ZF's Strategic Restructuring and Debt Financing: A Pathway to Long-Term Competitiveness?

ZF Group's strategic restructuring and debt financing initiatives have become a focal point for investors navigating the automotive sector's turbulent transition to electrification and software-driven systems. As the German automotive supplier grapples with declining sales, rising production costs, and geopolitical uncertainties, its aggressive cost-cutting measures and capital allocation decisions raise critical questions about long-term competitiveness. This analysis evaluates the effectiveness of ZF's restructuring efforts, debt management, and strategic pivots in a slowing auto industry.

Restructuring: Cost-Cutting and Operational Realignment

ZF's restructuring program, launched in 2023, has prioritized operational efficiency and portfolio rationalization. By the first half of 2025, the company had reduced its global workforce by 11,200 full-time equivalents, with plans to cut up to 14,000 jobs in Germany by 2028 ZF accelerates restructuring efforts^[1]. These measures, coupled with the deconsolidation of its axle assembly business unit, contributed to a 12.7% year-on-year decline in sales to €19.7 billion for H1 2025 ZF’s 2024: Financial Dip, Strategic Progress^[2]. However, the adjusted EBIT margin improved to 4.4%, up from 3.5% in 2024, signaling early success in margin stabilization ZF’s 2024: Financial Dip, Strategic Progress^[2].

The company has also exited non-core ventures, such as autonomous shuttles, to focus on high-growth areas like Chassis Solutions and Commercial Vehicle Solutions ZF blames 'enormous pressure' on auto industry^[3]. CEO Holger Klein has emphasized the need for agility, stating that ZF must “reposition itself as a technology leader in electrification and software” The German giant ZF in crisis^[4]. Strategic partnerships, including a joint venture with Foxconn and a software collaboration with KPIT, underscore this pivot ZF blames 'enormous pressure' on auto industry^[3].

Debt Financing: Liquidity and Leverage Challenges

ZF's debt burden has grown significantly, with net debt reaching €10.5 billion as of June 2025, driven by restructuring provisions and interest payments Research Update: ZF Friedrichshafen Outlook Revised To Negative^[5]. To bolster liquidity, the company issued a €1.25 billion bond in early 2025, leveraging an undrawn €3.5 billion revolving credit facility until 2029 ZF’s 2024: Financial Dip, Strategic Progress^[2]. Despite these measures, its leverage ratio stands at 3.21x, and its debt-to-equity ratio has fallen to 19.2%, reflecting weak asset capitalization Research Update: ZF Friedrichshafen Outlook Revised To Negative^[5].

The financial strain is compounded by a €1 billion net loss in 2024, attributed to restructuring costs and elevated interest expenses Research Update: ZF Friedrichshafen Outlook Revised To Negative^[5]. Rating agencies have downgraded ZF's credit outlook to negative, citing slower-than-anticipated cash flow improvements and industry-wide pressures ZF Accelerates Restructuring Efforts^[6]. S&P Global Research notes that ZF's EBITDA margin contracted to 7.0% in H1 2025, down from 8.3% in 2023, highlighting ongoing profitability challenges ZF Accelerates Restructuring Efforts^[6].

Strategic Partnerships and Future Outlook

ZF's collaborations with Foxconn and KPIT aim to accelerate its transition to software-centric systems and electric mobility. These partnerships align with broader industry trends, where software and electronics account for an increasing share of vehicle value. However, the success of these initiatives hinges on execution speed and market adoption rates for EVs, which have slowed due to economic headwinds ZF’s 2024: Financial Dip, Strategic Progress^[2].

Analysts remain cautious. While ZF's adjusted free cash flow turned positive at €465 million in H1 2025—a stark contrast to the €494 million deficit in 2024—this improvement is partly attributed to one-time restructuring gains ZF’s 2024: Financial Dip, Strategic Progress^[2]. Long-term sustainability will depend on ZF's ability to balance cost discipline with R&D investments in high-margin technologies.

Conclusion: A High-Stakes Rebalancing Act

ZF's restructuring efforts have yielded marginal operational improvements, but its heavy reliance on debt financing and aggressive cost-cutting pose significant risks. The company's focus on electrification and software partnerships is strategically sound, yet its financial metrics—particularly leverage ratios and credit ratings—suggest a fragile capital structure. For investors, the key question is whether ZF can achieve a “virtuous cycle” of margin expansion and debt reduction without sacrificing innovation.

In a sector marked by rapid technological shifts and geopolitical volatility, ZF's path to long-term competitiveness remains uncertain. While its restructuring has laid the groundwork for a leaner, more agile business model, the company must demonstrate that its capital allocation and debt management strategies can withstand prolonged industry headwinds.