①Germany’s automotive industry is facing significant layoffs, with EY estimating that the sector will lose more than 200,000 jobs in the coming years, affecting the entire supply chain; ②Insufficient profitability is the direct cause of the layoffs, as companies like Volkswagen have reported substantial declines in net profits this year; ③Deeper underlying reasons include challenges in the transition to electrification, intensifying competition, U.S. tariff policies… The German government is also a significant factor.
Cailian Press, November 4 (Editor Ma Lan) Germany was once a globally renowned automobile manufacturing powerhouse, nurturing several well-known brands such as Volkswagen, BMW, and Porsche. However, the former glory has faded, and Germany's automotive industry is now facing significant layoffs.
Analysts and industry associations warn that due to declining demand, high production costs, and various challenges in transitioning to electric vehicles, Germany’s automotive industry will face the loss of more than 200,000 jobs over the next few years, impacting the entire supply chain from logistics, steel, to R&D.
According to estimates by the accounting and consulting firm EY, Germany has already lost 245,000 manufacturing jobs since 2019. As of June 2025, the number of layoffs in Germany’s automotive industry in the past year reached 51,500, equivalent to 6.7% of the industry’s total workforce, accounting for approximately half of the layoffs in the manufacturing sector during the same period.
Insufficient profitability is the direct cause of the layoffs. Volkswagen’s recently disclosed financial report shows that in the first three quarters of this year, the group’s net profit was only EUR 3.4 billion, a year-on-year decline of 61.5%, with a loss of EUR 1.072 billion in the third quarter alone. MERCEDES-BENZ GROUP AG UNSP ADR EACH REP 0.25 ORD SHS saw its net profit drop by about 50% in the first three quarters, while BMW declined by 29%.
As one of the cornerstones of Germany’s manufacturing sector, the difficulties faced by the automotive industry have already jeopardized the economic security of the entire country. However, Germany does not seem to have found a clear solution.
New Commitments
On October 9, an automotive summit was held in Berlin, Germany’s capital, attended by political leaders, senior executives from the automotive industry, and union representatives to discuss how to address the crises facing the sector.
German Chancellor Friedrich Merz stated that he would endeavor to repeal the EU’s ban on the sale of new internal combustion engine vehicles after 2035, providing some breathing room for Germany’s fossil fuel-powered cars.
Although this commitment appears to offer a lifeline to Germany’s automotive industry, it remains fraught with challenges and risks, as Merz’s pledge directly contradicts the EU’s carbon neutrality goals, making its realization extremely difficult.
Moreover, this policy reversal also implies that the rapid actions taken earlier by German automakers in transitioning to electrification have been interrupted, leaving the industry in an awkward situation of being 'without a compass.' Frequent changes in policy often signal the beginning of chaos.
Craig Mailey, Chief Strategy Officer at Cox Automotive's research institute, warned that Friedrich Merz’s call to delay the transition to electric vehicles could undermine confidence in the shift towards EVs. Consumers need to be convinced that electric vehicles are the technology of the future.
In response to Merz’s statements, giants Volkswagen and MERCEDES-BENZ GROUP AG UNSP ADR EACH REP 0.25 ORD SHS have cautiously remained silent, emphasizing their commitment to electric mobility. Sources also revealed that Volkswagen does not support the German government or automotive unions’ efforts to postpone the 2035 net-zero emissions target.
How to compete in the electric vehicle market is a question German automakers must address. However, the German government’s attempt to change its approach perhaps reflects the reality that it is unable to provide effective support in the field of electric vehicles.
Lagging behind in the transition to electrification
The reasons for Germany’s automotive industry falling into difficulties may stem from the rise of electric vehicles.
Around 2010, Tesla’s emergence ignited market enthusiasm for electric vehicles. Subsequently, China’s continuous advances in this field accelerated the promotion of electric vehicles. However, during this period, news about European electric vehicles was rarely heard.
As the EU established strategic goals for climate transition, electric vehicles were tied to the EU’s broader energy policy ship, suddenly becoming a reform that Europe’s automotive manufacturing industry had to implement. The problem, however, lies in the fact that the European automotive industry has fallen behind, with too short a window for transition.
Over the past few years, German automakers invested tens of billions of dollars hoping to quickly achieve electrification, but this resulted in two painful outcomes: the massive capital investment limited companies’ strategic flexibility, and the decline in internal combustion engine production led to a significant drop in performance for traditional suppliers reliant on pistons, transmissions, and exhaust systems.
