Why automotive industry restructuring will intensify in 2026

Artificial intelligence (AI) is one of the most commonly used terms at present and in the automotive industry it is joined by the equally commonly used terms, namely software defined vehicle (SDV). The two terms, or rather their underlying technologies, are transforming the automotive industry, although the path to an AI and SDV dominated industry is far from smooth. Ironically, one of the reasons for this is, despite the significant number of jobs which have been cut from traditional manufacturing, there is a shortage of skilled workers in these areas, and indeed elsewhere in the industry. Such counter-intuitive developments, especially when set alongside the stuttering move to EVs and delay to full EV adoption in Europe especially, highlight the multiple challenges facing the industry.

Production restructuring poses threat to suppliers

The industry operates with a pyramidical structure, with vehicle companies at the top and dozens or hundreds or more suppliers at different tiers below the vehicle companies; as a result, when a vehicle company hits difficulties, its problems can quickly ripple through the supply chain. Major vehicle companies, notably Nissan, Stellantis and Volkswagen, are in the midst of major restructuring operations, closing plants (Nissan is closing factories in Mexico, Japan and withdrawing from a joint venture in India with Renault for example); dropping technologies (for example PHEVs at Stellantis); and either cancelling investment (Audi’s US factory plans are on hold it would appear) or undertaking a new round of cost cutting and management simplification (e.g. at Volkswagen). These developments make it difficult for suppliers to plan and invest, as well as placing some of them under significant financial strain. Some analysts have suggested 2026 could see a flood of supplier bankruptcies or companies heading into administration to survive.

Job losses continue but skills gap remains a problem

Such developments would almost certainly mean job losses; however, somewhat bizarrely there are also cases of labour shortages in the industry. In Serbia, where Stellantis has finally allocated a new range of vehicles, notably the Fiat Grade Panda and Citroen C3, to the factory which had been effectively shuttered for several years. However, despite strong demand for these vehicles, Stellantis has had problems recruiting sufficient labour to assemble the vehicles. This has led to workers being transferred from Stellantis’ Moroccan factory, and all-new labour being recruited from as far afield as Nepal. The local unions have reacted by insisting on differentiated pay grades based on nationalities! Fully automating the assembly process is still some way off, although “dark factories” doing just this are under development in China.

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Meanwhile, in the US, the Wall Street Journal has recently reported on Ford being unable to fill repair mechanics jobs in locations such as Ohio, despite reported salaries of US$160,000 a year; Ford alone has reported it needs 5,000 such mechanics! One imagines other vehicle companies have similar problems in the US. In Europe, trade associations have warned of similar problems in the UK and Germany. How serious an issue this turns out to be in the long term will be determined by the speed of the transition to EVs, but it does appear to a looming problem.

In Germany, in addition another problem is emerging. Thousands of manufacturing jobs have been lost in recent years as production has fallen or been shifted abroad. However, Volkswagen and Mercedes are finding it difficult to recruit enough engineers for their growing ranges of software defined vehicles. At Volkswagen this was evident earlier in the problems at Cariad, the in-house software unit. This led to Volkswagen turning to Rivian for the software to underpin its new ID1 range. Whereas Rivian has failed to generate significant production volumes it may well have a future as a technology provider for Volkswagen and possibly other companies in due course.

Cutting costs and increasing sustainability in production

Within the production process, the drive for reducing complexity and improvement in sustainable production techniques continues to influence investment. Gigacasting has been adopted widely in the industry, especially with underbody components. Chinese vehicle companies, such as Xiaomi, and established players such as Volvo and Volkswagen have led the way here. In future in the production of side panels and other large parts of the upper part of the vehicle body we can expect to see increased use of an established technology, namely tailor-welded blanks.

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Gigacasting, gigastamping and other automation techniques are, moreover, part of the increased focus on sustainability. Here the aim is to reduce waste and increase efficiency throughout the production process and in many cases, AI can play a role. BMW in Mexico, Toyota across several of its North American plants and Ford Dearborn Truck are just some of the companies or plants which are using AI to simulate new production processes, identify faults, or optimise maintenance schedules.

BMW meanwhile has adopted a “design for circularity” policy to make increased use of recycling, with recycled use targets of 20% for thermoplastics, 25% for steel and 50% for aluminium. In EVs, the EU has set demanding targets for the use of recycled materials in battery production. At Toyota UK’s factory in Burnaston, the company is showcasing the Toyota Circular Factory (TCF) concept, the first case of this within Toyota. Here Toyota will process end of life vehicles to maximise the potential for recycling. Renault at Flins in France and Stellantis at the Fiat plant in Mirafiori in Turin have operated recycling and remanufacturing facilities for some years and this is an area where the industry is likely to expand and widen its activities in 2026 and beyond.

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Quite where all of this – not to mention the geopolitical and trade issues referred to in part one of our commentary on the mega issues impacting the industry – will leave the industry by the end of 2026 and in the years following is uncertain. Navigating the multiple political, economic, technological and social issues impacting the industry will certainly test the industry’s management like never before.