The Crisis in the German Automotive Industry
The German automotive industry is facing its most turbulent year in decades, with stagnation, mass layoffs, and a rocky transition to electric vehicles. Companies like Volkswagen, BMW, and Mercedes-Benz are lagging behind Chinese rivals in software innovations and the introduction of electric vehicles. China’s BYD, Nio, and others are aggressively expanding into the European market, offering cheaper, tech-savvy electric vehicles.
Challenges Facing the Industry
The problems facing the German automotive industry have been described as a polycrisis, characterized by declining sales of electric vehicles, fierce Chinese competition, rising US tariffs, high energy and labor costs, and structural changes towards electromobility. In the first half of 2025, Mercedes-Benz’s profit fell 56% to 2.7 billion euros, Volkswagen’s operating profit fell by a third to 6.7 billion euros, while BMW’s pre-tax profit fell 29% to 4.02 billion euros.
Impact on Employment
According to the EU statistics agency Eurostat, European car exports to China, driven primarily by Germany, fell by 42% in the first half of the year, while exports to the US fell by 13.6% in the same period. The industry lost around 6.7% of its workforce in Germany from June 2024 to June 2025, i.e., almost 52,000 jobs. The fight has also spread to German auto suppliers, with almost half of those surveyed describing their current situation as “bad” or “very bad”.
Call to Delay the Diesel/Petrol Ban
Chancellor Friedrich Merz has called for the European Union’s planned sales ban on new vehicles with combustion engines to be lifted from 2035. The measure, introduced in 2022, would impose heavy fines on automakers that fail to reduce CO2 emissions. Merz told broadcaster NTV that the planned EU ban was "wrong" and added: "We should not ban: we should enable technologies, and that is my goal."
Consumer Trust in Electric Vehicles
Craig Mailey, chief strategy officer at research house Cox Automotive, believes that Merz risks undermining confidence in the transition to electric vehicles by calling for a delay. "In these uncertain market conditions, consumers need clarity, not ambiguity," Mailey said. "While some express concerns that the 2035 deadline will stifle innovation, consumers need reassurance that electric mobility is the technology of choice.”
Subsidies for Electric Vehicles
German Finance Minister Lars Klingbeil announced the extension of a tax break for electric vehicles to boost consumer and fleet demand. The exemption was due to expire on January 1, 2026, but is now expected to be extended until the end of 2030. Sander Tordoir, chief economist at the London-based Center for European Reform, suggests that reintroducing subsidies for the purchase of electric vehicles could increase the success of car manufacturers.
Boosting EU Demand
Tordoir called for more attention from Berlin and Brussels to boosting Europe’s automotive sector as a whole, pointing out that France, Italy, and Spain are also losing share of the global export market to China. "The best way out is to grow our own crops [European] "The market is still very large and has the potential to create more demand than currently," he said.
Reacting to China
Some industry observers believe the EU should adopt a global strategy to stem the tide of Chinese electric vehicles, which benefit from huge subsidies from Beijing. They say this can be achieved by leveraging close relationships with other leading car manufacturers in the world such as Japan, South Korea, the United States, and the United Kingdom. "Our main export markets also happen to be our allies," Tordoir said. "The USA and Great Britain are very important markets for German and European automobile manufacturing. So there is the potential to create measures that really make a difference."
The Future of the German Automotive Sector
Despite the many challenges, automobile production in Germany is far from over. With the right mix of policies and strategic investments, many experts believe the industry can gain the time it needs to adapt, innovate, and remain competitive in a rapidly evolving global marketplace. Tordoir believes that the European automotive industry "has some catching up to do, but it’s not that Europe doesn’t show potential for building the cars of the future. It’s worth providing some support to essentially try to stay in the race and get the transition right."
