Automotive OEMs and Tier 1 Suppliers Face Intensifying Pressure to Cut Costs in 2025
The “OEMs and Tier 1 Suppliers’ Cost Reduction and Efficiency Enhancement Strategy Analysis Report, 2025” has been officially added to the ResearchAndMarkets.com portfolio, offering a comprehensive examination of how automakers and leading suppliers are responding to one of the most challenging periods the global automotive industry has faced in decades.
Drawing on hundreds of real-world case studies and strategic initiatives, the report serves as a practical reference for automotive executives, procurement leaders, engineers, and supply chain professionals seeking actionable pathways to improve profitability, operational efficiency, and long-term competitiveness.
A Prolonged Industry Downturn Accelerates Structural Change
By 2025, the automotive industry’s downturn has moved beyond a short-term correction and into what many observers describe as a structural reset. Intensifying price competition, slowing demand growth in key markets, and surging investment requirements for electrification and intelligent technologies have placed unprecedented strain on both OEMs and Tier 1 suppliers.
A visible consequence of this pressure is the accelerating pace of corporate exits and restructuring across the industry. Over the course of 2025, several high-profile developments underscored the severity of the situation:
- January 2025: HYCAN Auto suspended operations and was taken over by its parent company, GAC Group, pending asset disposal and restructuring.
- May 2025: Neta Auto entered formal bankruptcy proceedings following a court-accepted application for bankruptcy review.
- July 2025: GAC Fiat Chrysler was officially declared bankrupt after repeated failures to sell core assets at auction and the court ruled out any feasible reorganization.
- November 2025: Haomo.AI abruptly announced a company-wide work suspension, freezing accounts, halting wage and social security payments, and effectively ceasing operations.
These closures and bankruptcies reflect deeper challenges across the automotive value chain, where many companies are struggling to balance innovation investments with financial sustainability.
Layoffs Surpass 200,000 as Profit Margins Shrink
Alongside business failures, workforce reductions have become a defining feature of the current cycle. Over the past year, large-scale layoff announcements have been made by global automotive leaders including Mercedes-Benz, Audi, Volkswagen, Ford, Nissan, ZF Friedrichshafen, and Bosch.
Based on incomplete but credible industry estimates, planned layoffs by OEMs alone now exceed 120,000, while leading supplier groups account for more than 100,000 additional job cuts. Together, these figures push total planned layoffs across the global automotive industry beyond 200,000, highlighting the urgency of structural cost reduction.
This trend is being reinforced by declining profit margins caused by aggressive price wars—particularly in the electric vehicle segment—and by sharply rising R&D expenditure driven by intelligent driving, software-defined vehicles, and advanced electronics. Under these conditions, cost reduction and efficiency enhancement are no longer optional measures; they have become essential for survival.
Five Core Strategies for Supply Chain Cost Reduction
The report categorizes enterprise cost reduction initiatives into two broad areas, beginning with supply chain optimization, where OEMs and suppliers pursue different but increasingly interconnected strategies.
1. Vertical Integration to Regain Cost Control
Vertical integration has re-emerged as a powerful cost management tool, allowing companies to exert greater control over critical inputs, reduce reliance on external suppliers, and improve coordination across the value chain.
BYD stands as the most prominent example. Its vertically integrated model spans from upstream lithium resources to downstream vehicle manufacturing. BYD controls key elements such as battery materials, power semiconductors, electric drive systems, automotive chips, and electronics, creating a closed-loop structure often described as extending “from mine to vehicle.” This approach has significantly reduced procurement costs while strengthening supply security.
Leapmotor has adopted a similarly aggressive integration strategy, independently developing core systems including batteries, motors, electronic control units, intelligent driving platforms, cockpit systems, and electrical architecture. By covering approximately 70% of total vehicle bill-of-materials costs, Leapmotor has reduced per-vehicle R&D expenses by an estimated 40% compared with outsourcing-heavy models.
2. Modular Supply Models Reshape OEM–Supplier Relationships
Modular supply strategies divide vehicles into standardized functional modules that can be independently developed and supplied. For OEMs, this simplifies supply chain management and enables bulk procurement efficiencies. For suppliers, while margins on individual components may narrow, offering complete modules or systems opens the door to higher volumes and deeper partnerships.
This model increasingly favors suppliers capable of system integration, software-hardware coordination, and lifecycle support rather than traditional component-only roles.
3. Component Standardization Drives Economies of Scale
Standardization is the foundation of modularization. By reducing unnecessary variation in component interfaces, OEMs can significantly lower development, validation, and procurement costs.
