(MENAFN) Germany’s automotive sector is entering one of its toughest periods in decades, challenged by growing international competitors, a rapid shift to electric vehicles, and a domestic economy struggling to regain momentum.

Volkswagen, BMW, and Mercedes once epitomized Germany’s industrial strength, but their recent earnings reveal falling profits, slowing European demand, and intensifying competition from China’s rapidly expanding EV makers.

The downturn extends beyond production lines. Automobile output in Germany has dropped sharply from 5.6 million units in 2017 to around 3.4 million in 2024, with forecasts pointing to further declines this year. Car manufacturing accounts for roughly one-fifth of German industrial output and about 6% of GDP when the supply chain is included. The sector directly employs some 780,000 people and supports millions more.

This decline coincides with Germany’s weak economic performance. After contracting 0.5% in 2023 and 2024, the economy is expected to grow only around 0.2% this year. Analysts note that economic anxiety has contributed to increased far-right support, particularly in regions heavily reliant on automotive jobs.

China’s growing presence in the global car market has reshaped competition for German manufacturers. Supported by government backing, advanced battery supply chains, and aggressive EV investment, Chinese brands have quickly risen from niche exporters to dominant global players.

AlixPartners analysis shows China became the world’s largest car exporter in 2023, surpassing Japan, and is expected to widen its lead in 2025. Germany, ranked second behind Japan in 2020, slipped to fourth place in 2024, behind China, Japan, and Mexico. Europe could lose up to 2 million sales to Chinese brands in the coming years, with as many as eight excess factories.

The impact is evident in German company earnings. Volkswagen Group – including Skoda, Seat, Cupra, Audi, Porsche, and Lamborghini – saw revenue rise slightly to $276 billion in the first nine months, but net profit plunged from $10.2 billion to minus $3.95 billion, including a Q3 loss of $1.24 billion. Mercedes’ income fell 8% to $114.5 billion, with net profit halving to $4.5 billion. BMW’s revenue dropped 5.6% to $116.2 billion, with net profit down 6.8% to $6.6 billion.

Meanwhile, Chinese competitors surged. BYD’s European sales jumped 248.1%, and SAIC Motors rose 37.3% in the January-September period, compared with Volkswagen’s 4.8%, Mercedes’ 2%, and BMW’s 6%. Analysts note China’s battery expertise and higher factory utilization give it a decisive cost advantage, allowing aggressive European sales despite EU tariffs of 27%-45% on Chinese EVs.

The slowdown also hits major suppliers. Continental’s revenue fell 1.2% to $17 billion, Schaeffler Group dropped 3.8% to $20.5 billion, ZF reported a 10.4% decline to $22.8 billion, and Thyssenkrupp’s sales fell 6% to $28.5 billion. Miguel Lopez, Thyssenkrupp CEO, said, “We are very much feeling the weak market environment in key customer industries such as the automotive, engineering and construction industries.” Hella’s sales dipped 1% to $6.8 billion in the first nine months, with growth concentrated in Asia rather than Europe.

Industry groups highlight global headwinds. The German Association of the Automotive Industry (VDA) said manufacturers continue to innovate, but geopolitical tensions, market isolation, and protectionist policies are weighing heavily. The US 15% tariff on German cars is a particular concern, given the US is Germany’s largest automotive export market, with $42.8 billion in exports in 2024. Rising trade barriers are pushing companies to produce locally, raising costs and reducing the advantages of Germany’s export model.

“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,” the association said.

The VDA emphasized the need to continue manufacturing in Germany and Europe but urged a “change in political course” to maintain competitiveness. “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. It welcomed technology-neutral climate policies and the review of European CO2 fleet limits but stressed decisive government action is now required.

“In Germany, as in Europe, we are experiencing a reality check: climate protection and economic strength must be considered together,” the association said. “Now it is time to act decisively on this insight – reducing bureaucracy, facilitating investment, and enabling growth.”

Safeguarding competitiveness, prosperity, and jobs is essential, the VDA warned, adding that climate protection will succeed only if it is supported by the public.

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