries (LCC).

A clear strategic response is needed to address the competitive challenge posed by new entrants from China, alongside positioning effectively to supply Chinese OEMs. Streamlining the working capital position is another priority to free up liquidity, serving as an internal funding source to bolster resilience.

Finally, suppliers must intensify efforts in price negotiations with OEMs, doubling down on strategies to safeguard margins and maintain profitability in a challenging market environment.

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