Car Manufacturing Locations are closing in Europe—focus on e-mobility

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Berylls Strategy Advisors GmbH

FAULHABER Drive Systems

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Vehicle production is forecasted to grow until 2030, according to projections. Suppliers are already reacting— and are relocating their factories in whole or in part.

*A. Timmer, Ch. Grimmelt, A. van Woudenberg, A. Maihöfner, S. Schneeberger: all Berylls by Alixpartners

In 2023, Germany's share of global vehicle production was around 4.8 percent and it is expected that this share will increase to 5.4 percent by 2030. But growth in production is also expected in China and the USA until 2030. Therefore, the question for suppliers is how they can participate in this growth and whether they need to adapt their focus technologies and the geographical location of their production sites.

Growth in China, the USA and Mexico

When looking at the projected location developments of the top 20 global automotive suppliers, a positive trend emerges at first glance: Between January 2022 and February 2023, they announced significantly more expansions and new openings than closures and divestitures of locations.

However, this does not apply equally to all countries, especially not to Germany as a location: here, sales and closures as well as a shift to other regions predominate, such as at Continental: the Babenhausen plant will be closed by 2028, parts of production have already been shifted to Eastern Europe, and the Gifhorn plant will be completely closed by the end of 2027 due to lack of profitability.

In the USA, too, a very large number of factory sales and closures are pending. However, in contrast to Germany, there is no structural migration in sight, as the factory closures are more than compensated for by a significantly higher number of new openings and expansions of existing capacities. A key growth driver in the USA is electric mobility - the Inflation Reduction Act has the potential to further strengthen this dynamic. In addition to the USA, Japan, Canada, Hungary, and particularly China are among the winners when it comes to new openings and expansions.

The largest growth by far is expected in China—as in the USA, investments in the production of electric drivetrains clearly dominate here with over 40 percent. German companies play a key role: they are behind almost 40 percent of the investments mentioned in China—and are therefore responsible for more local investments than Chinese top-20 suppliers.

In Mexico, the investing companies are specializing in electrical and electronic topics. About 40 percent of local investments are allocated to this area, as shown by the expansion of three Aptiv locations to increase production capacities for low-voltage wiring harnesses, for example.

Invest in home markets

In addition to the e-mobility and growth in China trends, the "home country first" trend stands out prominently among the planned investments: US companies primarily focus on their domestic market and much less on Asia or Europe. Chinese companies are also following this strategy and are very clearly focusing on their domestic market when it comes to their investments. Given the recently approved 100 percent import tariff on Chinese electric vehicles in the USA, this is a clear signal of the increasing isolation of the two markets, which is also reflected in the investments of the suppliers considered.

German companies, on the other hand, show little interest in new locations in their own country—although they are responsible for the largest share of investments among the top-20 suppliers with 27 percent. Bosch is investing in new factories in China to increase production capacities for E-Powertrain components, and ZF is investing 500 million US dollars (461 million EUR) in its site in Gray Court, South Carolina, in order to be able to produce conventional and electrified drive systems there at the same time.

Expansion primarily in the USA and China

In conclusion, the view into the future from a German perspective is ambivalent: There will be a clear consolidation of automotive supplier locations in Germany—the expansions to enable the transformation to e-mobility are largely taking place in the USA and China.

A development from which German suppliers can also indirectly benefit, as they continue to have a strong presence in these key growth markets - and can even expand their position there.

For globally active automotive suppliers, it pays to consolidate their presence in growth markets such as the USA and China, as this ensures compliance with local standards and avoids high logistics costs or impending import duties; and they can rely on critical tier-n suppliers and their resources.