Supply Chain

1. Prepare for cascading cost pressures: Tariffs are triggering supplier consolidation and financial distress. Review contracts now for price reopeners, force majeure clauses, and tariff allocation terms.
2. Diversify beyond China for critical inputs: Geopolitical risks around battery materials and semiconductors require multi-jurisdictional sourcing strategies and secure long-term offtake agreements.
3. Align EV supply commitments with market realities: Production cutbacks are creating volume mismatches. Proactively renegotiate supply agreements to avoid disputes over minimum purchase obligations.

Strip away the tariff conversation, and the automotive supply chain still faces an interconnected crisis in which geopolitical tensions, EV production cuts, and supplier bankruptcies feed off each other in ways that make simple cause-and-effect analysis obsolete.

Geopolitical tensions (52%) have surged 23 percentage points from 29% last year, becoming the second-highest concern. When combined with semiconductor and critical minerals availability (30%), geopolitical supply chain disruption represents a concern level approaching that of tariffs themselves, reflecting how trade policy and resource access have become inseparable issues.

EV production cutbacks (44%) remain a significant concern, declining only 2 percentage points from 46% last year. However, the nature of the problem has shifted from managing rapid growth to managing contraction and the resulting supply chain misalignments as OEMs scale back ambitious electrification plans. Suppliers who invested heavily in EV-specific capacity now face volume reductions, triggering contract disputes over minimum purchase obligations and tooling cost recovery.

The dramatic rise in bankruptcy risks (26%) represents the most tangible consequence of the pressures cited elsewhere. As tariffs squeeze margins and OEMs reduce EV volumes, Tier 2 and Tier 3 suppliers face heightened financial distress from cost shocks they cannot pass through to customers.

Legal challenges to supply agreements (22%) have remained essentially stable, suggesting these disputes are now a constant feature of the landscape rather than an emerging trend. Compliance with forced labor and human rights laws (6%) has dropped 6 percentage points from 12% last year, possibly indicating improved compliance frameworks or that more immediate financial survival threats overshadow this concern.

Looking ahead, supply chain strategy will center on managing the interconnected crises of geopolitical disruption, supplier solvency, and EV market recalibration.

Tariff-driven cost pressures command 79% concern in this year’s survey, up 8 percentage points from last year’s already-dominant 71%. If you’re surprised by this result, you have not been paying attention to anything happening in the automotive industry for the past two years.

The real story is not that tariffs top the list. The real story is what happens when 25% duties hit an industry operating on single-digit margins. J.P. Morgan estimates that combined tariffs on vehicles and parts will total approximately $41 billion in the first year. These costs cascade through supply chains, making simple price increases impossible. OEMs respond with localized production and modest price adjustments, but suppliers lack the scale and flexibility to absorb these shocks. The result is precisely what economics textbooks predict: margin compression, financial distress, and consolidation.

The connection to the 27% citing bankruptcy risks is direct. When a European OEM faces higher duties on finished vehicles and critical parts, it pressures suppliers to absorb portions of the tariff burden through price concessions. For suppliers already operating on thin margins, this pressure is existential. The 27% worried about bankruptcies are not speculating about hypothetical scenarios. They are watching Tier 2 and Tier 3 suppliers struggle with cost shocks that make existing contracts unprofitable.

Legal teams face three critical challenges: clarifying tariff allocation in contracts written before 25% duties existed, managing disputes when suppliers refuse to absorb costs they never agreed to bear, and navigating supplier insolvency proceedings when financial pressure becomes terminal. Force majeure provisions drafted for natural disasters are being tested against trade policy disruptions. Price reopener clauses are triggering renegotiations across entire supply networks. Payment terms are under scrutiny as companies balance protecting themselves against supplier failures with maintaining operational continuity.

The tariff story in 2026 is not that they matter. Everyone knows they matter. The story is managing the second-order effects as cost pressures turn into solvency crises.