Tier-1 Automotive Suppliers Are Speeding Toward a Dead End
How Tier-1 Suppliers Lost Their Grip on the Automotive Industry—And Why Many Won’t Make It Back
Tier-1 automotive suppliers are racing down a road with no turnoff in sight, despite spending decades as the backbone of OEM manufacturing—providing everything from engines and transmissions to braking systems and electronics.
So where did they make the wrong turn?
For decades, Tier-1s thrived on mechanical precision and just-in-time manufacturing. They optimized production efficiency, built economies of scale, and refined supply chain logistics. It was a well-oiled machine—until the fundamental nature of the automobile changed. The shift to electrification and software-defined vehicles (SDVs) disrupted the very foundation of their business.
Instead of adapting early, many Tier-1s doubled down on legacy expertise, assuming automakers would continue to rely on them for core components. After all, it had worked for a century. Meanwhile, OEMs, eager to control their own tech stacks, started pulling key development in-house—leaving Tier-1s scrambling to stay relevant in a world where software, chips, and integrated platforms now drive value.
The Pivot That Failed: Tier-1s, Software, and the Struggle to Stay Relevant
Some Tier-1s tried to pivot by acquiring software companies, hoping to buy their way into the new reality. But many did so without truly understanding what they were buying, how to integrate it, or how to monetize it. The result? Expensive, disjointed assets that never delivered a competitive edge.
Aptiv provides a textbook example—one I know well. In 2022, they announced a $4.3 billion acquisition of Wind River, a software firm specializing in embedded and cloud-native solutions. On paper, it was a strategic move to position Aptiv as a software leader. Initially, the market gave them a slight bump, but the optimism was short-lived. The stock soon trended downward, reflecting investor skepticism about whether Aptiv could successfully execute on its software ambitions.
Pre-Acquisition Announcement (January 2022): Aptiv stock traded at $159.70.
Post-Acquisition Completion (December 2022): Stock dropped to $93.40.
Current (February 2025): Stock now sits at $66.53.
The steady decline in Aptiv’s stock price suggests that the market remains skeptical about its ability to execute a software-first strategy. Buying Wind River didn’t automatically make Aptiv a software powerhouse—it made them an owner of a software company. Execution is everything, and Tier-1s haven’t demonstrated that they can integrate these capabilities seamlessly into their businesses.
And Aptiv isn’t alone. Other Tier-1s have also struggled to execute major strategic shifts, whether through software acquisitions or broader restructuring efforts aimed at repositioning for the future. Some have attempted to streamline operations, spinning off divisions or refocusing on core competencies, while others have been forced into layoffs and cost-cutting measures to remain competitive. While stock prices capture investor sentiment, they rarely tell the whole story of what’s happening under the hood.
Recent developments in the automotive industry illustrate how these internal decisions significantly impact a company's direction, often beyond what stock prices alone may indicate. Continental AG, for instance, announced in December 2024 that it plans to spin off its Automotive group sector by the end of 2025. The move is intended to grant greater independence to its profitable Tires and ContiTech sectors, reflecting a broader trend of companies restructuring to focus on core competencies amid evolving market conditions. Similarly, Bosch disclosed plans in November 2024 to lay off up to 5,500 employees over the next few years, with nearly three-quarters of the redundancies targeted at its home country, Germany. The decision underscores the challenges traditional automotive suppliers face as they adapt to declining consumer demand and increased competition, particularly from Chinese manufacturers.
Beyond workforce reductions, Bosch is also slashing salaries and cutting working hours for approximately 10,000 employees, with its Cross-Domain Computing Solutions division and the Hildesheim plant—both critical to EV component production—bearing the brunt of the impact. These moves underscore the broader struggle Tier-1 suppliers face as they juggle technological shifts, mounting regulatory pressures, and relentless cost constraints. Across the industry, similar restructurings, layoffs, and strategic pivots reveal a reality that stock prices alone fail to capture. The real test isn’t just surviving the present—it’s whether these companies can adapt fast enough to remain relevant in an increasingly cutthroat market.
The Real Battle: Control vs. Partnership
In the race to define the future of automotive technology, the battle isn’t really about innovation—it’s about control. Just as nations clash over trade routes and supply chains, automakers and suppliers are locked in a struggle to determine who owns the key technologies that will drive the next generation of vehicles.
OEMs, once content to outsource software and electronics development, now see the writing on the wall. They don’t want to be locked into Tier-1 ecosystems, where they have little influence over roadmaps, pricing, or long-term support. This shift isn’t just philosophical—it’s backed by massive investment. Major automakers are hiring thousands of software engineers, working feverishly to develop their own vehicle operating systems, battery management software, and ADAS solutions. In their view, whoever controls the software defines the vehicle’s future, and they’re unwilling to let that power rest in the hands of suppliers.
