Confronting a structural contraction in the automotive industry, German auto parts suppliers are increasingly pivoting toward growth sectors such as medical technology, robotics, and defense. This shift mirrors a widespread pessimism about the future of Germany's auto industry, which has shed tens of thousands of jobs since 2019, with the decline expected to persist.
A family-owned ceramics company in Bavaria, Senbach, exemplifies this transformation. Since the 1970s, it has produced components like sensors for the auto sector, with annual output peaking at roughly 600 million units but now reduced to around 400 million. To reduce its dependence on the struggling auto industry, Senbach set a strategic goal in 2023 to cut its automotive revenue share from 80% to 40% by 2033. CEO Anna Senbach stated that without this new strategy, the company might not survive another decade. She noted a marked decline in European production volumes, while the medical sector, driven by an aging population, offers faster growth and greater stability.
The German Automotive Industry Association projects that the sector will shed an additional 125,000 jobs by 2035, with suppliers facing the highest risk. A November survey by restructuring consultancy FTI-Andersch revealed that three-quarters of German suppliers affected by structural changes have already diversified into other businesses, with defense drawing the most interest. Rising European government defense spending is seen as a major growth opportunity.
Schaeffler Group is among the early movers in this transition. The company has repositioned itself as a motion technology firm, adapting automotive gears and sensors for humanoid robots, while also producing bearings, reaction wheels, and power electronics for the aerospace industry. CEO Klaus Rosenfeld stated that the auto business no longer offers significant growth, and he expects defense, robotics, and aerospace to contribute 10% of the company's revenue by 2035. He acknowledged that this shift won't replace the auto business but will deliver additional growth and give employees confidence in the company's ability to reinvent itself.
Bosch, the world's largest auto supplier, is also pursuing diversification. Amid pressure on its traditional auto operations, the company has announced 22,000 job cuts globally while expanding its robotics business, which executives expect to grow into a multi-billion-euro operation.
Volkswagen is in talks with defense firms to repurpose its idled plants, negotiating with the Israeli manufacturer of the "Iron Dome" system regarding its Osnabrück facility. Meanwhile, Mercedes-Benz recently signed a memorandum of understanding with drone startup Tytan to supply vehicles for mobile air defense units.
However, Simon Schnuller, an automotive consultant at Oliver Wyman, cautioned that rapid growth in the defense sector won't be enough to offset the swift contraction in auto production. He argued that pivoting to other industries offers some auto companies a path to repurpose capacity, but it remains insufficient to sustain most suppliers.
For Senbach, the stringent technical standards of the auto industry have provided a solid foundation for manufacturing components for pacemakers and endoscopes. This transition has also freed the company from the auto sector's fierce price competition and razor-thin margins—last year, it posted record revenue of €23 million. Anna Senbach remarked that in the auto industry, every cent is fiercely contested, while the medical field is a completely different landscape.