Car crisis | Europe's naive generosity and subsidy madness: Europe pays, China collects

Purchase premiums only for "Made in Europe"! End the subsidies for China

1. Europe must finally take a firm stand in industrial policy to prevent valuable tax revenue from flowing abroad. A crucial tool for this would be so-called "local content" clauses. Specifically, this would mean that government purchase subsidies for electric cars would only be granted for vehicles that can be proven to have been manufactured in Europe. Otherwise, we would be directly financing economic competition from China with our own subsidies instead of strengthening domestic industry and jobs.

Don't be intimidated: Europe must not back down in the face of China's hypocritical retaliatory tariffs and hypocritical WTO lawsuits. Fair trade is not a one-way street.

2. Europe must resolutely counter the systematic and unfair competition posed by China's massive state subsidies. While Beijing circumvents WTO rules with billions in direct aid and legal tax tricks, our markets are flooded with dumping prices and domestic companies are driven to ruin.

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Why is the automotive industry in such a deep crisis?

What is the extent of the current crisis in the German automotive industry?

Within a very short period of time, radical announcements such as Bosch's plan to cut around 13,000 additional jobs in Germany alone by 2030 have alarmed not only employees, but also politicians and the public. These job cuts come in addition to cuts already underway, most recently 11,600 jobs at Bosch worldwide in the mobility sector. In total, the announced cuts amount to over 22,000 jobs at Bosch in Germany. The developments at Bosch are merely representative of an entire industry: According to an EY analysis, the German automotive industry lost over 50,000 jobs in just twelve months – a decline of almost seven percent of total employment in this sector – and no other branch of industry was hit harder. In total, more than 100,000 jobs disappeared in the industry during the same period.

Why is the situation worsening so dramatically now?

The situation is accumulating because various factors interact with each other. The transition to electromobility, a slump in demand, intensified international competition, particularly from China, rising energy prices, and political uncertainty are creating a strain that has been described as a "perfect storm." The industry's transformation—technological, structural, and financial—is being amplified by external shocks and regulatory uncertainty, hitting suppliers and locations with previously stable employment particularly hard.

Causes: Perfect storm of domestic and external factors

Slump in demand and structural change: Why is the order situation so poor and demand collapsing both domestically and abroad?

On the one hand, global car production figures are stagnating, and in Europe, many manufacturers are even reporting a decline in sales volumes. Following the end of the environmental bonus for electric cars, demand in Germany, particularly among private buyers, has plummeted. While at the beginning of the decade, one in four cars was an electric car, the share fell to approximately 17 to 19 percent in 2024. Industry representatives complain that, following the discontinuation of government subsidies, buyer interest has dropped more abruptly than politicians and industry expected. While plug-in hybrids are gaining some registrations, the total number of vehicles is growing more slowly than originally forecast.

Does e-mobility actually reduce business for established players like Bosch?

Yes, because the overall vertical integration of electromobility is lower. Electric motors, batteries, and power electronics are replacing a large part of the complex engine manufacturing and supply chain for combustion engines. Services, service revenue, and aftermarket potential are shifting further toward software and digital offerings. In addition, Chinese suppliers are bringing innovative, software-centric technologies of high quality to market at "China Speed," thereby gaining market share at the expense of traditional German suppliers.

Competition from China as a sustainable game changer: How great is the influence of Chinese companies, and what is their market share?

The state-subsidized triumph of Chinese industry is overwhelming. In China itself, around 70 percent of registrations are for domestic brands. The market share of German manufacturers has fallen from over 25 percent (2019) to around 18 percent (2024).

China's production is experiencing enormous overcapacity: While approximately 24 million vehicles were sold in 2024, according to industry analyses, factories could produce up to 50 million annually. This excess capacity is pushing down global markets as cheap exports. Many of these cars are at least on par technologically, often even leading the way in digitalization, connectivity, comfort, and autonomous driving. Innovation cycles are shorter, the products are more customer-oriented, and generally more affordable.