More regrettable is the fact that while German automakers did achieve some success in electrification, their high costs, less appealing designs, and relatively weaker competitive technologies made consumers favor emerging players like Chinese electric vehicles instead.
Mailey once pointed out that the threat posed by Chinese automakers is not only about cost advantages; their product portfolios, design, and technology have also attracted interest from young drivers, who typically do not care about a brand’s heritage.
This warning highlights a core pain point for Germany's veteran automakers: their competitive edge against global manufacturers may now solely rest on decades of accumulated brand image, which is undoubtedly fatal for engineering products sold on technical merits.
Policy Volatility
The decline of Germany’s automotive industry is, to some extent, an inevitable outcome of political instability in Germany. In 2022, the outbreak of the Russia-Ukraine conflict and the rise to power of Germany’s traffic-light coalition government rapidly accelerated the EU’s energy transition.
At the time, the EU invested hundreds of billions of euros to decouple its manufacturing sector from Russian energy and further promote clean energy adoption. However, just one year later, all policy subsidies plummeted drastically. Facing fiscal pressures, Germany canceled subsidies for pure electric vehicles, directly raising consumer purchasing costs and suppressing demand.
In the end, a series of chain reactions led German automakers to waver on their electrification goals and adopt a more cautious approach to investment, ultimately resulting in a negative feedback loop of insufficient demand and supply contraction.
The United States now faces similar issues. The suspension of support for electric vehicles after the Trump administration took office left U.S. EV manufacturers trapped in a situation of weak demand. This demonstrates that policy volatility has significant negative impacts on industrial development. But the story does not end there.
Trade economist Martin Braml pointed out that Germany must establish a reform framework. Key factors include wage costs, especially rapidly rising ancillary wage costs such as social security contributions. Additionally, bureaucracy and red tape have also contributed to rising costs for industrial products.
However, these issues are thorny challenges for highly bureaucratic Germany and even the entire EU. This relates to the organizational structure of the EU and difficulties in distributing interests. More importantly, when governments pursue overly cautious policies, this might be the biggest problem of all.
Internal and external pressures
From the historical development of industry, progress in a field often hinges on fierce competition, failure and consolidation, and rapid technological iteration during mass production. However, the German government's current attitude tends to prioritize stability and comprehensiveness, lacking the boldness for aggressive innovation.
The development of autonomous driving technology may serve as a typical example. Academia and industry in Germany are collaborating to advance autonomous driving technology, aiming to help Germany lead in this technological field. Nevertheless, autonomous driving technology is progressing in Germany in a relatively conservative manner.
Industry insiders point out that one significant factor restricting technological advancement is that, for German manufacturers, employing immature systems for mass production is absolutely inconceivable.
Meanwhile, the German government has approved the testing of Level 4 highly autonomous driving technology, but with the precondition that vehicles operate only on pre-approved routes or under remote supervision. In cities like Munich and Mannheim, where autonomous vehicles are being tested, accident rates have been controlled at a perfect 0%, yet human drivers frequently complain that automated systems are overly cautious and rigid.
Additionally, high car ownership rates, strong lobbying by the taxi industry, and an efficient public transportation network leave little room for new entrants in Germany’s mobility market. Many projects vanish after government funding dries up.
Returning to Germany’s broader automotive strategy, the overall policy of the German government appears inconsistent, taking one step forward and two steps back.
Amidst strong industry opposition, the EU passed anti-subsidy tariffs on Chinese electric vehicles, further increasing electric vehicle prices in the European market and reducing consumer purchasing intent. Meanwhile, under intense pressure from both upstream and downstream players in the traditional internal combustion engine supply chain regarding the 2035 net-zero emissions target, Chancellor Friedrich Merz chose to compromise to ensure the temporary financial security of the sector.
Fatally, while Germany remains indecisive about the best path forward, the U.S. imposed automobile tariffs and implemented a combination of policies aimed at bringing manufacturing back to America, further eroding profitability and investment willingness in Europe’s automotive industry.
According to a survey released in October by the German Association of the Automotive Industry (VDA), nearly two-thirds of suppliers indicated plans to cut jobs, and approximately 80% intend to delay or cancel planned investments, or relocate overseas. Hardly any suppliers plan to increase investment, as they anticipate no improvement in the business environment in the short term.
China has a famous saying: 'Strike while the iron is hot, and the second blow will weaken, the third will fail.' Germany’s automotive manufacturing industry is evidently mired in low morale, with causes tied to factors such as challenges in transitioning to electric vehicles, intensifying competition, and tariffs. However, fundamentally, the inability to unify policy stances may be the core issue.
