Germany's automotive industry, traditionally a pillar of its economy, is experiencing a downturn. Car and car parts traditionally account for over 16% of German exports and directly employ around 800,000 people. However, the industry has cut 51,500 jobs between 2024 and 2025, nearly 7% of its workforce, as firms like Volkswagen, Mercedes, and BMW cut costs. This decline is attributed to several factors including shrinking demand, heightened competition from Chinese manufacturers, and high energy costs, with German energy prices for industrial users being three to five times higher than in the US.
The shift to electric vehicles (EVs) has been a major hurdle. German carmakers, having perfected combustion engines, were slower to embrace EVs compared to Chinese companies, which now produce almost ten times as many EVs and offer advanced features like rapid charging. This has allowed Chinese manufacturers to capture a part of the European EV market, impacting German sales significantly. For instance, the number of cars produced in Germany declined from 5.65 million in 2017 to 4.1 million in 2023, while sales of major German brands have also fallen.
Adding to the industry's woes are global economic pressures, increased US tariffs, and the sudden removal of generous subsidies for EV buyers in Germany, which led to a dramatic 27% fall in electric car sales last year. This has left factories like VW's Wolfsburg plant operating well below capacity, producing only 490,000 cars in 2023 against a capacity of 870,000. Lobbying efforts by the industry, as noted by the Association of the Automotive Industry (VDA), have focused on protecting existing products, potentially at the expense of innovation, which some analysts suggest is a "creeping catastrophe" for the country's prosperity.
The situation is particularly dire in regions like Baden-Württemberg, home to Mercedes and Porsche, which saw its economy shrink by 0.4% in 2024, more than the national average. Insolvency proceedings in the state rose by 30% in 2024, the highest since 2010. Economists and union representatives, such as those from IG Metall, are calling for investment in infrastructure like ultra-fast internet, roads, and rail, and highlight that suppliers who invested heavily in electromobility are now struggling due to insufficient demand.
