Fractured supply chains force automotive sector to rebuild from scratch

The automotive supply chain has endured a decade of successive shocks that have exposed its fundamental fragility. From pandemic-era semiconductor shortages to geopolitical disruptions and now escalating tariff regimes, manufacturers have been forced to confront a structural reality that decades of efficiency-driven globalisation papered over. The latest AMS/ABB Automotive Manufacturing Outlook Survey 2025 captures an industry still in the midst of that reckoning, with 473 respondents spanning original equipment manufacturers, tier suppliers, and engineering specialists offering a granular portrait of where the pain is concentrated and how manufacturers are responding.

What the data reveals is not a sector in recovery, but one undertaking a more fundamental redesign. The supply chain strategies that served automotive manufacturing for the better part of three decades, built on single sourcing, just-in-time delivery, and extended global networks, are being dismantled and replaced with architectures that prioritise resilience, visibility, and proximity over pure cost efficiency.

Disruption as a permanent condition

Supply chain disruption, parts shortages, and inventory management rank as the leading supply chain challenge, identified by 45% of survey respondents. That figure has remained stubbornly elevated across successive years of the survey, appearing in the top two supply chain challenges every year since 2022, suggesting the industry has moved beyond hoping that disruption is cyclical and accepted it as structural.

Rising labour and skills shortages follow at 37%, adding a human dimension to what might otherwise be framed as a purely logistical problem. When the people needed to manage complex procurement processes, operate warehouse systems, and negotiate supplier contracts are themselves in short supply, the vulnerability compounds. Skills shortages do not merely slow resolution of supply chain problems; they prevent manufacturers from implementing the more sophisticated supply chain strategies the industry acknowledges it needs.

Tariffs and reciprocal trade restrictions, cited as a major manufacturing challenge by 29% of respondents overall, sit underneath these headline figures as a catalyst that is actively reshaping sourcing decisions. What began as bilateral trade friction between major economies has evolved into a systemic reconfiguration of where components are made, who makes them, and which markets they can serve without punitive cost penalties.

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The regionalisation response

Increasing regionalisation, localisation, and hyper-localisation emerged as a significant supply chain challenge and strategic response simultaneously, cited by 30% of respondents in the supply chain context. This duality is instructive. Regionalisation is not simply a choice manufacturers are making; it is a pressure they are responding to, driven by tariff structures, local content requirements, and the hard-learned lessons of extended supply lines exposed by successive crises.

Shifting towards reshoring, near-shoring, right-shoring, on-shoring, and friend-shoring was identified by 29% of respondents as a significant supply chain challenge, with the proliferation of terminology reflecting genuine strategic complexity. Different manufacturers are reaching different conclusions about optimal supply chain geography depending on their product mix, customer base, and existing footprint. Volkswagen's publicly articulated 'In China for China' strategy embodies one approach; North American manufacturers reconfiguring supply bases to comply with USMCA content rule, another.

The electric vehicle transition accelerates regionalisation pressures beyond what tariff exposure alone would demand. Battery supply chains are geographically concentrated in ways that internal combustion engine component networks never were, and local content requirements attached to subsidy programmes in major markets are forcing manufacturers to establish regional battery ecosystems rather than relying on established Asian supply networks. Survey data showing 66% of respondents expecting passenger electric vehicle production increases means these pressures will intensify as the sector continues its electrification trajectory.

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From single sourcing to strategic redundancy

Shifting from single sourcing to dual sourcing and multi-sourcing was identified by 27% of survey respondents as a significant supply chain challenge. That this transition is framed as a challenge rather than simply a solution is revealing. Adding supplier relationships introduces procurement complexity, quality management burden, and cost pressure that single-source arrangements were designed to eliminate. Manufacturers are, in effect, buying resilience at the cost of efficiency, a trade-off the industry long resisted and now has little choice but to accept.

The move towards multi-sourcing intersects uncomfortably with the skills shortage identified by 37% of respondents as a labour challenge. Managing a more complex supplier network demands greater procurement capability, more sophisticated contract management, and deeper technical understanding of supplier processes. These are precisely the competencies in shortest supply as competition for qualified supply chain professionals intensifies across industries.

