Germany’s Car Suppliers Are Looking Beyond Cars to Survive

London, 25 August 2026 — EBM Newsdesk Analysis —Katie Winearls 

Germany’s automotive suppliers are moving into medical technology, robotics, defence and aerospace as falling production and intensifying Chinese competition threaten the industrial model that sustained them for decades.

The country’s vast network of component manufacturers grew alongside Volkswagen, BMW and Mercedes-Benz, supplying everything from engine sensors and bearings to braking systems and precision ceramics. Their fortunes were built on German engineering, large production volumes and long-standing relationships with Europe’s biggest carmakers.

That model is beginning to break down. European vehicle production remains below pre-pandemic levels, while Chinese manufacturers have gained ground in the rapidly expanding electric vehicle market. The transition away from combustion engines is simultaneously reducing demand for thousands of traditional components.

For many suppliers, diversification has become a question of survival rather than choice.

From engines to medical devices

Sembach, a family-owned ceramics manufacturer based near Nuremberg, demonstrates the scale of the transformation.

The company has supplied automotive manufacturers since the 1970s, including ceramic components used in combustion-engine sensors. Until recently, it produced approximately 600mn small automotive parts annually. That figure has fallen to about 400mn as European manufacturing volumes have declined.

Sembach is now expanding into medical technology, producing precision components for equipment such as surgical instruments and medical pumps. It wants to reduce the automotive sector’s contribution to its sales from approximately 80 per cent to 40 per cent by 2033.

The strategy is already delivering results. The company has reported record revenue of €23mn, supported by demand outside its traditional automotive business.

Medical technology requires many of the same capabilities that made German automotive suppliers successful: precision manufacturing, strict quality control, advanced materials and the ability to deliver highly reliable components.

It can also provide more stable revenues and stronger margins than automotive contracts, where large manufacturers have traditionally exerted considerable pressure on suppliers’ prices.

Germany’s robotics opportunity

Larger German industrial groups are pursuing comparable strategies.

Schaeffler, best known for bearings and automotive powertrain technology, is targeting humanoid robotics and defence as future sources of growth. Sensors, motors, actuators and motion-control systems originally developed for vehicles can be adapted for robots working in factories, warehouses and logistics centres.

The company wants emerging businesses, including robotics and defence, to generate as much as 10 per cent of revenue by 2035. It has also established a partnership with German defence technology company Helsing involving drone development and production.

Bosch is similarly applying its automotive expertise to medical equipment, factory automation and connected devices. Technologies designed for autonomous vehicles can be repurposed for surgical robots and advanced industrial machinery.

Germany already has a substantial automation industry. The country accounted for almost one-third of European industrial robot installations in 2023, giving suppliers an established domestic market through which to develop new products.

Defence offers a new industrial market

Europe’s rearmament programme presents another opportunity. Germany and its European partners are committing significantly more money to defence, but manufacturers face shortages of production capacity, skilled engineers and specialised industrial components.

Automotive suppliers possess all three. They operate advanced factories, understand complex supply chains and have extensive experience moving from prototypes to mass production. Those capabilities could support the growth of Europe’s defence industry as governments attempt to reduce their reliance on the United States.

The transition will not be simple. Defence procurement can be slow, security requirements are demanding and military contracts are frequently shaped by political considerations. Producing drones or armoured-vehicle components also cannot immediately replace the enormous volumes generated by Europe’s passenger-car industry.

The threat to German industrial employment

The employment consequences are already becoming visible. Germany’s automotive workforce fell from approximately 833,000 people in 2019 to an estimated 726,000 in 2025.

A survey by the German automotive association VDA found that almost half of companies were cutting domestic employment at the beginning of 2026, while only 5 per cent were creating jobs. Nearly half of the businesses reducing their German workforce were simultaneously expanding employment abroad.

That points to a wider problem for the German economy. Suppliers are not only responding to technological change but also to high energy prices, labour costs, regulation and concerns about Germany’s overall competitiveness.

Reinvention will not save every job

Diversification could protect individual companies, but it is unlikely to preserve the automotive industry in its existing form.

Medical devices, robots and defence equipment can offer higher margins, yet they are generally produced in much smaller quantities than car components. Germany could consequently emerge with more technologically diversified companies but fewer manufacturing jobs.

The country’s strength remains its ability to combine engineering knowledge with industrial production. Its weakness is that too much of that expertise has remained dependent on an automotive market whose scale and profitability can no longer be guaranteed.

Germany’s suppliers are not abandoning the car industry. They are recognising that the car industry alone may no longer be large enough to sustain them.