NIO provides a notable example. After identifying excessive interface diversity across components such as seats, HVAC systems, and interior lighting, the company consolidated hundreds of unique interfaces into roughly 40–50 standardized designs. This rationalization halved per-vehicle supply costs from approximately 2,000 yuan to 1,000 yuan, demonstrating the financial impact of disciplined standardization.
4. Joint Cost Reduction Between OEMs and Suppliers
Isolated cost-cutting efforts can yield short-term gains, but the report emphasizes that deeper, more sustainable savings often come from collaborative OEM–supplier initiatives. By sharing data, co-developing technologies, and aligning product roadmaps, both parties can unlock efficiencies that are unattainable when working independently.
Such collaboration supports earlier supplier involvement in vehicle development, faster design iterations, and optimized cost structures across the product lifecycle.
5. Transparent, Data-Driven Supply Chains
Digital transparency is becoming a cornerstone of modern cost management. A transparent supply chain enables real-time sharing of production, quality, logistics, inventory, and capacity data across partners.
By breaking down traditional “data silos,” OEMs and suppliers can respond more quickly to demand fluctuations, reduce excess inventory, and minimize disruptions. The result is a more resilient, efficient, and cost-effective supply network.
Five Key Strategies for Reducing Intelligent Driving System Costs
Intelligent driving technologies represent one of the largest cost drivers in modern vehicles. According to industry estimates, L2+ intelligent driving systems in China currently cost between 5,000 and 15,000 yuan per vehicle. However, suppliers such as Momenta argue that intelligent driving hardware is following a Moore’s Law–like trajectory, with costs halving approximately every two years.
1. Vision-Only Intelligent Driving Solutions
Vision-based systems rely primarily on cameras and advanced algorithms for perception and decision-making. Compared with sensor-heavy architectures, vision-only solutions offer lower hardware costs and faster iteration cycles.
Tesla has taken the most extreme approach by relying entirely on cameras, while companies such as XPeng, BYD, and Huawei prioritize cameras while supplementing them with millimeter-wave or ultrasonic radar to enhance redundancy and robustness.
2. Integrated Intelligent Driving Architectures
Integration is another major lever for cost reduction. By combining intelligent driving and intelligent cockpit functions into a single domain controller, OEMs can reduce sensor duplication, simplify wiring, and rely on a single system-on-chip (SoC).
Key integration pathways include driving–parking integration, cockpit–parking integration, and full cockpit–driving integration, all enabled by the industry’s transition from distributed E/E architectures to centralized domain controllers.
3. Localized Replacement of Key Components
Rapid progress by domestic Chinese suppliers in chips, sensors, and system integration has significantly expanded opportunities for localized sourcing. Replacing imported components with competitive local alternatives can materially reduce system costs while improving supply chain resilience.
4. Adoption of 4D Radar Technologies
4D radar represents a major evolution from traditional millimeter-wave radar, adding vertical resolution to provide four-dimensional target information: distance, speed, horizontal angle, and height.
With strong performance in adverse weather and a lower cost than lidar, 4D radar is increasingly viewed as a cost-effective alternative for certain perception tasks, particularly in mid-range intelligent driving applications.
5. LiDAR–Vision Sensor Fusion Modules
Innovative sensor fusion solutions are also gaining traction. A notable example is the LiDAR–vision integrated module jointly developed by Zhuoyu Technology and Fuyao Glass, which combines lidar, trinocular cameras, and inertial measurement units into a single assembly. This integration improves spatiotemporal synchronization while reducing packaging, calibration, and system integration costs.
Broad Coverage Across Automotive Technologies and Leading Companies
Beyond supply chains and intelligent driving, the report explores cost reduction strategies across a wide range of vehicle technologies, including intelligent cockpits, powertrains, chassis systems, integrated die casting, and emerging applications such as humanoid robots.
Detailed company-level analyses examine how OEMs and suppliers including BYD, Tesla, Leapmotor, NIO, XPeng, Toyota, SAIC Group, Audi, CATL, Fuyao Glass, Joyson Electronics, and Gotion High-Tech are implementing tailored cost reduction strategies aligned with their product portfolios and market positions.
Cost Reduction as a Long-Term Competitive Advantage
As the automotive industry navigates its 2025 inflection point, cost reduction and efficiency enhancement have evolved from defensive tactics into strategic imperatives. Companies that successfully integrate supply chain control, technological simplification, and collaborative innovation will be better positioned not only to survive the downturn but to emerge stronger in the next growth cycle.
The “OEMs and Tier 1 Suppliers’ Cost Reduction and Efficiency Enhancement Strategy Analysis Report, 2025” offers a timely and comprehensive roadmap for navigating this transformation—one where disciplined cost management becomes a critical source of competitive advantage in an increasingly complex automotive landscape.
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