For decades the German automotive industry constituted one of the strongest pillars of the European economy, a symbol of technological supremacy, industrial power, and global influence.
Today, however, its largest representatives find themselves facing an unprecedented ordeal, as the transition to electromobility, the aggressive rise of Chinese manufacturers, increased energy costs, and the slowdown in demand put suffocating pressure on their business models.
The cessation of Russian natural gas imports following the war in Ukraine and the sabotage of the Nord Stream pipelines in 2022 caused severe repercussions for the German economy, increasing energy costs and striking the competitiveness of the industry.
Volkswagen, BMW, and Mercedes-Benz are called upon to face problems that are not limited to a temporary market downturn, but concern their very way of operating. The high production costs, the large organizational structures, and the delayed strategic choices in electromobility have created an environment of intense uncertainty for the future of the German automotive industry.
Volkswagen: From symbol of power to a program of mass cuts
The Volkswagen group employs approximately 630.000 workers worldwide, a number that increases to about 680.000 if the joint ventures of the group in China are also included. This huge human workforce constituted a sign of industrial strength for decades, but is now considered a significant burden on the competitiveness of the company.
Volkswagen has announced a major restructuring plan, which projects the elimination of up to 100.000 jobs internationally, while in Germany a reduction of thousands of positions and the closure of four factories is planned. The cuts are not limited to the core brand of the group, but also affect premium subsidiaries such as Porsche and Audi.
The problem of Volkswagen is largely linked to choices shaped over decades. The company chose to maintain a large part of the production process internally, manufacturing many components itself and developing its own software. This strategy offered greater control over production, but significantly increased operating costs.
At the same time, the aggressive acquisition policy and the creation of a massive group with brands like Skoda, Porsche, SEAT, Bugatti, and the truck companies created an extremely complex business model, with high management and coordination requirements.
The situation was exacerbated by the delay of Volkswagen in developing electric vehicles. At the time when the German company was trying to adapt, Chinese groups acquired a technological advantage, primarily in the fields of software, batteries, and production costs.
A particularly significant blow was the Chinese market, where approximately one third of the sales of Volkswagen took place. The rise of local electric car manufacturers restricted the position of the company, while demand in Europe remained sluggish.
In contrast to Volkswagen, Toyota, which produces a similar number of vehicles, operates with almost half the workers, relying more on suppliers, automation, and a simpler organizational structure.
Another pressure factor is the strong presence of German trade unions and the participation of the state of Lower Saxony, which holds about 20% of Volkswagen and possesses a veto right on important decisions. For years the political pressures restricted the possibilities for cuts and restructuring.
The company now invests more in automation and digitalization, while planning to present an electric model with a price below 20.000 euros within 2026. At the same time, shifting a larger part of production toward Asia is being examined, as China already represents about 30% of its global production.
BMW: China hits sales and pressures profits
Similar pressure is faced by BMW, which saw its sales decrease during the second quarter of the year, mainly due to the slowdown of the Chinese economy and the crisis in the real estate market.
Total vehicle deliveries decreased by 4.9%, while sales of the BMW and Mini brands in China fell by about 30%. At the same time, the stock of the company has lost more than 35% of its value since the beginning of the year.
The chief executive officer of BMW, Milan Nedeljkovic, proceeded to a revision of the forecasts for the profitability of the company, announcing at the same time new cost restriction measures.
The picture is different in the United States and in Europe, where the demand for electric vehicles supports sales. BMW estimates that the electric SUV iX3 is on track to surpass 100.000 sales, while the electric sedan i3 also presents strong demand.
However, according to estimates by Bloomberg, the profit margin in the automotive sector is expected to be restricted between 1% and 3%, compared to 5.3% in 2025. If these forecasts are confirmed, BMW risks becoming the least profitable large European automotive industry.
Mercedes-Benz: A century of history facing the greatest challenge
Mercedes-Benz, one of the most recognizable brand names in the world, is also at a critical turning point. A century after the founding of Daimler-Benz, the company is called upon to redefine its identity in an era where luxury is no longer determined solely by build quality, but also by software, technology, and electromobility.
The brand value of Mercedes-Benz, according to Interbrand, has fallen from over 60 billion dollars to about 50 billion dollars within two years, while Toyota has overtaken it in the relative ranking.
The greatest challenge comes from China, where companies like BYD, Xpeng, Huawei, and Xiaomi offer electric vehicles with advanced software and lower costs. Mercedes, which for decades relied on the prestige of German engineering, is now called upon to compete with companies with much faster development cycles.
The financial results capture the pressure. Adjusted operating profits, adjusted EBIT, decreased to 4.8 billion euros, from 8.7 billion euros previously, while the total profits of the group fell from 13.7 billion euros to 8.2 billion euros.
The company responds with one of the largest model renewal programs in its history, with more than 40 new or renewed vehicles up to 2027. At the same time, it invests in a new software architecture, electric models, and reduction of complexity.
However, the pressure is now reaching the inside of the company as well. According to reports, Mercedes is examining the suspension of a scheduled bonus for approximately 90.000 workers, while increasing the weekly working time from 35 to 40 hours without a corresponding salary increase is even being discussed.
The workers are reacting strongly, arguing that competitiveness cannot be restored through a greater burden on the personnel, but requires investments, innovation, and the development of new products.
The great battle of Europe against China
The crisis of the German automotive industries is part of a broader European challenge. China has acquired a significant advantage in electromobility thanks to state aid, technological development, and economies of scale.
The European Union has already imposed tariffs of up to 45% on Chinese electric vehicles, while Germany provides subsidies and financing for the development of battery factories.
However, many analysts warn that without deeper reforms, Europe risks losing its leading position. As has been pointed out, the future of the German automotive industry will depend on its ability to reduce costs, accelerate innovation, and compete in a market where software and technology have become just as important as the engine itself.
The era during which "Made in Germany" constituted a guarantee of supremacy by itself seems to be ending. The next chapter of the German automotive industry will be judged by whether the historic giants can adapt quickly to the new global reality.
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