Innovation in the Italian Automotive Supply Chain

Abstract:

This paper analyzes the evolving innovation dynamics within the Italian automotive supply chain in the context of the broader European transformation of the sector. Italy, while traditionally a key automotive producer, has experienced a sharp decline in domestic vehicle production over the past two decades, losing 1.5 million units, and now exhibits an increasing divergence between domestic sales and production volumes. The Italian supply chain is characterized by a strong regional concentration in Piemonte, Lombardia, and Emilia-Romagna, and a predominance of small-sized firms, with 60% employing fewer than 50 workers. Despite some diversification in customer portfolios, many suppliers remain heavily dependent on Stellantis, whose downsizing in Italy further exacerbates structural weaknesses. The study shows that innovation is primarily driven by large and medium-sized firms, as well as some emerging micro-firms, particularly in Piemonte. Italian-owned multinationals display higher innovation capabilities and greater independence from Stellantis. In contrast, Tier 1 suppliers closely tied to Stellantis exhibit lower levels of innovation, especially in Northern regions. The transition to electromobility is fostering innovation among EV-focused firms, though many companies continue to invest in modular technologies applicable to both EV and ICE platforms. Process innovation is in decline, while software development remains limited. The most vulnerable segments are small Tier 3 suppliers in Southern and Northeastern Italy, which face both high dependency and limited innovation capacity. This analysis highlights the uneven geography of production and innovation, raising important policy questions for Italy’s position in the future automotive landscape.