Things are getting serious for the automotive industry in Europe – small and medium-sized foundries and suppliers are suffering

In a landmark speech, Hildegard Müller, President of the German Association of the Automotive Industry (VDA), outlined to engineers the key challenges, opportunities and necessary policy decisions required for the transformation of the German automotive industry. Her appeal: the sector can only successfully pursue the path to climate neutrality and digitalisation if politicians, society and industry work together to create reliable framework conditions.

1. Mobility as participation – the car remains indispensable

Müller emphasised the central role of the car in individual mobility, particularly in rural areas, where local public transport is often inadequate. Owning a car ensures social and economic participation. Contrary to popular belief, young people’s interest in cars remains undiminished – current figures from the Federal Motor Transport Authority show a record high number of car owners under the age of 25.

1. Transformation requires far-reaching change

The climate-neutral, digitally connected mobility of the future presents the industry with enormous challenges. In addition to massive investment, new political frameworks are needed. Supply chain issues, geopolitical uncertainties and high energy prices are exacerbating the situation – particularly for small and medium-sized industrial enterprises, which include many foundries. Even large OEMs and suppliers are coming under pressure.

• Call to action: The European automotive industry must invest in a climate-neutral and digital future to navigate the transition.

1. Global competitiveness – China as a benchmark

China is rapidly emerging as a technology leader. Müller emphasised that European manufacturers could only remain competitive with products tailored to the market and adapted to regional preferences – from digital features right through to design preferences.
Whether vehicles in Europe need to be karaoke machines is a matter of taste.
Geopolitical tensions (e.g. US tariffs) have caused losses running into the billions and highlighted the need for strategic trade solutions. Retaliatory tariffs could prove counterproductive – particularly if they affect German vehicles produced in the US. Naturally, there are differing positions on this within Europe.

1. Bureaucracy and location costs are holding back innovation

Müller levelled sharp criticism at Brussels and Berlin: excessive bureaucracy accounts for around 22 % of working hours – time that would be better invested in innovation. High energy prices – in some cases five times higher than in competitive markets – further jeopardise Germany’s attractiveness as an industrial location. The tax burden and restrictive EU state aid rules are contributing to the shift of investment abroad.

1. Energy transition requires infrastructure

A major obstacle to electric mobility is the inadequate charging infrastructure. One third of German local authorities have no public charging points, whilst two thirds have no fast-charging points. The situation is particularly problematic for commercial vehicles – here, it can take up to ten years to connect depots to the grid. Müller called for a new energy policy that also incorporates hydrogen, synthetic fuels and international energy agreements.

1. Shaping trade policy pragmatically

To survive global competition, Europe needs new partnerships on raw materials and trade – without ideological baggage. Müller cited China’s duty-free agreements with African states as an example, whilst European trade agreements often failed due to excessive requirements.

1. Call for innovation-friendly legislation

The development of autonomous vehicles, AI and new digital services is being held back in Europe by over-regulated legislative processes. Müller warned that Europe risks falling behind in the global race for the ‘smartphone on wheels’. He argued that legal frameworks are needed to ensure data protection and AI are managed responsibly, whilst still enabling innovation.

1. Investment is there – but uncertainty remains

Despite the challenges, the sector is investing heavily:

• 320 billion euros are being channelled into research, development and innovation
• 220 billion euros into the transformation of factories – in the next four years alone.

Nevertheless, concerns remain about Germany’s position as an industrial hub, particularly in structurally weak regions where political radicalisation is on the rise.

1. Conclusion: Industry is ready – politics must deliver

The German automotive industry stands at a historic turning point. Hildegard Müller made it clear: it is not a question of the industry lacking the will – but the political framework must finally keep pace with the speed of transformation. Only in this way can Germany maintain its role as a leading industrial hub – not least with regard to suppliers and foundries, which form the backbone of the industry.

1. What does this mean for SMEs and foundries?

Small and medium-sized enterprises (SMEs) – in particular as traditional suppliers to the automotive industry – are under immense pressure. The transformation of the sector is hitting them particularly hard.

Key pressures facing SMEs and foundries:

• Financing difficulties: Tighter banking regulations and high transformation requirements are making access to capital more difficult.
• High pressure to change: Transformation affects entire production and supply chain structures.
• External shocks: Energy prices, supply chain disruptions and shifts in global demand are undermining competitiveness.
• Political framework conditions: A region’s attractiveness and employment levels depend heavily on decisions regarding energy policy, the reduction of red tape and support programmes.

Jobs and structural change

• The number of employees in the automotive sector has already fallen to around 730,000.
• A supported process of structural change is necessary to safeguard jobs – particularly in small and medium-sized enterprises.
• Foundries – often heavily reliant on combustion engines – must determine how they can integrate into new value chains.

International competition

• Competitive pressure – particularly from China – continues to grow.
• Whilst new giants with large domestic markets are emerging there, European suppliers are struggling with the heavy burden of transition.
• Nevertheless, the fact remains that an oversupply of Chinese electric cars is not enough if European consumers have different expectations regarding brand, design and quality.

Conclusion for small and medium-sized enterprises

For SMEs and foundries, it is about more than just transformation – it is a matter of survival.
What is needed now:

• A reliable political framework
• Targeted support measures
• A clear industrial policy strategy

Only in this way can these companies continue to secure innovation, employment and value creation in Germany in the future.