The German automotive industry has long been the backbone of the country’s economy and a symbol of European industrial power. But over the past two years, automotive companies have seen a noticeable decline in production and economic performance.
In the second quarter of 2025 alone, car exports from Germany to China fell by 14% and to the United States by 10%, resulting in total financial losses of around €533 billion.
At the end of the first half of 2025, the profits of the largest corporations fell significantly: Mercedes-Benz by 56%, Volkswagen by a third, and BMW by 29%. Between June 2024 and June 2025, around 52,000 jobs were cut in the German automotive industry, representing 7% of the sector’s workforce. Some experts fear that up to 200,000 jobs could be lost in the long term.
Downtime is being replaced by shift cuts, postponed investments and massive revisions of profit forecasts. This is not a temporary ‘slump in demand’ but a symptom of a profound structural change with important socio-political consequences for Germany and Europe as a whole.
What is the reason for this? Major manufacturers have begun to scale back production of electric car models and introduce downtime at European factories.
Volkswagen, for example, has already suspended work on some EV lines (electric car production lines) in 2025, while other OEMs are noting the need to revise production plans due to a ‘slowdown in demand.’ At the same time, leading suppliers such as Bosch are announcing thousands of job cuts in divisions related to automotive electronics and software. These steps reflect not isolated miscalculations, but systemic stress across the entire value chain.
The decline in production volumes in the German automotive industry cannot be explained by a single reason. The industry is simultaneously under pressure from economic, technological and regulatory factors, which reinforce each other, creating the effect of a systemic crisis.
The first and most obvious factor is the mismatch between the pace of transition to electric transport and actual consumer demand.
As analysts note, despite the ambitious goals of car manufacturers and government incentive programmes, the share of fully electric cars in Europe remains limited. Many buyers still choose hybrid models or postpone buying a new car altogether, fearing high prices and a lack of charging infrastructure. This leads to the accumulation of excess inventory in warehouses and forces manufacturers to temporarily halt production lines for certain electric models.
The second factor is related to slowing demand in key export markets, primarily in China and the United States. Economic instability in China, weakening purchasing power and growing trade barriers, including tariff threats from the US, have sharply reduced the export opportunities for German companies. BMW and other premium brands directly link the revision of their profit forecasts to falling sales in China and rising logistics costs and duties.
These difficulties are compounded by increased competition from Chinese manufacturers, who are rapidly improving the quality of electric vehicles while lowering prices.
Statistics show that Chinese brands have taken strong positions in the mass segment, offering more affordable and technological models. European companies, burdened by higher costs and high quality standards, lose out in the price race, leading to falling margins, lower revenues, and loss of market share.
An equally important factor is the high cost of technological transformation.
Converting factories to produce electric cars, investing in the necessary supply chains, developing software and autonomous systems require huge investments.
In the face of weak demand, companies are forced to revise their investment plans by deferring or reducing spending in order to maintain financial sustainability. Taking this into account, many groups are slowing down the pace of investment by opting for a «liquidity preservation» policy instead of aggressive expansion.
Finally, there is increasing regulatory pressure to reduce CO emissions.
Analysts report that the tightening of European emission standards and the introduction of new targets for 2025 increase the burden on producers. Not everyone is able to adapt production processes to new standards quickly and at little cost.
The violation of the regulations is threatened with serious fines and additional costs, which further undermines the financial balance of the industry. All these factors are interrelated. Thus, falling demand reduces the flow of funds needed for investment in technological transformation; delayed modernization increases the risk of penalties and loss of competitiveness; and growing competition and tariff uncertainty put even more pressure on producers.
Thus, the decline in production does not appear to be a consequence of individual errors, but rather the result of the overlapping of several powerful trends that are simultaneously reshaping the landscape of the European automotive industry.
The German car crisis goes far beyond production indicators, because it affects the foundations of social stability and regional economy of the country. The automotive industry has for decades been not just an economic locomotive, but part of the German identity, providing millions of jobs, a high standard of living, and sustainable tax revenues.
The decline in production and profits in this industry is already creating serious socio-political challenges.
One of the most visible effects is the reduction in employment and the weakening of regional clusters of employment, since road transport provides employment not only on assembly lines but also in a vast network of suppliers, logistics companies and service enterprises.
Any reduction in production automatically leads to shorter working hours, suspension of temporary contracts and layoffs. Particularly vulnerable are the regions where automobile factories form the basis of economic activity: Saxony, Lower Saxony and Bavaria.
Here, car concerns are city-forming enterprises, creating not only direct employment, but also infrastructure, from educational centers to small businesses dependent on factory orders. The loss of jobs in these zones threatens not only an economic downturn, but also a rise in social tensions.
The impact of the crisis on tax revenues and fiscal sustainability is equally worrying, as falling production volumes and reduced profits in the automotive industry lead to lower corporate taxes and social security contributions.
This creates additional pressure on federal and state budgets, which have to compensate for the losses through employment support programs and staff retraining. At the political level, this reinforces the demand of society for the «protection» of the industry and stimulates the growth of populist sentiments in industrial regions where unemployment is perceived as a consequence of the «failed policy of Berlin».
Another aspect of the consequences is the formation of a new political choice – between subsidizing the car industry and its deep restructuring.
The state is faced with a dilemma: whether to support companies with direct financial injections, at the risk of disrupting market competition and facing criticism for «saving corporations», or focus on structural reforms and investments in retraining.
More and more politicians and economists are leaning towards the second option – creating long-term modernization programs and transitioning to new technology chains. Both national and pan-European initiatives to develop the production of batteries, software and components for electric cars are being discussed. However, the implementation of these projects requires considerable resources and time, and therefore political will and public patience.
Thus, the German car crisis becomes not just an economic test, but a test of the country’s social model. It forces policymakers to strike a balance between short-term support measures and strategic economic restructuring, which should ensure that Germany and Europe are competitive in the new industrial era.