Tier-1s, however, see things differently. For decades, they have been the backbone of the industry, providing automakers with everything from drivetrain components to infotainment systems. But now, they face an existential threat. As automakers bring more development in-house, Tier-1s risk becoming commoditized—mere hardware vendors, reduced to low-margin suppliers of sensors, ECUs, and connectors. To counter this, they are building proprietary platforms, creating software stacks designed to lock OEMs into their ecosystems. Their goal is to retain control over lucrative long-term contracts by offering integrated solutions that are too complex or expensive for automakers to replace.
And then there are the disruptors. Tier-2 suppliers and startups are no longer content with selling through the traditional supply chain. Instead of waiting for Tier-1s to integrate their technology, some are bypassing them entirely, forging direct relationships with OEMs. The result? A power struggle, not a partnership.
OEMs are yanking critical technology in-house, while Tier-1s are doubling down on closed ecosystems, each trying to gain the upper hand. But imagine a marriage based purely on control. When both sides prioritize dominance over cooperation, innovation suffers, costs rise, and inefficiencies grow. The irony is that both parties need each other. Automakers can’t build everything from scratch, and suppliers can’t thrive without long-term customers. The industry’s future will be determined not just by who has the best technology, but by who is willing to redefine the relationship—one where expertise is shared rather than hoarded, and where control gives way to collaboration.
The Supply Chain No Longer Works the Same Way
For decades, the automotive supply chain operated like a well-ordered pyramid. Automakers sat at the top, relying on Tier-1 suppliers to manage the complexity of sourcing, integrating, and delivering complete systems. Tier-1s, in turn, worked with Tier-2s, ensuring that everything from powertrain components to electronic control units arrived on time and to specification. It was a model built on stability, predictability, and deeply entrenched relationships.
That model is breaking down.
Today, the once-clear hierarchy has fractured into a decentralized, fluid network where suppliers and automakers constantly shift their roles. OEMs, once dependent on Tier-1s for nearly everything outside of vehicle assembly, are now taking control of critical technologies, bypassing traditional supplier relationships, and working directly with Tier-2s and startups. Some have even gone so far as to build their own software platforms, semiconductor partnerships, and battery plants to secure long-term independence. The balance of power is shifting, and for Tier-1s, survival is no longer about just supplying parts—it’s about proving their strategic value in an industry that increasingly sees them as replaceable.
Look at the Tier-1 landscape today:
Powertrain-focused suppliers like Bosch, Magna, and BorgWarner are at a crossroads. Their dominance was built on the complexity of internal combustion engines—thousands of moving parts, requiring decades of refinement and expertise. But the shift to EVs strips away that complexity. OEMs no longer need intricate fuel injection systems, turbochargers, or transmission components. In response, these suppliers are scrambling to reinvent themselves, acquiring EV-related technology, pivoting to electrification, or diversifying into entirely new business areas like e-mobility and energy solutions.
Software-driven Tier-1s such as Continental, Aptiv, and Harman have their own battle: integration and monetization. Their value lies in delivering the software-defined vehicle, yet OEMs are wary of being locked into a single ecosystem. No one wants another BlackBerry QNX situation, where one supplier dominates the stack and dictates terms. Automakers have learned from past mistakes—they are investing heavily in their own software teams to maintain control, creating tension between them and the Tier-1s that once owned this space.
Then there are the component-focused Tier-1s—seat manufacturers, lighting suppliers, and those that handle lower-profile but still essential vehicle elements. They remain necessary, but even they are under pressure. As OEMs search for cost savings, some are bringing production in-house or turning to Tier-2s and alternative suppliers. These shifts, once unthinkable, are now part of the new reality.
For Tier-1s, the fundamental question is no longer just what do you supply? but how do you help solve OEMs’ most pressing challenges? The old ways of doing business—long-term supply agreements, deeply integrated relationships, and rigid, multi-tiered procurement processes—are being replaced by a more dynamic, cutthroat landscape. The winners will be those that can move beyond just supplying products and instead offer real strategic value, whether through end-to-end solutions, flexible integration models, or innovative business partnerships. The automotive supply chain isn’t what it used to be, and for suppliers unwilling to adapt, it may not be there at all.
The Bigger Picture: Stop Selling Parts, Start Selling Outcomes
For decades, Tier-1s have operated with an engineering-first mindset—obsessed with perfecting the next-generation sensor, refining the latest ECU, or optimizing mechanical components. But the reality is, OEMs aren’t just looking for better parts; they’re looking for solutions to their most pressing challenges. The biggest blind spot for many suppliers is their failure to shift from selling what they make to selling why it matters.