Is the problem just price competition?

No, there's also the structural weakness in Germany's pace of innovation. While Chinese manufacturers develop a new vehicle to market maturity in just one to two years, German companies often take almost twice as long. Germany also clearly lags behind China and the US in digitalization, infotainment, software services, and autonomous driving functions.

Energy prices and Germany as a production location: What role do energy prices and the regulatory environment play in the worsening of the crisis?

Almost all experts point to Germany's structurally higher energy prices as a significant competitive disadvantage. According to various analyses, energy costs for car production per vehicle in Europe will be between €800 and €1,200 in 2024–2025—several times higher than in China or the USA. Energy-intensive suppliers in particular are coming under additional cost pressure, and it is foreseeable that production will relocate out of the country or investments will be postponed. A number of location decisions for new plants, particularly in battery cell production, are now being rejected in Germany for cost reasons.

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What other regulatory frameworks are hindering the industry?

The criticism is primarily directed at what many stakeholders consider to be overly one-sided and technology-insensitive regulations. The one-sided focus on full electrification and the planned phase-out of combustion engines from 2035 is forcing some manufacturers to adapt their portfolios, even though the market is not yet ready or interim solutions such as hybrid or hydrogen technology could offer advantages. Added to this are stringent bureaucratic requirements, burdens from fleet limits, generally cumbersome investment incentives, and unclear prospects for longer-term framework conditions.

Further shocks: Trump tariffs and looming protectionism – Why are US import tariffs and changes in trade relations playing such a big role recently?

New 25 percent tariffs imposed by the United States on European vehicles, especially on key auto parts, represent a direct attack on the export-oriented business model of German manufacturers, as the US is their most important sales market outside of Europe. At the same time, the demands on regional and local production are increasing: Anyone who wants to sell in the US must create as much added value as possible locally – as explicitly required by the US Inflation Reduction Act. Similar "local content" rules are now being discussed in Europe, for example, as a prerequisite for purchase incentives, specifically to prevent taxpayer money from being diverted to Asia.

Is European industrial policy a self-created problem or a necessary defensive measure?

Opinions are divided. While some representatives see the rapid introduction of "local content" requirements as the only option, others warn of renewed protectionism and counter that innovation and competitiveness do not arise from isolation. One thing is clear: without industrial policy countermeasures, Europe will continue to lose market share.

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Consequences: Domino effect, location risk and loss of trust

How do these developments affect everyday life for employees and companies?

Job losses are already massive and, according to forecasts and studies, will continue. Many medium-sized suppliers and locations in structurally weak regions see their existence threatened by the relocation of value chains and the pressure on margins from OEMs. Expert estimates predict that up to 100,000 jobs could be lost across the entire supply chain by 2030, and a wave of bankruptcies among medium-sized and smaller suppliers cannot be ruled out.

Which areas of the automotive industry are hit particularly hard?

The hardest hit are traditional component manufacturers for combustion engines and mechanical engineering. However, the Power Solutions and Electrified Motion sectors are also experiencing massive cuts. Locations in southern Germany, such as Stuttgart-Feuerbach, Schwieberdingen, and Waiblingen, as well as Bühl and Homburg, are at the center of the restructuring.

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Role of e-mobility and charging infrastructure

What role does the ramp-up of electromobility play and what is the status of the charging infrastructure?

The political and media focus on the transition to e-mobility is enormous, but there are many obstacles: After the end of purchase incentives, demand for electric cars initially collapsed, only stabilizing somewhat from 2025 onwards. The German government has set a goal of providing around one million charging points in Germany by 2030. To date (August 2025), there are around 170,000 public charging points, including almost 40,000 rapid charging points. However, many charging points are currently underutilized, with expansion far outpacing the ramp-up of vehicles. This creates a two-sided dilemma: On the one hand, the expansion of the charging infrastructure is seen as central to the success of the transformation; on the other, there is currently a lack of demand stimulus from purchase incentives or tax incentives.

