Industry trends automotive May 2025

Global automotive: Disruption of supply chains and rising costs due to tariffs

We expect global motor vehicles and parts production to contract by 1.7% in 2025 and by 2.1% in 2026 as US tariffs hit the sector. Tariffs targeted towards automotive imports will disrupt the regional and global supply chains, increasing the costs of imported components and materials.

The consequences will be negative for producers and suppliers in the US and elsewhere. In 2024, Japan, South Korea and Germany were the top automotive suppliers to the US after Mexico and Canada in terms of finished vehicles and parts.

Among regions, the 2025 output slowdown is largest in North America (-5.8%).  Mexican and Canadian imports represent 15% and 8% of US vehicles sales respectively, meaning the scope for average vehicle price increases is significant. 

We expect global hybrid and EV sales to account for 59% of global light vehicle sales by 2030, up from 10% in 2020. In Europe the shift towards electrification will accelerate in the coming years. In China, the EV transition maintains a strong momentum.

USA: Decreasing production and price increases and due to tariffs

Currently we expect US vehicle production to contract by 5.0% in 2025. The US automotive sector depends on regionally and globally integrated supply chains, with many components crossing multiple borders before final assembly. Disruptions from tariffs increase production costs, reduce supply chain efficiency, and ultimately impact long-term sector competitiveness. We expect credit risk to increase along the value chain, in particular in the supplier segment. 

On average, the tariff applies to nearly one third of the price of a car. Increased component prices will raise the cost of production per vehicle and will likely be passed onto consumers. US OEMs are also likely to raise prices in the face of reduced foreign competition. The price increases will weigh on demand for both imported and domestically produced vehicles. Another issue dampening demand for big-ticket items like cars will be lower US economic growth and weaker consumer confidence. 

Several foreign automakers have announced formal plans to invest in US production. Such large package investments are typically planned several years in advance and are supported by a stable policy environment. We believe that the uncertainty regarding tariff policy seen in recent months may lead some automotive producers to delay decision making.

Canada and Mexico: A steep automotive production decline

The introduction of US import tariffs and regulatory barriers will raise production costs, lengthen supply timelines, and reduce output and demand. 

We expect Canadian and Mexican motor vehicles and parts production to contract by 6.1% and 8.4% respectively in 2025. While some manufacturers and suppliers may seek to move operations to the US in order to bypass tariffs, this will not possible across the board. 

China: A slowdown in 2025 after robust growth in the past two years

After robust growth in 2023 and 2024, we expect Chinese automotive production to contract by 2.3% in 2025. Weaker economic growth and lower consumer confidence will weigh on domestic car sales in the coming months. However, stimulus measures such as increasing scrappage incentives support the industry. 

Due to the small number of car exports to the US, the sector is relatively unaffected by the US tariffs on automotive imports. More serious are the EU import tariffs on Chinese EVs (ranging from 17.8% to 45.3%), that have curbed China’s rapid expansion in the European market.

The government maintains its strong policy support for EV adoption, including subsidies for consumers and investments in charging infrastructure. By 2030, EVs are projected to represent 65% of all new car sales in China, while ICE vehicles will decrease to 27%.

The booming EV market has attracted many new players, which has led to fierce competition and price wars, putting margins of producers and suppliers under pressure. A lot of smaller private-owned businesses in the EV segment are not yet breaking even due to high input costs and are heavily reliant on external funding by investors. Without continuous capital flow, those firms could quickly fail. 

Japan and South Korea: Heavily impacted by US import tariffs

The US is the most important market for Japan and South Korea automotive exports, leaving both particularly vulnerable to the 25% tariffs. Automotive exports to the US account for 6% of total exports for each country.

Compared to the March 2025 forecast, automotive production in 2025-2026 is expected to decrease by 5.6 percentage points in Japan and by 5.3 in South Korea.

Europe: Higher credit risk for small and medium-sized suppliers

After decreasing 5.1% last year, we expect automotive production in the EU and the UK to contract again in 2025, by 3.7%. Economic performance in Europe remains subdued, and new vehicle purchases are likely to stay depressed in the coming months, as consumers put off big-ticket item expenditures. In 2026 only a modest 0.4% rebound is forecast.

We observe tight margins and more payment delays and insolvencies in major markets like Germany, Italy and the UK. Additionally, the shift away from internal combustion engines has started to reshape the industry and its competitive structure. 

The US is the number one export destination for EU-made cars, leaving the industry highly vulnerable to tariffs. The combination of reduced export demand, higher input costs, and shrinking profit margins would severely hurt the competitiveness of the German and Central and Eastern European automotive industries, already under pressure. Redirecting exports to other markets is, at best, a partial solution.

Punitive tariffs on Chinese EV imports may slow the momentum of Chinese imports, giving European producers a window to launch a new generation of more competitive vehicles. However, Chinese OEMs could also accelerate their plans to localise production in Europe.