• By US protectionist measures risk deepening the industry’s slowdown
• Industry group warns Europe must reduce bureaucracy, secure energy stability, and align climate targets with industrial needs to stay competitive

ISTANBUL

Germany’s powerful automotive sector is heading into one of its most difficult periods in decades, squeezed by rising global rivals, a rapid shift toward electric vehicles and a domestic economy struggling to regain momentum.

For years, Volkswagen, BMW and Mercedes symbolized Germany’s industrial strength. But their latest earnings tell a different story, highlighting falling profits, slowing demand in Europe, and stiff competition from China’s fast-expanding EV makers.

The downturn is being felt well beyond factory floors.

Automobile production in Germany has fallen sharply from 5.6 million units in 2017 to around 3.4 million in 2024, and forecasters expect output to shrink further this year. Car manufacturing accounts for roughly one-fifth of German industrial production and around 6% of GDP when the supply chain is included, according to Capital Economics.

The sector directly employs some 780,000 people and supports millions more.

It has also coincided with Germany’s lackluster economic performance. After contracting by 0.5% in 2023 and 2024, the economy is expected to post only modest growth of about 0.2% this year, according to recent projections.

Analysts note that economic anxiety has contributed to a rise in far-right support, which has been particularly strong in areas where automotive jobs dominate local employment.

Falling profits and rising rivals

China’s rise in the global car market has reshaped the competitive landscape for German manufacturers. Backed by large-scale government support, advanced battery supply chains and aggressive investment in electric vehicles, Chinese brands have moved from niche exporters to dominant global players in only a few years.

According to an AlixPartners analysis, China overtook all rivals in 2023 to become the world’s largest car exporter – surpassing Japan – and is expected to widen its lead in 2025. In 2020, Germany ranked second behind Japan, but by 2024 it had slipped to fourth place, behind China, Japan and Mexico.

The consulting firm also estimates that Europe now has as many as eight excess factories and could lose up to 2 million sales to Chinese brands in the coming years.

That shift is visible in German balance sheets.

Volkswagen Group – which includes Skoda, Seat, Cupra, Audi, Porsche and Lamborghini – saw income edge up slightly to €238.6 billion ($276 billion) in the first nine months of the year, compared to €237 billion a year earlier. But its net profit plunged from €8.8 billion to minus €3.41 billion, including a third-quarter loss of €1.07 billion.

Mercedes reported a similar trend. Its income fell 8% year-on-year from €107.14 billion to €98.5 billion, while net profit halved to €3.9 billion.

BMW’s income dropped 5.6% to €99.99 billion, and its net profit slipped 6.8% to €5.7 billion.

Meanwhile, Chinese competitors continue to surge. In the January-September period, BYD’s sales in Europe rose 248.1%, while SAIC Motors recorded a 37.3% increase, according to the European Automobile Manufacturers’ Association.

By comparison, Volkswagen’s European sales grew 4.8%, Mercedes’ 2% and BMW’s 6%.

Industry analysts say China’s strength in batteries – often the most expensive component of an electric vehicle – gives its manufacturers a decisive cost advantage. Higher factory utilization rates in China also allow firms to sell aggressively in Europe while maintaining profitability, despite the EU’s tariffs on Chinese electric vehicles ranging from around 27% to 45%.

Suppliers struggle

The slowdown is hitting major suppliers as well – a critical part of Germany’s industrial ecosystem.

Continental’s income slipped 1.2% to €14.7 billion, while Schaeffler Group fell 3.8% to €17.7 billion. Tech firm ZF reported a 10.4% drop to €19.7 billion in the first half, the most recent period available, and Thyssenkrupp’s sales decreased 6% to €24.56 billion.

“We are very much feeling the weak market environment in key customer industries such as the automotive, engineering and construction industries,” Miguel Lopez, the CEO of Thyssenkrupp, said.

Hella, a major vehicle electronics producer, saw sales dip 1% to €5.87 billion in the first nine months of 2025.

The company said the sector is recovering globally but that growth is concentrated in Asia rather than Europe.

- Protectionism and geopolitical tensions

Industry groups say global headwinds are growing. The German Association of the Automotive Industry (VDA) told Anadolu that manufacturers continue to innovate and invest, but geopolitical tensions, market isolation and protectionist policies are increasingly weighing on the sector.

A key concern is a 15% US tariff on German cars. The US has long been Germany’s largest automotive export market, with exports worth €36.8 billion in 2024 alone.

According to the VDA, the rise in trade barriers is forcing companies to produce more locally in the markets they serve – a shift that increases costs and erodes the advantages of Germany’s export-driven model.

The isolation of markets ultimately creates only losers – companies and consumers alike, the association said.

“We therefore need international cooperation more than ever to uphold and strengthen the rules of rule-based trade worldwide. This also applies to the transatlantic partnership. Germany and Europe must consistently commit to this, despite all the challenges,” it added.

- Calls for less red tape and flexibility on environment goals

The VDA said the industry wants to continue manufacturing in Germany and Europe, but “a change in political course” is needed to keep the sector competitive.

“Berlin and Brussels must put everything that strengthens growth on the agenda: less regulation and bureaucracy, reliable energy prices, and an innovation-friendly industrial policy,” the association said. “This is the only way to keep the country attractive.”

It also welcomed commitments to technology-neutral climate policy and to reviewing European CO2 fleet limits but stressed that governments must now act “decisively.”

“In Germany, as in Europe, we are experiencing a reality check: climate protection and economic strength must be considered together,” it said.

“Now it is time to act decisively on this insight – reducing bureaucracy, facilitating investment, and enabling growth.”

The association said that safeguarding competitiveness, prosperity and jobs in Germany and Europe is essential, and warned that climate protection will only succeed if it is supported by the public.