Glass globe table office

Building geopolitical resilience in aerospace, defense and mobility

Authors

7 minute read 17 Mar 2025

Manufacturers are adopting new strategies in response to global tensions, operational de-risking and the energy transition.

In brief
  • Large manufacturers within the aerospace, defense and automotive sectors are monitoring geopolitical developments and adjusting strategies accordingly.
  • Companies need to build more resilient supply chains, reduce dependencies on single sources and adapt to changing trade dynamics.
  • The new reality requires that organizations create a more responsive, dynamic strategy to find ways to succeed.

Changes under way in the US and around the world are causing large manufacturers in the aerospace, defense and automotive sectors to reexamine supply chains, business relationships and energy strategies. These industries are not alone. Nearly three in four CEOs in the latest EY-Parthenon CEO Outlook Survey stated that geopolitical conflicts or trade tensions will affect their company's performance over the next 12 months.

The EY-Parthenon 2025 Geostrategic Outlook provides a comprehensive analysis of the top 10 geopolitical developments that are reshaping agendas. For aerospace, defense and automotive organizations, three areas in particular — global conflicts and wars, supply disruption, and the energy transition — are emerging as potential sources of turmoil, affecting company operations, strategy execution and profitability.

As newly elected world leaders settle into their roles, they are introducing policies and regulations that prioritize economic competition between countries — and therefore affect companies’ global operations and strategies.

Although it’s difficult to forecast the future impact of all these geopolitical shifts, organizations must anticipate the range of possibilities and prepare to act in a number of different ways, both through long-term strategic planning and through enhancing their ability to pivot quickly in the short term.

How EY can help

  • Geostrategy

    Learn how the Geostrategic Business Group can help your organization create a geostrategy by translating geopolitical risk and insights into business strategy.

    Read more

Impact of global conflicts on aerospace, defense and manufacturing operations

Ongoing wars and conflicts pose a significant threat to global stability and have created volatility around the world. Manufacturers are grappling with disrupted supply chains, which leads to delays and increased costs. Conflicts are also disrupting global logistics and commerce, including for airlines, shipping and the automotive trade. Even short-term threats can have massive implications. Maritime bottlenecks are an example. Conflicts have led to recent attacks and increased monitoring of ships transiting the Red Sea and the Suez Canal.

 

Major world powers have increased defense and military spending over the past decade. We’ve seen an increase in demand for air defense systems, naval weapons and ships, with exports increasing 91% since 2019.1 Several countries in Europe are increasing production of weapons, especially artillery ammunition and air defense systems, necessitating rapid adjustments to production and resource allocation.

 

Spending is expected to remain elevated, reflecting the rising number of conflicts and the corresponding demand for defense technologies. As companies ramp up production, they face the challenge of establishing new facilities, recruiting skilled workers and sourcing materials, like plastics and metals. They are also integrating advanced technologies, such as automation and AI, into manufacturing processes to enhance production efficiency and respond more swiftly to changing demands and geopolitical pressures.

 

Takeaway: Heightened geopolitical risks will require agility and operational flexibility, including new sourcing and business relationships.

Mitigating risks and reducing supply chain dependencies

As global tensions remain high, governments are intensifying economic security measures to secure essential resources and minimize reliance on regions that might present geopolitical risks. For manufacturers, this is leading to onshoring, de-risking and a more intricate network of supplier relationships.

In the latest CEO Outlook Survey, among aerospace, defense and automotive sector respondents, 78% said they were looking to increase use of near-sourcing and in-sourcing to enhance long-term supply assurance and supply risk mitigation, and 28% said they were “very optimistic” about their confidence in addressing this challenge over the next 12 months.

Near-sourcing and in-sourcing are in
of aerospace, defense and automotive sector respondents say they are looking to increase use of near-sourcing and in-sourcing.

Source: EY-Parthenon CEO Outlook Survey

How EY can help

  • Industry Strategy

    EY-Parthenon sector strategy consulting teams have deep sector strategy experience and can help your business challenge the status quo. Learn more.

    Read more

Semiconductors are one example of such supply chain dynamics. With demand fueled by automotive, aviation, consumer electronics, energy, manufacturing, and military and defense organizations, the chip sector is a high-growth industry expected to reach total revenues of $1 trillion by 2030.2 However, with critical raw materials and manufacturing capacity regionally concentrated and subject to export controls, these sectors had to rethink supply chain tactics.

 

To address these challenges, governments, including in the US and EU, have introduced subsidies and tax breaks to protect or stimulate their domestic chip industries. More than $750 billion in investments in new wafer fabrication facilities have been announced, along with investments in equipment, raw materials, research facilities and packaging plants.3 Companies are also engaging in new relationships and activities to solidify their supply chain through joint investments and agreements, and original equipment manufacturers developed relationships directly with semiconductor manufacturers to gain control over the supply.

