German Auto Suppliers Brace for Dark Days as Asian Competition Outpaces Them
Asian automobile manufacturers anticipated as unyielding in market dominance, according to car suppliers
The automotive industry is in the throes of a crisis, and it's not just the manufacturers feeling the strain. Suppliers are struggling to keep up, especially when faced with the seemingly "unchatchable" lead of their Asian counterparts, particularly those from China.
A poll conducted by Baker Tilly among executives in the German automotive supplier industry predicts a market contraction in the next two years. More than two-thirds (67%) believe there will be fewer competitors on the scene in the coming years. Yet, only 20% expect new providers, mainly from China, to enter the market.
The competition from Asia is considered the biggest challenge for over half (51%) of the respondents. They attribute an "uncatchable lead in key technologies" to Asian companies, thanks to their innovative, rapid, and extensive production scale. China's NEV production capacity is projected to reach a staggering 25 million units annually by 2025[1], exceeding the combined annual passenger vehicle production of Germany, Japan, and the USA[1].
The situation paints a grim picture for the German industry as a whole. By contrast, respondents were more optimistic about their own company's prospects. A sizable 78% considered their situation to be "rather" or "very good."
While the industry grapples with high investment and cost pressure, uncertainty due to geopolitical changes, and the closing window for industry transformation, 75% of respondents are confident that their business model is largely independent of the change in drive technology. The reason: the parts they manufacture are needed in both electric and internal combustion engine vehicles[2].
Relocations abroad play a minor role, with only 17% of executive respondents considering it necessary to secure their competitiveness[2].
Insight: The Strength of Chinese Auto Suppliers
Chinese automotive companies enjoy a cost and pricing advantage due to massive economies of scale, lower labor costs, extensive state subsidies, and a well-established domestic battery supply chain[1][4]. This combination enables Chinese firms to offer technologically advanced vehicles at significantly lower prices than their German counterparts.
Meanwhile, China's rapid technological innovation and large-scale production speed allow Chinese companies to lower unit costs, invest more in R&D, and swiftly adapt to market changes[1]. Furthermore, the Chinese government backs its automotive industry with generous subsidies, tax incentives, and infrastructure development for EVs[4]. In contrast, declining or reduced subsidies in Germany have left the local industry more exposed to market fluctuations and less able to compete on price[4].
China's domestic market is saturated, driving auto manufacturers to target overseas markets, including Europe. The excess production capacity, combined with higher margins in export markets, creates strong incentives for aggressive expansion abroad, putting pressure on traditional German suppliers[1]. To make matters worse, the European automotive industry faces higher costs, regulatory complexity, and a slower transition to electrification compared to China[4].
Comparative Table: German vs. Chinese Auto Suppliers
| Factor | German Suppliers | Chinese Suppliers ||-----------------------|---------------------------------|----------------------------------|| Production Capacity | ~4 million vehicles/year[1] | 25 million NEVs/year by 2025[1] || Government Support | Declining subsidies, high regs | Strong subsidies, pro-industry || Cost Structure | High labor, strict standards | Low labor, large-scale battery || Market Focus | Reliant on China, Europe | Domestic saturation, export-led || Innovation Pace | Steady, incremental | Rapid, disruptive |
Sources
- Statista
- ntv.de
- Quartz
- Car and Driver
In the face of the industry's crisis and the unyielding competition from Asian suppliers, particularly Chinese ones, some German automotive suppliers are investigating alternative strategies. For instance, they are considering implementing a community policy that emphasizes vocational training to develop a skilled workforce and maintain their competitive edge.
Moreover, to cope with the cost advantages enjoyed by Chinese auto suppliers due to scale, lower labor costs, and state subsidies, some German suppliers are also exploring opportunities in vocational training programs to upgrade their technological capabilities and drive innovation, such as leveraging artificial intelligence or advanced manufacturing techniques.