Adapting to increasing supply chain complexity was cited by 29% of respondents, with poor collaboration and lack of standard processes identified as an underlying friction. The automotive sector's tiered supplier architecture, which distributes production across hundreds of companies operating under different systems and processes, creates coordination challenges that individual sourcing decisions cannot resolve. Standardising data formats, quality protocols, and communication systems across multi-tier supply chains remains an aspiration rather than a reality for much of the industry.

Digitalisation as the connective tissue

Software, digitalisation, and data management to improve supply chain visibility and transparency was identified by 28% of respondents as a significant challenge, reflecting awareness that the information architecture underpinning supply chain decisions has not kept pace with the complexity of modern networks. Manufacturers who cannot see their second and third-tier suppliers clearly cannot anticipate disruptions, manage inventory intelligently, or make informed sourcing decisions.

Survey data confirms the strategic response. Accelerating digitalisation and data integration was identified by 26% of respondents as a leading step being taken to address manufacturing challenges broadly, whilst 64% of manufacturers expect increased adoption of supply chain management software specifically over the coming year. The investment rationale is clear: digital visibility transforms reactive supply chain management into anticipatory risk mitigation.

Talent crisis accelerates as carmakers embrace automation

Labour and skills shortages rank as automotive manufacturing's second-biggest challenge, creating a paradox where workforce deficits drive automation investment whilst simultaneously constraining the industry's ability to operate advanced systems.

Artificial intelligence deployment, expected to grow by 79% of survey respondents, offers particular promise for supply chain applications. Demand forecasting, inventory optimisation, supplier risk scoring, and logistics routing all benefit from algorithmic processing of large data sets at speeds that human planners cannot match. Yet realising these benefits requires clean, standardised data flowing consistently from suppliers across all tiers, a prerequisite that the 28% identifying poor collaboration as a barrier suggests remains widely unmet.

Cost pressures and the efficiency paradox

Supply chain restructuring confronts manufacturers with a painful efficiency paradox. The lean, globally optimised supply networks of the past two decades were built to minimise cost. The resilient, regionalised, multi-sourced networks the industry now recognises it needs cost significantly more to operate. Survey data showing improving cost control and tighter budget management as the leading strategic response, cited by 33% of respondents, sits in direct tension with the investment requirements of supply chain transformation.

Tariffs are the most immediate cost pressure, cited by 45% of respondents as their leading concern in the rising costs section of the survey, ahead of raw materials at 42% and labour at 39%. Tariff exposure is particularly acute for manufacturers whose supply chains cross the borders where trade restrictions have been most aggressively applied. Reconfiguring those chains to avoid tariff costs requires capital investment that further strains budgets under pressure from energy prices, material costs, and wage inflation simultaneously.

Rising fuel costs, cited by 11% of respondents in the supply chain context, add a logistics dimension that compounds procurement pressures. Longer-distance supply relationships become progressively less economically viable as transportation costs rise, providing further impetus for regionalisation strategies that financial models might otherwise struggle to justify on resilience grounds alone.

A cautiously optimistic horizon

Despite the weight of structural challenges, survey data presents a more optimistic medium-term outlook than immediate pressures might suggest. Whilst the six-month vehicle production outlook shows 34% of respondents expecting increases against 19% forecasting decreases, the three-year horizon shows 60% expecting production growth against just 19% anticipating decline. Manufacturers appear to believe that the supply chain restructuring currently underway will eventually yield a more stable and productive operating environment.

This optimism rests on the assumption that digitalisation investments currently being made will deliver the visibility and agility manufacturers are pursuing, that regionalisation strategies will reduce exposure to future disruptions, and that multi-sourcing arrangements will provide the redundancy that single-source dependencies catastrophically failed to deliver when tested.

Whether that optimism proves warranted will depend substantially on factors beyond any individual manufacturer's control. Trade policy unpredictability, geopolitical developments, and the pace of electric vehicle adoption will all shape the supply chain environment. What the AMS/ABB survey makes clear is that automotive manufacturers have absorbed the lessons of successive supply chain failures and are investing, however painfully, in structures better equipped to absorb future shocks rather than waiting for a return to a stability that may never come.