How many new BEV registrations are there currently and how many are planned for the next few years?

In the first half of 2025, around 250,000 new electric cars were registered in Germany, corresponding to almost 18 percent of all new registrations. For the entire year, experts expect more than half a million new battery-electric cars and up to 800,000 electric vehicles in total. Forecasts assume that eleven million BEVs could be on German roads by 2030.

Criticism of regulation and technology choice

Is the crisis partly “homemade”?

Yes, many voices from business and politics see the overall situation as being exacerbated by a German and European unique approach. A strong one-sided approach to regulation and innovation promotion, coupled with high taxes, levies, and administrative burdens, has weakened the industry's adaptability. Many other countries, such as China, the USA, and Japan, are taking a technology-neutral approach and continue to allow multiple drive concepts. In Germany and Europe, many stakeholders view the commitment to a single drive technology as a mistake that has cost valuable time for transformation and innovation.

What demands are there on politics?

They call for a comprehensive reform of social security systems, a reduction in bureaucracy, targeted location support, and proactive funding of innovation projects related to digitalization, battery production, and charging infrastructure. Furthermore, tax frameworks should be adjusted and "local content" clauses introduced for subsidized vehicles. Policymakers should not dictate technology paths, but rather set CO₂ targets and enable open competition – innovation and market decisions should respond to these.

A key point is also the demand for a European industrial policy approach: Europe must learn to defend itself against unfair competition from China and other regions through regulatory and industrial policy measures, for example by linking tax revenue for purchase premiums to production sites in the EU.

Political failure: inaction despite identifiable problems

Has German politics failed in the looming crisis of the automotive industry?

The criticism of German policy is clear and diverse. As was the case during the coronavirus pandemic, a pattern of political incompetence is evident: Instead of taking early and decisive action, politicians responded to China's systematic subsidy policy with a shrug of the shoulders and a kind of "I don't care" mentality. While the Chinese government, with its "Made in China 2025" strategy, has been specifically promoting key industries with massive state aid for over a decade, thereby building up overcapacities that are now flooding global markets, the German response (and that of the entire EU) has been half-hearted and uncoordinated.

Politicians failed to develop effective countermeasures in a timely manner. Instead of a clear industrial policy response to the Chinese challenge, for years there were only academic discussions about WTO rules and multilateral solutions, while German companies lost market share. Only after the damage had already been done were tentative steps such as anti-dumping tariffs on Chinese electric cars initiated – far too late and with too little effect.

What parallels are there with Corona policy and how does the political responsibility vacuum manifest itself?

Similar to the coronavirus pandemic, a characteristic pattern is emerging: politicians make decisions without adequate impact assessment, then hastily correct themselves when the negative effects become apparent, and subsequently refuse to accept responsibility for the resulting damage. In the coronavirus pandemic, lockdown measures led to massive economic disruption, the consequences of which continue to reverberate today and have weakened the competitiveness of German companies.

This pattern repeated itself in the automotive industry: First, e-mobility was massively promoted with purchase incentives, without providing sufficient charging infrastructure or considering the impact on the domestic industry. Then, the subsidies were abruptly stopped, leading to a collapse in demand. At the same time, foreign manufacturers, especially Chinese ones, primarily benefited from German taxpayer money, while the domestic industry came under pressure to transform.

The majority of citizens have lost confidence in the problem-solving abilities of Germany's top politicians. According to representative surveys, three-quarters of Germans do not believe any politician is capable of solving the automotive crisis. This lack of trust is a reflection of a policy that vacillates between ideological goals and economic reality without developing clear, long-term strategies.

Politicians also refuse to take responsibility for their missteps. Instead of honestly analyzing their own mistakes, they blame external factors such as Chinese competition or unforeseeable market developments. This refusal to take responsibility prevents necessary corrections and reinforces the public's feeling that the political class is disconnected from economic reality.

