Sembach, a family-run ceramics company in Bavaria, is pivoting from automotive sensors to medical technology as European car manufacturers face pressure from Chinese EV makers. The company, based in Lauf an der Pegnitz near Nuremberg, has seen auto production volumes drop from an average of 600 million parts annually to approximately 400 million. With automotive revenues comprising 80 percent of its business, Sembach has set a target to reduce this share to 40 percent by 2033. CEO Anna Sembach warns the company may not survive a decade without this strategic shift.

Germany's broader supplier base is accelerating this transition. Schaeffler Group, a stalwart of the German automotive industry, has restyled itself as a motion-technology company, adapting auto parts for humanoid robots and space applications. The company estimates it can generate 10 percent of revenues from defence, robotics, and space by 2035. Similarly, Bosch is expanding into robotics while cutting 22,000 jobs worldwide as its traditional auto business struggles. Volkswagen is also exploring diversification opportunities.

The pivot reflects pessimism about the German auto industry's future. The sector has shed tens of thousands of jobs since 2019 and is set to keep shrinking as Chinese rivals grow in strength. The domestic automotive sector is set to shed another 125,000 jobs by 2035, according to the VDA. A survey by FTI-Andersch reveals three out of four German suppliers affected by structural changes are already making the shift into other businesses, with the defence sector seeing particular interest due to rising European government spending commitments.