The old approach—focusing solely on product development—no longer guarantees relevance. A well-engineered component means nothing if it doesn’t directly address a problem automakers are desperate to solve. When suppliers fail to deliver outcomes, they become interchangeable vendors, subject to cost-cutting, supply chain pressures, and an endless race to the bottom. There’s no differentiation, no justification for a premium, and no long-term monetization beyond basic component supply.
The Tier-1s that thrive today are the ones shifting from parts to platforms—from selling hardware to delivering full-stack solutions that create real value for automakers.
Look at Harman, the Samsung-owned supplier that once defined itself by its infotainment systems. Rather than just selling radios and speakers, Harman has transformed into a connected-vehicle powerhouse, integrating data-driven services, seamless over-the-air software updates, and connectivity solutions that help OEMs future-proof their vehicles. By solving problems that go beyond traditional infotainment, Harman has secured its place in the software-defined vehicle era.
Then there’s Bosch, a company once known primarily for its mechanical expertise. Instead of just selling sensors and control units, Bosch has repositioned itself as a mobility enabler, offering AI-driven ADAS, fleet management solutions, and even cybersecurity frameworks to protect modern vehicles. Rather than being just another supplier in the chain, Bosch now provides the infrastructure that automakers rely on to deploy safe and intelligent mobility at scale.
This shift from selling products to selling outcomes is the defining challenge for Tier-1s in the modern automotive industry. OEMs are no longer just looking for suppliers—they’re looking for partners who can help them navigate software complexity, regulatory hurdles, cost efficiency, and customer expectations in an era of rapid transformation. The Tier-1s that understand this will remain indispensable. The ones that don’t? They’ll be forced into a commodity war they can’t win.
The Road Ahead: Tier-1s Have Three Options
The future for Tier-1 suppliers is increasingly precarious. Once the gatekeepers of automotive technology, they now find themselves pushed further down the value chain as OEMs take more control over critical components and software. The old supplier relationships—where automakers relied on Tier-1s for turnkey solutions—are breaking apart. And as OEMs continue to insource and vertically integrate, Tier-1s are being forced to redefine their role or risk becoming obsolete.
Where does that leave them? At the end of a dark, dangerous, and winding road—one where the bridge ahead may already be out.
There are only three ways forward:
The first, and most viable, is to become an integration partner. The Tier-1s that embrace this role will survive by positioning themselves as enablers rather than competitors. Automakers don’t want more vendor management headaches—they want plug-and-play solutions that accelerate development cycles and reduce complexity. The suppliers that figure out how to seamlessly integrate their technology into OEM ecosystems without demanding full control will remain essential. These companies will shift from mere component suppliers to true partners, providing scalable platforms that OEMs can adopt without fear of lock-in.
The second path—doubling down on proprietary tech—is a dead end. The temptation to build walled-garden ecosystems is strong, but OEMs have learned their lesson. The era of single-supplier dominance, like BlackBerry QNX’s infotainment control or Tier-1-owned vehicle architectures, is over. If a supplier insists on pushing proprietary software, automakers will simply build their own. And they have the resources to do it—hiring thousands of engineers and forging direct relationships with Tier-2s and startups to bypass traditional supply chains. Tier-1s that try to force exclusivity will quickly find themselves locked out entirely.
The third option—remaining a parts supplier—is the slowest and most painful death. Margins will continue to shrink as OEMs exert relentless cost pressure. Automakers will seek alternative suppliers, offshore manufacturing, and eventually bring certain components in-house. Staying in this lane means getting squeezed at every turn, with little room for growth and even less control over the future.
The only certainty? The old way of doing business is disappearing.
Some suppliers still wonder why their seat at the table keeps getting smaller, but the truth is, automakers no longer need Tier-1s the way they used to. The ones that survive won’t be the ones clinging to past dominance—they’ll be the ones willing to evolve. The future belongs to Tier-1s that rethink their role, not as commodity suppliers, but as strategic partners that can seamlessly integrate with OEM technology roadmaps, provide flexible and scalable solutions, and reduce—not increase—complexity.
There are signs that this shift is possible. ZF, for example, has successfully pivoted toward intelligent systems and automation, embedding AI-driven controls into chassis and drivetrains that help OEMs optimize vehicle performance in real time. NXP, once primarily a semiconductor supplier, has embraced a role as a full-stack enabler, working alongside OEMs to shape the future of automotive computing rather than just selling chips. These companies understand that their value isn’t just in what they build—it’s in how they help automakers execute.
This is the challenge Tier-1s must embrace. The road ahead is only dangerous for those who refuse to change course. The ones that do? They’ll be the ones still standing when the industry completes its transformation.
#automotive #tier1 #oem #softwaredefinedvehicles #ev #mobility #autotech #supplychain #automotiveindustry #digitaltransformation #futureofmobility #adas #innovation #automotivebusiness #connectedcars #automotivesoftware #smartmanufacturing #engineering #technologytrends