The crisis in the German automotive industry: causes, effects and ways out of the misery - Image: Xpert.Digital
From the engine of the economy to a shaky candidate: The German automotive industry under pressure
The German automotive industry, once seen as the backbone of the German economy and a symbol of technological innovation and quality, is facing one of the greatest challenges in its history. The industry is faced with a variety of structural, technological and geopolitical difficulties that seriously threaten its future viability. This text highlights the central causes of the crisis, its effects and possible solutions to keep this key industry competitive in the long term.
1. Missed transition to electromobility
1.1. Late rethinking and missed opportunities
The German automotive industry has stuck to traditional combustion engines for a long time. While companies like Tesla and numerous Chinese manufacturers invested in electromobility early on, German brands like Volkswagen, BMW and Mercedes-Benz reacted hesitantly. A main reason for this was the strong focus on exporting successful combustion engine models, which underestimated the need for transformation. “We missed the transition to electromobility,” an industry expert recently aptly commented.
1.2. Weak demand for electric vehicles
Although Germany is now strongly represented in the electric segment with models such as the VW ID.3 or the BMW iX, demand remains below expectations. The reasons for this include the elimination of government purchase bonuses, high acquisition costs and a patchy charging infrastructure. At the same time, Chinese manufacturers like BYD benefit from lower production costs and technologically advanced vehicles that are particularly competitive in Europe.
2. High production costs and declining competitiveness
2.1. Cost-intensive location Germany
Production costs in Germany are significantly higher than in other countries due to high energy prices and wages. Entry-level models that generate low margins can hardly be produced profitably under these conditions. German manufacturers are therefore concentrating on the premium segment, which makes access to high-growth markets more difficult.
2.2. Low capacity utilization of the plants
The average capacity utilization of many production facilities is around two-thirds, which affects the efficiency of the plants and increases the fixed costs per vehicle. This situation further exacerbates the cost problem and makes German brands less competitive.
3. Strong international competition
3.1. Dependence on China
China has long been a central growth market for German car manufacturers. Brands such as Audi and BMW enjoyed great popularity among the growing Chinese middle class. But Chinese manufacturers have caught up massively. BYD, Nio and Geely are increasingly dominating the domestic market and are now also attacking European markets. The market share of German manufacturers in China has fallen significantly.
3.2. Technological residues
Another weak point of the German auto industry is the slow development of digital technologies. Functions such as autonomous driving systems or innovative infotainment solutions, which are standard at Tesla or Nio, are often less sophisticated in German models. Software development, a crucial competitive advantage in the future, has long been neglected by German companies.
4. Economic and geopolitical factors
4.1. Weak economic situation in Europe
The economic situation in Europe is putting a significant strain on the automotive industry. Consumer restraint and a weak economy are causing many consumers to postpone major purchases such as buying a new car. This particularly affects German manufacturers, whose products are expensive compared to Asian competitors.
4.2. Trade policy risks
International trade relations involve additional risks. In particular, possible punitive tariffs from the USA on German vehicles could have a serious impact on sales in one of the most important export markets. Potential tariffs on Chinese electric cars in Europe could also worsen the situation, as such measures could lead to counter-tariffs and higher production costs.
5. Structural problems and management errors
5.1. Unclear strategies
Many companies in the German automotive industry operate with unclear and contradictory strategies. A constant back and forth between the focus on combustion engines and electromobility has tied up resources and weakened innovative strength.
5.2. Excessive return expectations
After strong profits during the pandemic, many companies have maintained unrealistic expectations for their margins. This pressure on returns has led to excessive austerity measures that jeopardize long-term investments in research and development.
6. Impact of the crisis
The crisis has far-reaching consequences for the entire industry:
Jobs at risk
Around 130,000 jobs are at stake as car production has fallen 23% since its peak, while employment has only fallen 8%.
Suppliers in crisis
Suppliers are also faced with falling orders and rising costs. Many are planning job cuts or restructuring in order to meet the requirements of electromobility.
Loss of meaning
Without a fundamental transformation, the German automotive industry risks a long-term loss of importance on the global market.
7. Export dependency and geopolitical challenges
The dependence on export markets such as the USA and China exacerbates the situation. With a share of around 13%, the USA is the most important market for German car exports, followed by the United Kingdom and China. A re-election of Donald Trump and potential punitive tariffs could significantly reduce the profits of Volkswagen, BMW and Mercedes-Benz. This would further increase pressure on the industry and could require deep cuts.
8. Ways out of the crisis
In order to overcome the challenges and regain competitiveness, far-reaching measures are required:
8.1. Focus on electromobility
Electromobility must be consistently expanded. This includes both the development of affordable entry-level models and the development of a comprehensive charging infrastructure. Collaborations with technology companies could help strengthen digital skills.
8.2. Increased efficiency
Production processes must be optimized to reduce costs. This can be achieved through automation, moving parts of production abroad or closing inefficient plants.
8.3. Diversification of markets
German car manufacturers should reduce their dependence on individual export markets and open up new growth regions. Markets in Africa and South America offer potential that has so far remained largely untapped.
8.4. Promoting innovation
Long-term investments in research and development are essential. German manufacturers have to catch up, particularly in the areas of software, autonomous driving and sustainable mobility solutions.
Focusing on electromobility, digitalization and increasing efficiency
The crisis in the German automotive industry is a complex interplay of missed trends, structural problems and geopolitical risks. Without radical change, the industry is at risk of massive loss of importance. Nevertheless, the challenges also offer opportunities: With a clear focus on electromobility, digitalization and increasing efficiency, German manufacturers can not only secure their position, but also open up new markets and once again take a leading role as a driver of innovation. However, there is no time to waste.
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