Two things are happening in automotive at the same time, and they pull in different directions. In Europe, cost reduction has become the dominant theme — more so than in many markets elsewhere, where cost and innovation tend to be pushed together. A supplier that focuses on cost alone, squeezing the part and then squeezing it again, is optimising for a race it cannot win on price alone.
In Europe, cost dominates — elsewhere, often both
The pressure on the European supply base is structural, not cyclical. CLEPA, the European association of automotive suppliers, reports roughly 104,000 supplier jobs lost across 2024 and 2025 against about 7,000 created, and around one in four suppliers now expects a loss-making year. EU vehicle output is running close to 20 per cent below 2019 levels. The response from carmakers is predictable and relentless: price-down demands passed straight down the chain.
Elsewhere the equation is different. Chinese manufacturers develop new vehicles around 30 per cent faster than legacy makers and, under sustained domestic competition, have driven production costs to a level where comparable vehicles can be markedly cheaper than in export markets. The same industrial base that competes for the end market is also, increasingly, the most cost-competitive source of components. That is the uncomfortable centre of the problem: the strongest competitor and the cheapest supplier are frequently the same region.
The sourcing paradox — and why geography is the wrong frame
A hard cost target points sourcing toward whichever region is cheapest, often abroad. The wish to strengthen European industry points the other way, toward local supply. Stated as a question of location, the two cannot be reconciled, and in practice most cost programmes simply default to the lowest quote.
The better question is not where a supplier sits, but what the decision actually optimises. The right measure is the ratio of quality to price under a clearly defined specification — with security of supply built in from the start. It is not about the lowest number on the quote, and not about origin for its own sake. On that basis the best-qualified supplier wins, wherever it is, and dependence on a single source or single country becomes a risk to manage deliberately rather than accept by default. A second source and several suppliers are what keep a saving from turning into a supply failure.
This is where the engineering side of sourcing matters. Finding an alternative supplier is the easy step. The real work is what most purchasing teams are not staffed for: reviewing the component specification, judging whether a supplier can actually make it properly, and making sure design and manufacturing fit together — before anyone commits. Sourcing as an engineering task, not just a purchasing task, is the difference between a real saving and a quality problem pushed out by a year.
The commoditisation trap
The bigger risk is not this year's price-down. It is becoming a pure commodity — an interchangeable supplier. As the vehicle becomes software-defined, value moves into the software, and carmakers want to own that part themselves. Hardware that used to be distinctive is increasingly treated as interchangeable. A supplier of an interchangeable part competes on price alone — and on price alone it eventually loses, either to a cheaper region or to consolidation in the market.
There are two ways out, and both have to be chosen deliberately. The first: move into an adjacent market where the same capability is scarce and better paid. The second: move up the chain — from Tier 3 to Tier 2 to Tier 1 — by taking on more than the component alone, namely development, system integration and validation. The industry data points the same way: those who hold their position stand out through specialised, high-precision capability and system know-how — not through the lowest price for a commodity part.
Where the growth capital is going
It is worth looking soberly at where investment is concentrating, because it shows which adjacent markets are worth it. Two areas stand out. Data-centre investment is rising from around 430 billion US dollars in 2024 toward the trillion range by the end of the decade, driven mainly by AI. Global military spending reached about 2.89 trillion US dollars in 2025 on SIPRI's figures — the eleventh consecutive annual rise, with European spending alone up around 14 per cent in a single year.
For an automotive supplier this is directly relevant. Capabilities built for vehicles — thermal management, power electronics, precision metal forming, systems engineering, qualified supply chains — transfer into these better-funded areas. Read honestly, larger technology investment and consultancy are increasingly routing through Asia and the United States, while in Europe the emphasis has shifted toward defending cost. Recognising this early lets a supplier move toward growth rather than simply absorb the pressure.
What this means — and where MD Strategy Group fits
For a supplier or a purchasing team under cost pressure, the path is much the same. First, hit the near-term cost target through engineering-led sourcing — review the specification, assess manufacturability, find suitable alternative suppliers, build a second source — so the saving is real and secured, not a hidden risk. Then use the room you have gained to decide calmly: defend the existing business, move into a new market, or move up the chain.
This is exactly where MD Strategy Group works: engineering-led sourcing that, regardless of origin, holds the ratio of quality, price and security of supply — rather than chasing the lowest quote. Together with the strategic question of where a supplier is best placed in the chain. The customer keeps full control over supplier selection and the direct business relationship. The fee model is funded from the savings achieved and is available on request.