ZF benefits from hybrid demand as it battles €13bn debt load

ZF has claimed that the slower-than-expected shift to battery-electric vehicles is providing some much-needed relief on its debt burden, with rising demand for hybrid drivetrains and conventional gearboxes supporting its powertrain business. Chief Financial Officer Michael Frick told Bloomberg that the company is already benefiting from more favourable refinancing conditions as it works to restore its investment-grade credit rating.

“We have a new strategic orientation with regard to drive technology,” Frick said. “We consider what we experienced last year and the year before in terms of rising interest rates and spreads to be a temporary situation.” European demand for plug-in hybrid models rose by around a third in 2025, a trend ZF says is directly supporting its sales. Battery-electric sales also rose during this period—reversing the slowdown seen on the continent during 2024—but the segment continues to be seen as more costly and volatile than the hybrid alternative.

The improvement in sentiment comes after a bruising period for the world’s third-largest automotive supplier. As it stands, ZF faces refinancing obligations of more than €13bn (US$15.3bn) through the rest of the decade; this debt had accumulated largely through two major acquisitions totalling around US$20bn to build out electric and software-defined vehicle capabilities. When battery-electric adoption proved slower than expected and interest rates rose, the combination pushed ZF’s credit ratings below investment grade and triggered a search for disposals and cost savings.

Fortunately for the supplier, signs of progress are beginning to emerge. The interest rate on ZF’s most recent euro bond issuance in February came in at 5.5%, down from 7% on an April 2025 issuance. The company has also reduced its borrowings by a low triple-digit million-euro amount over the past year. ZF also plans to use part of its €6bn in available liquidity to repurchase a large share of bonds maturing in 2027, with remaining maturities to be covered by operating cash flow and asset sale proceeds.

The turnaround effort has however come at great cost. ZF is targeting around 14,000 job cuts in Germany through 2028, including reductions across its electric vehicle division, after finalising a restructuring agreement with IG Metall covering 7,600 roles in its powertrain operations. Employees accepted a 7% reduction in working hours and pay as part of the deal. In December 2025, ZF sold its driver-assistance business to Harman International for €1.5bn, and is reviewing options for further divisions including its Lifetec unit and parts of its powertrain and wind businesses.

Free cash flow for 2025 significantly exceeded expectations, surpassing €1bn, allowing faster debt repayment than planned. ZF is also looking to double its exposure to the defence sector by 2028, when it expects defence revenues to represent around 1% of total sales.