diff --git a/cmd/generate.go b/cmd/generate.go
index efcad44..aa66de1 100644
--- a/cmd/generate.go
+++ b/cmd/generate.go
@@ -180,12 +180,6 @@ func discover(ctx context.Context, flags *Flags) ([]repocfg.Component, error) {
 		if !info.IsDir() && strings.HasSuffix(info.Name(), TF_EXT) {
 			logger.Debug(fmt.Sprintf("found .tf file: %s", path))
 
-			// Add the directory of the Terraform component as the parent
-			parent, err := filepath.Rel(flags.Root, filepath.Dir(path))
-			if err != nil {
-				return err
-			}
-
 			// Each edge should be a path containing Terraform variables files
 			// relative to the Terraform component
 			err = filepath.Walk(filepath.Dir(path), func(subpath string, subinfo os.FileInfo, suberr error) error {
@@ -195,19 +189,23 @@ func discover(ctx context.Context, flags *Flags) ([]repocfg.Component, error) {
 
 				// Filter out Terraform variable files
 				if !subinfo.IsDir() && (strings.HasSuffix(subinfo.Name(), TFVARS_EXT) || strings.HasSuffix(subinfo.Name(), TFVARS_JSON_EXT)) {
+					parent := subpath
 					// Ignore nested Terraform variable files that might belong to nested components
-					if filepath.Dir(subpath) != filepath.Dir(path) && tfExistsInDir(filepath.Dir(subpath)) {
+					if filepath.Dir(subpath) != filepath.Dir(path) && !tfExistsInDir(filepath.Dir(subpath)) {
 						logger.Sugar().Debugf(`ignoring nested %s: %s
 						which belongs to the component at: %s
 						not: %s`, filepath.Ext(subpath), subpath, filepath.Dir(subpath), filepath.Dir(path),
 						)
-
-						return filepath.SkipDir
+						parent = path
 					}
 
-					logger.Sugar().Debugf("component parent is %s", parent)
+					relParent, err := filepath.Rel(flags.Root, filepath.Dir(parent))
+					if err != nil {
+						return err
+					}
+					logger.Sugar().Debugf("component parent is %s", relParent)
 					found := repocfg.Component{
-						Path: parent,
+						Path: relParent,
 					}
 
 					logger.Sugar().Debugf("found %s file: %s", filepath.Ext(subpath), subpath)
diff --git a/repocfg/util.go b/repocfg/util.go
index 3b32102..fdfe71a 100644
--- a/repocfg/util.go
+++ b/repocfg/util.go
@@ -9,8 +9,15 @@ import (
 func ptr[T any](v T) *T { return &v }
 
 // friendlyName creates a contextual name used for Atlantis projects
-func friendlyName(path, environment string) string {
-	name := []string{strings.ReplaceAll(path, "/", "-"), pathWithoutExtension(filepath.Base(environment))}
+func friendlyName(path, varFile string) string {
+	environment := pathWithoutExtension(filepath.Base(varFile))
+
+	// avoid constructing a joined path if the context is the current directory
+	if filepath.Base(path) == "." {
+		return environment
+	}
+
+	name := []string{strings.ReplaceAll(path, "/", "-"), environment}
 	return strings.TrimSuffix(strings.Join(name, "-"), "-")
 }