German auto Industry Grapples with Declining Sales and Intensified Competition
The German automotive industry is facing a meaningful downturn, marked by slowing electric vehicle (EV) sales, increased competition – particularly from China – and a challenging economic climate. This confluence of factors has led to profit declines for major manufacturers and job losses across the sector.
recent financial reports paint a concerning picture. In the first half of 2025,Mercedes-Benz profits decreased by one percent to €2.7 billion. Volkswagen’s operating profit experienced a more significant drop, falling by a third to €6.7 billion, while BMW’s pre-tax profit declined by 29 percent to €4.02 billion.
Contributing to these difficulties is a marked decrease in exports. European car exports to China, largely driven by German manufacturers, plummeted 42 percent in the first half of the year.Simultaneously, exports to the United States fell by 13.6 percent during the same period.
These trends have translated into workforce reductions. Between June 2024 and June 2025, the German automotive sector lost approximately 52,000 jobs, representing a 6.7 percent decrease in employment. A recent survey by the German Automotive Industry Association (VDA) revealed that nearly half of companies describe their current situation as “bad” or “very bad.” A significant proportion of suppliers – almost two-thirds – are planning job cuts, and a substantial majority (around 80 percent) intend to postpone, relocate, or cancel planned investments. Very few companies are considering increasing investment.
The German goverment is responding with measures aimed at stimulating demand. Finance Minister Lars Klingbeil announced an extension of the tax holiday for electric vehicles until the end of 2030, originally scheduled to expire in January 2026. Additionally, an extra €3 billion in subsidies has been allocated to support EV purchases for low- and middle-income households.
However, some observers question the effectiveness of solely national solutions. Fabian Tordoir of the Center for European Reform (CER) suggested coordinating subsidies across the European Union, noting uncertainty about Germany‘s ability to unilaterally alter EU legislation.He emphasized the need to address a lack of demand and excess capacity within the European car manufacturing industry.
Beyond demand, the industry faces a “polycrisis” encompassing high energy and labor costs, the structural shift towards electromobility, and rising US tariffs. Some analysts advocate for a broader EU strategy to address the influx of competitively priced Chinese electric vehicles, potentially leveraging partnerships with automakers in Japan, South korea, the United States, and the United Kingdom.
Despite these challenges, experts remain cautiously optimistic, believing the German automotive industry possesses the capacity to adapt, innovate, and maintain its competitiveness in the evolving global market.
