Findings: Production Cost Pressures
Labour costs and tariffs squeeze automotive manufacturers
New survey reveals energy, materials and tariffs create perfect storm for global automotive production as industry races to balance cost control with technological transformation and electrification targets
Escalating operational overhead is placing unprecedented pressure on automotive production, necessitating a strategic overhaul of long-established fiscal models within the sector. According to the latest AMS/ABB Automotive Manufacturing Outlook Survey, 2025, cost pressures have emerged as the dominant challenge facing manufacturers, with energy and material costs cited by 34% of respondents as their primary concern.
Yet this figure tells only part of the story. The survey, which captured insights from 473 manufacturing experts across the global automotive industry, reveals a complex web of interrelated cost pressures that extends far beyond the factory floor. Tariffs lead the charge among specific cost categories, with 45% of respondents identifying trade restrictions as their chief financial concern, followed closely by raw materials at 42%, labour at 39%, and energy at 38%.
The breadth of these pressures illustrates why cost control has become such an intractable problem. Unlike previous industrial challenges that could be addressed through targeted interventions, manufacturers now face simultaneous increases across virtually every input category. The survey's findings suggest that this is not a cyclical downturn but rather a structural shift in the cost base of automotive production.
Primary (Rising) Cost Concerns by Category
Tariffs reshape the competitive landscape
The introduction of US tariffs in April 2025 marked a watershed moment for an industry built on globalised supply chains. For many executives, however, these trade barriers represented merely the latest disruption in a series of economic shocks dating back to the Covid-19 pandemic.
What distinguishes the current tariff regime is its compounding effect on already-elevated costs.
The survey data reveals that 29% of manufacturers view tariffs and reciprocal trade restrictions as one of their three biggest challenges. This percentage, whilst significant, understates the broader impact of protectionist policies on manufacturing economics. Tariffs do not simply add a percentage point to final costs. They force manufacturers to reconsider entire supply chain configurations, often requiring investment in new regional production capacity or dual sourcing arrangements that carry their own cost penalties.
The effects, further ripple out through the value chain. Supply chain disruption, parts shortages and inventory management concerns affect 27% of manufacturers, whilst 30% cite increasing regionalisation, localisation and hyper-localisation as a specific supply chain challenge. These responses point to a fundamental restructuring of automotive production geography, driven as much by cost optimisation as by risk mitigation.
Labour costs accelerate automation investment
Growing labour costs and skills shortages rank as the second-largest overall challenge, cited by 30% of survey respondents. This figure has remained remarkably consistent across the past three years of the survey, suggesting a persistent structural problem rather than a temporary market aberration.
Drilling deeper into labour-related costs reveals a nuanced picture. Specific skills shortages affect 47% of manufacturers, whilst an equal proportion identify the need for entirely new skillsets. The challenge is compounded by a 44% response rate for lack of education, training and qualifications. Robotics and automation expertise tops the list of specific shortages at 28%, followed by battery and electric vehicle expertise at 18%.
Top Manufacturing Challenges
Strategic Responses to Cost Pressures
The economic analysis here is straightforward but uncomfortable. Labour costs are rising precisely when manufacturers need specialised skills to execute their electrification strategies and digital transformations. The survey indicates that 31% of companies are responding by increasing investment in automation and robotics, making it the second most common strategic response after cost control itself, at 33%.
Energy and materials compound the pressure
The persistence of energy and material cost pressures reveals how deeply structural factors have embedded themselves in automotive manufacturing economics. Raw materials concern 42% of respondents, a figure that has remained elevated despite fluctuations in commodity markets. Energy costs, cited by 38% of manufacturers, reflect both market prices as well as the transition costs associated with renewable energy adoption.
These twin pressures create a particularly acute challenge for battery production and electric vehicle manufacturing. The survey identifies bringing battery and EV costs down as the leading manufacturing barrier to achieving 100% electric vehicle production, cited by 47% of respondents. Raw material availability, shortages and price increases rank third at 32%, whilst high levels of capital investment required score 30%.
Key Insights from AMS/ABB Automotive Manufacturing Outlook Survey 2025
And the irony is not lost on industry observers. Manufacturers face pressure to accelerate electrification whilst simultaneously grappling with the very cost factors that make EV production economically challenging. Yet the survey offers a glimmer of optimism. Some 51% of respondents report that EVs are now easier to build than 12 months ago, whilst 41% say manufacturing costs have reduced over the same period.
Strategic responses reveal difficult trade-offs
The manufacturing sector's response to these cost pressures demonstrates both pragmatism and a willingness to make substantial structural changes. Improving cost control and tighter budget management emerged as the leading strategy at 33%, but the relatively modest percentage suggests that traditional cost-cutting measures alone cannot address the scale of the challenge.
Investment in automation and robotics at 31% represents - on one level - a recognition that labour costs must be addressed through fundamental changes to production processes. This aligns with the 95% of respondents who view automation and robotics as a significant area for the next five years. Similarly, 29% are shifting to more flexible and modular manufacturing processes, acknowledging that fixed production lines cannot accommodate the cost volatility and rapid product changes now endemic to the industry.
Digitalisation and data integration, pursued by 26% of manufacturers, offers a pathway to cost reduction through improved efficiency and real-time decision-making. The survey shows that 95% view big data management and AI as significant areas, whilst 94% cite software, digitalisation, simulation and digital twins. Smart factories promise multiple benefits, with 44% of respondents identifying data-driven decisions as a key advantage, and 42% highlighting productivity maximisation.
The regionalisation imperative
After decades of globalisation, the automotive industry is executing a reversal in strategy, towards increasingly regionalised and localised production. This shift, driven by the convergence of tariff pressures, supply chain disruption and electric vehicle supply chain requirements, has far-reaching cost implications.
The survey reveals that 29% of manufacturers are increasing localisation, nearshoring or regional production. This percentage likely understates the scale of the transformation underway, as many companies pursue 'local for local' strategies that fundamentally alter their manufacturing footprints. Volkswagen's ’In China for China’ approach embodies this trend.
Regionalisation offers potential cost benefits through reduced logistics expenses and tariff avoidance, but requires substantial upfront capital investment. The challenge becomes particularly acute for smaller suppliers further up the automotive supply chain. The survey shows that whilst 62% of new OEMs embrace automation and robotics well, only 23% of Tier 3 suppliers achieve similar levels of implementation. This disparity suggests that cost pressures may accelerate consolidation within the supply base.
The emergence of a ‘holistic approach’ to cost management
Perhaps the survey's most significant finding is the emergence of what respondents describe as a 'holistic' approach to cost management. Rather than treating individual cost categories in isolation, leading manufacturers increasingly view their entire operation as an integrated system requiring balanced trade-offs.
This perspective acknowledges inherent tensions in current strategic imperatives. Many carmakers acknowledge that cost reduction and sustainability often conflict - as do digitalisation investments and short-term budget pressures. Yet 95% of respondents view cost reduction as a significant area for the next five years, whilst 93% say the same of cybersecurity. These apparently contradictory priorities can only be reconciled through sophisticated planning that optimises across multiple dimensions simultaneously.
Weighing all these priorities up in toto, the survey suggests that success will require vehicle manufacturers to embrace complexity rather than attempt to simplify it away. Smart factories, AI-driven optimisation, and modular manufacturing platforms offer tools to navigate this complexity, but they demand substantial investment at precisely the moment when cost pressures are most acute.
