Supplier finances diverge as automakers scrap EV plans and adjust to tariffs

The automotive supply chain is experiencing significant financial pressure and bifurcation as automakers pivot from aggressive EV expansion to extending gasoline vehicle lifecycles due to softer North American EV demand and shifting trade policies. This strategic shift disproportionately impacts smaller suppliers and those heavily invested in EV components, with over a quarter of those under $500M revenue exhibiting high-risk interest coverage ratios and widespread lower operating margins. Larger, well-capitalized suppliers are better positioned to navigate this uncertainty, which is exemplified by automakers like GM delaying EV production while boosting ICE investments.

Analysis

DETROIT — Some suppliers are under major financial pressure as automakers alter product plans to account for lower-than-expected North American electric vehicle demand and rapidly shifting trade policies. Automakers are extending the life cycles of profitable gasoline-powered vehicles and delaying or canceling some electrification plans. It’s a dynamic that has split the supply base, said Mark Barrott, Plante Moran’s automotive practice leader. “The supply base is really bifurcated right now,” Barrott told Automotive News. Suppliers that are more reliant on selling parts for gasoline-powered vehicles have embraced their customers’ moves, while those that made major investments in EV parts production are worried they won’t get the return on investment they were banking on, he said. And the supply base is split not only between suppliers who have invested more in electrification and those who have invested less, but also between larger and smaller suppliers, Barrott said. Read more: Live updates on tariff news and impacts Interactive map: Auto manufacturing sites in Canada, the U.S. and Mexico Large, publicly traded suppliers have touted successes in pushing duty costs onto their customers. They’ve also discussed opportunities to win new business as automakers look to reduce tariff exposure and increase production of gasoline-powered vehicles. Meanwhile, smaller suppliers, which generally have less capital and flexibility , have come under intense financial pressure in recent years. “If you’re big and you’re well capitalized, you might be doing fairly well,” said Angela Johnson, principal at Plante Moran responsible for supplier relations analytics. “But when we look at suppliers who are small, it can be a different story.” More than a quarter of suppliers with annual revenue below $500 million have a “high risk” interest coverage ratio, meaning they could struggle to pay interest on their loans, according to a survey of suppliers conducted by Plante Moran. That compares with 9 percent of suppliers that have more than $10 billion in annual revenue. Most suppliers also reported lower operating margins in 2024 than they did a decade earlier, according to the survey. Those dynamics are unlikely to change soon given the uncertainty surrounding electrification and trade. Shift to gasoline-powered vehicles can mean slim margins for suppliers At least in the short term, automakers are doubling down on gasoline-powered vehicles, analysts said. Take General Motors as an example. GM has detailed plans to indefinitely postpone a second planned shift at an assembly plant in Kansas that will build the second-generation Chevrolet Bolt EV. Meanwhile, it plans to invest $4 billion at three U.S. factories to expand production of internal combustion engine vehicles in 2027. The North American automotive supply chain is experiencing a significant bifurcation driven by automakers' strategic pivot from aggressive electrification to extending the lifecycles of profitable gasoline-powered vehicles. This shift, a reaction to lower-than-expected EV demand and evolving trade policies, is creating a clear divide between resilient and distressed suppliers. Large, well-capitalized public suppliers are successfully navigating the environment by passing on tariff costs and capturing new business related to increased internal combustion engine (ICE) production. In stark contrast, smaller suppliers are facing intense financial pressure; a Plante Moran survey indicates that over a quarter of suppliers with less than $500 million in annual revenue have a 'high risk' interest coverage ratio, compared to just 9% of suppliers with over $10 billion in revenue. This pressure is compounded by a decade-long trend of declining operating margins across the sector. The dynamic is exemplified by General Motors, which is indefinitely postponing a production shift for its Chevrolet Bolt EV while simultaneously investing $4 billion to expand ICE vehicle production, signaling that the current uncertainty and its impact on the supply base are unlikely to abate in the near term.

Key Decisions for Investors

• Investors should differentiate within the auto supplier space, favoring large, well-capitalized firms with strong ICE-related revenue streams that are better positioned to absorb market shifts and pass on costs.
• Exercise heightened caution with smaller, private suppliers and those with high investment exposure to North American EV platforms, as they face significant credit risk and potential for negative returns on investment due to project delays.
• For automakers like GM, the pivot to ICE production should be viewed as a pragmatic, short-term defensive measure to protect margins, but its impact on long-term EV competitiveness and capital efficiency warrants close monitoring.
• Given the widespread margin pressure and high-risk credit metrics among smaller suppliers, investors should assess potential contagion risk within portfolios that have exposure to automotive-focused credit or small-cap industrial equities.