German seat manufacturer Recaro Automotive, known for supplying luxury brands like BMW, Mercedes-Benz, and Lamborghini, has filed for bankruptcy amid a wider trend of German automotive component suppliers facing financial challenges.

Germany, a major player in the global automotive industry, is witnessing a surge in bankruptcies and layoffs among its suppliers.

German automotive suppliers are implementing substantial layoffs due to the ongoing economic downturn. ZF Group plans to cut 11,000 to 14,000 jobs in Germany by 2028. Continental has announced layoffs impacting 7,150 employees, and Bosch is set to reduce 1,200 jobs in its software division.

Larger suppliers have shown more resilience, whereas smaller suppliers are approaching insolvency. In the first half of 2024, 20 German automotive component suppliers with annual revenues exceeding 10 million euros (about 10.99 million U.S. dollars) filed for bankruptcy, marking a 60-percent increase from the previous year, according to management consultancy Falkensteg. This surge in bankruptcies is attributed to factors such as inflation, rising energy costs, and weakening consumer demand.

In addition, the declining German economy and decreased demand for domestic automotive components have contributed to reduced demand from German car manufacturers. The German Association of the Automotive Industry reported that car production in 2023 declined by over 10 percent, with 4.1 million cars manufactured compared to 4.7 million in 2019.

The global shift towards automotive electrification is putting significant pressure on German automotive manufacturers and component suppliers. It is predicted that employment in the German automotive supplier industry could decrease from 270,000 to 200,000 by 2030, according to Frank Schopp, an automotive industry lecturer at Hannover University of Applied Sciences. This trend indicates a gradual erosion of the German automotive industry's job capacity.

German components focused on internal combustion engines are increasingly being replaced by batteries and electrification components, which are driving growth in the automotive market. Some German automotive suppliers are compelled to invest in both technology platforms, leading to rising R&D costs.

Furthermore, the German government's decision in December 2023 to prematurely end EV subsidies has contributed to consumer hesitancy. New EV registrations in July decreased by 36.8 percent year-on-year, according to the Federal Motor Transport Authority. The market share of new EV registrations dropped from 15.8 percent in the same period last year to 12.5 percent in the first half of 2024.

Investors are disappointed with the automotive industry's shift to electrification, as it has not met expectations and failed to deliver satisfactory returns. This has led to some suppliers struggling to keep up with evolving trends, viewing it as an "investment trap."

German automakers have also slowed down their electrification initiatives and are canceling or postponing orders, which adds to the challenges faced by automotive component suppliers.

Mercedes-Benz has delayed its target of achieving a 50-percent share of EV sales from 2025 to 2030. Porsche has abandoned its goal of having EVs account for 80 percent of new vehicle sales by 2030. Volkswagen is considering closing its Audi Q8 e-tron production facility in Belgium.

Despite challenges, German automotive suppliers are addressing the transformation. Bosch plans to launch 30 new EV production projects this year. Continental aims to spin off its automotive division and seek an independent listing. Infineon is focusing on automotive sector digitalization for profit growth.

"The current glaring weakness in demand for EVs is leading to overcapacity in the electric-powertrain production lines that have been set up with high investments," ZF Group CEO Holger Klein said. "Despite the current market situation, one thing is clear -- the future belongs to electromobility. We have made proactive investments here and will continue to invest heavily in this area."

Experts predict continued electrification in the automotive industry. German automakers' EV initiatives are temporarily delayed, but not stopped. German automotive suppliers should swiftly adjust their strategies to meet the new competitive environment. Smaller companies can seek technological support through partnerships or joint R&D with larger firms, while major manufacturers should utilize their scale and R&D advantages to explore new growth opportunities.