 

Tariffs are increasingly shaping the landscape of global trade and economic relations as well, and they remain a fluid factor. Canada has imposed a 100% surtax on all Chinese-made electric vehicles (EVs), and a 25% surtax on steel and aluminum products from China.4 The EU has implemented tariffs on products such as bicycles, solar panels, electric bicycles and battery electric vehicles. And the new US administration has introduced a number of tariffs on manufacturing materials and imports from large trading partners, which have prompted threats of retaliatory tariffs at the time of this writing.

 

As these policies play out, US automakers have raised concerns about production disruption, the impact on profitability and potential unintended benefits to their overseas competitors. Because the situation remains volatile, leaders in these sectors need to closely monitor the latest news and developments in trade policies and develop a proactive strategy to address concerns based on a thorough understanding of their third-party relationships, the potential impact of any new tariffs that are implemented and current domestic or alternative sourcing.

Tariffs are increasingly shaping the landscape of global trade. Because the situation remains volatile, leaders in these sectors need to closely monitor the latest news and developments.

Takeaway: Businesses will need to reassess and diversify their supply chains, adjust to new trade environments and find ways to collaborate across countries and value chain networks to mitigate risks associated with geopolitical tensions.

Energy efficiency and transition strategies

Both the shift toward renewable energy and the push for a stable and secure energy supply are affecting geopolitical strategies and policies. Each country is adopting a strategic mix of energy sources, including nuclear, fossil fuels and renewables like wind and solar.

In the US, energy independence and security are priorities for policymakers. The current administration has declared an energy emergency, permitting the federal government to expedite oil and gas development. In Europe, which continues to push for ambitious climate targets, the impact of geopolitical conflicts on energy costs has highlighted the critical need for stability and security in energy supply.

Regional differences in consumer behavior and varying degrees of regulatory scrutiny between the US, EU and China are also influencing the pace of adoption of EVs and other technologies. In the United States, continuing consumer concerns have stymied EV adoption compared with buyers in Europe and Asia, although hybrid technologies are viewed more favorably.

Some organizations may adopt an approach that appeals to each market they serve, with more conservative patterns for European markets and taking advantage of relaxed boundaries elsewhere. Other organizations may decide to continue on the path toward sustainability already undertaken due to previous climate goals and agreements.

Takeaway: Companies should stay informed about how policy shifts around renewable energy and energy independence affect dynamics in key markets. It will be important to develop strategic plans that account for regional differences in energy policies, regulatory scrutiny and consumer behavior.

Agility is crucial in the current geopolitical environment

Each company will face its own decisions after weighing all the geopolitical factors, from wars and conflicts to supply disruption and energy regulations. Some will make decisions to close operations or not to expand during this time of volatility. Others will take risks and may succeed in accelerating their growth.

The volatile geopolitical environment and shifting global dynamics means that situations may not play out as they have before. Therefore, leaders won’t be able to create a “once-and-done” strategy and let it unfold. They should instead be ready to steer their organizations through several potential big swings that could happen, understanding the different trigger points and decision thresholds. Knowing all the organization can about the environment means that leaders can make decisions with strategic goals in mind, building support and dissent from all the data available. In this environment, scenario planning is particularly useful. Organizations should gather qualitative and quantitative data to prepare for potential shocks and mitigate the exposure. But no matter the strategy they choose, leaders will have to find ways to be more nimble and responsive to address geopolitical changes and find opportunities.

Mike Fiske also contributed to this article.


Summary

Large manufacturers in automotive, aerospace and defense are navigating a rapidly changing geopolitical landscape. There is room for optimization and growth despite challenges. By focusing on de-risking and dependencies, understanding the competitive implications of climate policies and adapting nimbly in response to geopolitical conflicts, companies can position themselves to be ready. 

About this article

Authors

Related topics
Aerospace and defense
Automotive

Related articles

How can a strategic transformation mindset unlock long-term value?

Confident CEOs embrace corporate transformation mindset, using M&A and technology to navigate challenges and create long-term value. Read more.

Andrea Guerzoni + 2

Top 10 geopolitical risks in 2025 Geostrategic Outlook

Geopolitical risk will remain elevated due to economic sovereignty and global rivalries. Learn how to manage the uncertainty to grow your business.

Courtney Rickert McCaffrey + 1

How manufacturers can adapt for success amid rising geopolitical uncertainty

To thrive in an increasingly volatile world, manufacturing leaders must make strategic moves that enhance agility and resilience. Learn how.

Claudio Knizek + 3

    EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.