Financing interest rates soared to 7%, and BMW and VW supplier ZF's debt peak, sounding a wake-up call for the German automotive industry

The Zhitong Finance App learned that ZF Friedrichshafen AG (ZF Friedrichshafen AG) debt refinancing costs, which produce transmissions and other parts for BMW and Volkswagen, have soared sharply, indicating that the plight of the German automobile industry is spreading upstream and downstream of the supply chain.

In the current high interest rate environment, the interest rate on the company's recent 5-year Eurobond has jumped to 7%, while interest rates for similar transactions were only 2% when interest rates were generally low in 2019. Rising credit costs have increased financial pressure on ZF, so the company has sought to cut thousands of jobs, including its electric vehicle division.

According to its latest financial report, higher interest rates will continue to have an impact, as the company will have more than 2 billion euros (about 2.3 billion US dollars) of debt due each year from 2027 to 2030. Although the supplier, which produces advanced driver assistance systems and electric axles, entered the bond market early to cover these maturing debts, each round of refinancing has locked borrowing costs at a significantly higher level, eroding already meager profits in this sensitive period.

ZF's debt dates back to two major acquisitions totaling around $20 billion to increase products related to electric vehicles and software-defined vehicles. However, as the electric vehicle transformation process slows down and Chinese competitors pour into the market, German suppliers such as ZF and Robert Bosch may face a protracted downturn. Both manufacturers are speeding up their restructuring and plan to lay off a total of 27,000 workers by 2030.

According to Moody's analyst Matthias Heck, ZF's credit rating, which has more than 150,000 employees, is at the lower end of the Ba2 rating, which already indicates higher credit risk. He said it may be difficult to maintain this rating level if the situation does not improve.

“ZF is still working to generate positive free cash flow, and higher interest costs are the reason,” he said in an interview.

Due to deteriorating performance, the company has had to adjust the terms of some bank loans to avoid the risk of default. By the end of the year, its total refinancing obligations exceeded 13 billion euros.

ZF said demand for bond issuance has been stable recently, and the company is fully capable of handling the upcoming refinancing period. The company said its German business is being restructured to enhance competitiveness.

“We are seeing a dangerous trend: companies are cutting investment, shifting production abroad and cutting jobs,” said Barbara Resch, a member of the ZF Supervisory Board and head of a powerful metal industry union in Baden-Württemberg, the center of advanced manufacturing in Germany. We are at risk of losing our industrial base — and with it our country's future competitiveness.”

ZF reports that sales declined in the first nine months of this year, and the operating margin for the third quarter was only 2.3%. Although the quarter's profit of 207 million euros more than doubled from the same period last year, the company warned in November that the transformation would continue to drag down returns.

ZF's product portfolio is traditionally stronger than the multi-speed transmissions that electric vehicle models don't need, putting it at the center of growing concerns within the German supplier network. The company tried to replan its product line, but was caught off guard by changing market conditions.

In 2019, ZF acquired WABCO, a manufacturer of braking, suspension and safety systems for commercial trucks and buses, for $7 billion. A few years ago, ZF also completed a similar deal by acquiring TRW Automotive (TRW Automotive), a major US supplier of braking, steering components and airbag systems, for $12.9 billion. The COVID-19 pandemic disrupted the semiconductor supply chain crisis, and soaring interest rates weakened ZF's ability to go back to business after the acquisition of WABCO.

ZF recently confirmed plans to cut approximately 7,600 jobs in its “E Division” (Electric Drive Division) by 2030, or about a quarter of the department's total workforce, as part of a broader plan to cut as many as 14,000 jobs in Germany. Meanwhile, Bosch said it will lay off about 13,000 employees in its automotive and intelligent mobility technology division by 2030, involving powertrain and transport-related businesses.

Bosch's layoffs in Germany are mainly focused on the division responsible for developing products for electric vehicles and advanced driver assistance systems. As the low-emission transition progresses, this has raised questions about the division's role. At the Stuttgart-Feuerbach plant, the company is cutting about a quarter of its employees, mostly developers. The plant's hydrogen fuel cell R&D team won the German Future Award, one of Germany's top innovation awards in 2025.

The company also made major layoffs at Schwieberdingen, a center for developing electric mobility and driver assistance systems, and other engineering centers. At the same time, the company is increasing its investment in China, where it is much cheaper to do similar work.

“If you look closely, you'll see that there is simply a serious lack of any long-term prospects,” said Frank Sell, head of the Bosch Automotive and Intelligent Transportation Technology Division Staff Committee. The division is trying to keep up with the pace of faster and cheaper development at Bosch's expanding R&D center in China.” The impact of the powertrain transformation is more severe than expected and is fully impacting our European base.”

A spokesperson for Bosch's Automotive and Intelligent Transportation Technology Division has yet to respond to a request for comment. When announcing layoffs in September, the company said the restructuring was necessary to cope with global competitive pressure and guarantee the profitability of its automotive supply division.

Difficulties in financing

Adding to ZF's challenges is the lack of a well-resourced shareholder to inject new capital. The company is almost entirely owned by the Zeppelin Foundation, which is linked to the southwestern German city of Frederikshavn. As an unlisted company, it can't raise capital through the equity market like some of its peers. The company had previously sought to raise billions of euros for its airbag and seatbelt business Lifetec to reduce leverage, but this process has also stalled, limiting the group's options. Bosch's shareholding structure is also controlled by the Foundation.

However, ZF has a liquidity source of more than 7 billion euros, which is a buffer that its smaller peers lack.

According to data from the German Federal Statistical Office, the German automobile industry has cut nearly 50,000 jobs this year, and suppliers have become the fastest shrinking part of the German industrial pillar in a long time. Meanwhile, the German automobile industry business climate index published by the Iver Economic Research Institute fell sharply in November due to more pessimistic industry expectations.

According to data from the Federal Statistical Office dating back to 2010, the number of bankruptcies of automobile companies has risen to record levels last year. Tax consulting firm Falkensteg Holding GmbH predicts that large-scale bankruptcies of automobile suppliers will increase by about 30% this year.

Restructurings became more challenging as banks withdrew from the industry and new financing became scarce. A recent comprehensive overhaul of Webasto AG, which manufactures roofs and heating systems for vehicles, shows that bank support comes at a cost.

“Traditional banks are generally skeptical about the automotive industry, so they are more reluctant to provide additional credit or lines of credit,” said Ralf Winzer, senior partner at FTI Andersch.

After Webasto breached the terms of the loan, the bank initially agreed to make minor adjustments, but when performance deteriorated further, they asked for a full renegotiation. The company, which had sales of 4.3 billion euros last year, finally obtained new financing of 200 million euros only after agreeing to transfer a large number of shares to the custodian, a move that made it easier for banks to gain control when the situation worsened.

For smaller suppliers, financing options are becoming more expensive. Many companies are turning to other options, such as sale-leaseback transactions or the Nordic bond market, where investors show a higher appetite for risk, but borrowing rates can be as high as double digits.

Automakers can step in by shortening payment terms or financing struggling suppliers with raw materials, but this support is selective and often depends on how dependent they are on suppliers. Several companies, including Standard Profil Automotive GmbH, have been taken over by creditors.

As the slump worsens, Germany is sounding the alarm. Under pressure from the CDU-SPD coalition's declining approval rating, Prime Minister Friedrich Mertz last week urged the European Union to soften the rules that essentially ban the sale of internal combustion engine vehicles from 2035.

“If we lose this industry, then we are really putting our nation's prosperity at risk,” he said after talks with automotive industry executives in Stuttgart.