The systematic subsidy fight: Europe must act against China's unfair competition

What dimensions do Chinese state subsidies reach and why do they pose a fundamental threat to fair competition?

Europe must also take consistent action against China's systematic state subsidies for export-oriented Chinese companies, which constitute blatant unfair competition. The dimensions of this state-sponsored market distortion are alarming: According to recent studies by the Kiel Institute for the World Economy, direct industrial subsidies in China alone amounted to approximately €221 billion in 2019 – equivalent to 1.73 percent of China's gross domestic product, four times higher than in Germany or the USA. In addition, there are hidden subsidies through subsidized intermediate inputs, preferential access to critical raw materials, forced technology transfer, and the systematic preferential treatment of domestic companies in public procurement procedures.

Particularly perfidious: Since 2023, China has increasingly used tax tricks to circumvent WTO rules. While direct subsidies are prohibited under WTO law, tax rebates are not covered by these regulations – a loophole that China systematically exploits. Chinese companies received four times as many tax refunds in 2023 as they did ten years earlier, which effectively has the same effect as prohibited subsidies, but is formally legal. This state intervention means that Chinese manufacturers can offer their products at dumping prices on global markets, building up massive overcapacities – in the automotive industry alone, Chinese factories can produce 50 million vehicles, while only 24 million were sold in 2024.

The impact on European companies is devastating: 64 percent of German companies with Chinese competitors report market share losses, and 75 percent are recording lower profits. A quarter of all German companies face significant challenges due to subsidized Chinese competition. The EU has therefore rightly imposed definitive countervailing duties of up to 38.3 percent on Chinese electric cars and imposed further anti-dumping measures on subsidized Chinese steel products, solar panels, and other strategic goods.

China is responding to these justified protective measures with brazen retaliatory tariffs—ranging from approximately 15.6 to 62.4 percent on European pork—and is hypocritically suing the EU measures at the WTO, while massively violating WTO rules itself. This hypocrisy reveals the true face of Chinese economic policy: concealing systematic rule violations while simultaneously criticizing others for their legitimate countermeasures.

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What should be done now?

What must business and politics do to improve the situation?

The answer is complex:

On the one hand, rapid reforms in social and labor market policy are essential, for example in training and retraining, so that workers can move from shrinking sectors to emerging segments. At the same time, a technology-open, long-term, reliable industrial policy is called for that attracts investment and does not deliberately weaken Germany's export-oriented structure. Finding the right balance between regulation, innovation promotion, cost-conscious location policy, and international competitiveness is the key challenge.

Necessary are:

• Accelerated expansion of public and private charging infrastructure
• Competitive energy prices and targeted promotion of energy efficiency and self-generation
• Promoting innovation in the areas of digitalization, software, batteries, alternative drives and sustainable production
• A reduction in the tax and duty burden, especially for manufacturing companies
• Pragmatic approach to CO₂ targets and flexible fleet limits
• An offensive to develop robust European value chains
• Promoting diversification on both the sales and procurement side
• A targeted European initiative for more local content, especially for eligible vehicles
• Europe must finally take decisive action against the systematic and unfair competition caused by China’s massive state subsidies

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The mood is tense, the challenges enormous – but many experts emphasize that transformation is at the core of the industry's brand. If innovation, location attractiveness, and climate protection can be successfully combined, the automotive industry in Germany and Europe will retain a leading international role. If this fails, further job cuts, a gradual decline in importance, and the hemorrhaging of entire locations are threatened.

The automotive industry is currently experiencing unprecedented upheaval. External shocks and homegrown mistakes are mutually reinforcing each other. In this "perfect storm," fundamental questions about the future direction of the entire industry are at stake. The coming years will show whether adaptation and transformation will succeed—or whether Germany will finally lose its long-standing leadership role in this key industrial sector.

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