Cost efficiency beats vision – customer loyalty beats hype – why the US and China must be careful
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Published on: September 9, 2025 / Updated on: September 9, 2025 – Author: Konrad Wolfenstein
Cost efficiency beats vision – customer loyalty beats hype – Why the US and China must be careful – Image: Xpert.Digital
German brands, strong service networks: Competitive advantage in saturated markets
The Tesla Illusion – A New Era of the Automotive Industry
What happens when heroes fall and the rules of the game change completely? The electric car industry is currently experiencing its most dramatic turning point since the invention of the automobile itself. Tesla, once the invincible disruptor, is suddenly struggling with the same problems as every other manufacturer. At the same time, traditional automakers are preparing to leverage their decades of experience in mass production.
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Why are we currently experiencing the biggest upheaval in the automotive industry?
The answer lies not only in technology, but in a fundamental shift in market dynamics. Tesla lost market share dramatically in 2025 – in Germany, the company fell out of the top ten best-selling electric cars for the first time in years. Its market share in the EU fell to just 1.1 percent, while sales figures plummeted by over 40 percent.
This development is surprising because Tesla was considered the "Apple of the automotive industry" for years. But just as Nokia once missed the transition from mobile phones to smartphones, Tesla now seems to have missed the transition from the pioneering phase to the mass market phase.
How did Tesla fall from the top so quickly?
The reasons for Tesla's decline are complex and demonstrate that even technology leaders are not immune to the vagaries of the market. In the first quarter of 2025, profits plummeted by a dramatic 71 percent to just $409 million. Without the sale of carbon credits, the company would have even posted a loss.
The core problem lies in its product strategy. Tesla has barely expanded its model portfolio—its most recent innovation was the Cybertruck, which, however, fell far short of expectations with only 9,019 units registered in 2024. While Tesla focused on autonomous taxis and robots, the company neglected the development of new, affordable models.
Added to this are CEO Elon Musk's polarizing political statements, which damaged the brand image, especially in Europe. These factors exacerbated the company's existing structural problems.
What makes BYD different – and why is its Chinese competitor also struggling?
BYD, long considered Tesla's toughest competitor, is going through a similarly difficult period in 2025. The Chinese electric car manufacturer had to reduce its 2025 sales targets by a whopping 16 percent, from 5.5 to 4.6 million vehicles. Net profit plummeted by nearly 30 percent to 6.4 billion yuan in the second quarter—the first quarterly decline in over three years.
The reason lies in the relentless price war on the Chinese domestic market. BYD itself fueled this battle with price reductions of more than 30 percent starting in May 2025. These price wars systematically destroy the profit margins of all parties involved and force manufacturers into a vicious cycle of falling prices and shrinking profits.
The development is particularly problematic in plug-in hybrids, where BYD has traditionally been strong. PHEV sales plummeted by 22.69 percent, and this decline has already dragged on for five months.
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How do German manufacturers use this opportunity to their advantage?
While Tesla and BYD are struggling, German automakers are experiencing a remarkable comeback. The VW ID.7 has led German electric car registration statistics for months and was the most successful electric car in Germany in 2025. With 1.5 million ID models delivered, Volkswagen has reached an important milestone.
The German manufacturers benefit from three key advantages that Tesla and BYD lack. First, they have a comprehensive service network that guarantees true customer proximity. While new providers like Lucid have to develop innovative mobile service concepts, BMW, Mercedes, and VW can rely on established structures.
Second, German manufacturers have mastered the complex art of mass production while simultaneously ensuring quality. This decades of experience is now paying off as the market transitions from the pioneering phase to the volume phase. German premium manufacturers are focusing specifically on their strengths – BMW still generates a profit of just under €4,800 per car, Mercedes €3,960.
Third, German manufacturers score points with a broad model range that meets diverse customer needs. VW plans to launch nine new models by 2027, including affordable variants like the ID.2 for under €25,000.
What role does the service network play in the battle for customers?
The service network will become a decisive differentiating factor in this new market phase. While Tesla customers often have to travel long distances to service centers, German manufacturers can rely on a dense network of workshops. This network is supplemented by manufacturer-independent providers such as ATU, which provide multi-brand diagnostic tools and qualified technicians for high-voltage systems.
The importance of service is further enhanced by the complexity of modern electric vehicles. Customer loyalty is no longer built solely on the product itself, but rather on the entire customer experience throughout the vehicle's lifecycle. Studies show that acquiring new customers is up to seven times more expensive than maintaining existing ones.
Innovative service providers like Lucid are experimenting with mobile service hubs that reach customers directly. However, these approaches are expensive and difficult to scale, while established manufacturers can optimize their existing structures.
How is the price war changing the rules of the game in the industry?
The brutal price war in the electric car industry reached a new level in 2025. The average EBIT margin of the major manufacturers plummeted from 7.5 to just 4.3 percent. Manufacturers are left with an average profit of just €1,673 per vehicle – a 43 percent drop compared to the previous year.
This trend is further exacerbated by the EU's tightened CO2 fleet limits. Manufacturers must increase their electric car sales to avoid penalties, leading to a "discount war" in the second half of 2025. Thomas Peckruhn of the German Association of the Automotive Industry predicts massive price reductions and special offers.
Paradoxically, German manufacturers could benefit from this development. Their experience with cost-efficient mass production is becoming more important in a phase where the most innovative technology no longer wins, but rather the one that can deliver quality at competitive prices.
What does the cost-efficiency revolution mean for the future?
The shift from the innovation phase to the cost-efficiency phase marks a fundamental shift in the automotive industry. Although German plants have the highest labor costs worldwide—an average of $3,300 per vehicle compared to just $597 in China—they compensate for this with higher productivity and a focus on the premium segment.
Today, 71 percent of German domestic production comes from the premium segment, compared to less than 50 percent 20 years ago. This strategy makes it possible to remain competitive even in high-wage Germany, as the example of Porsche demonstrates.
The German manufacturers are focusing on technological openness. BMW is investing in parallel in hydrogen technology and synthetic fuels, while Mercedes and VW are continuously improving their electric platforms. This diversification reduces risks and keeps options open.
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Production flexibility is Germany's secret weapon and why strong service networks can now make the difference between victory and decline
How important will customer loyalty be in the new market phase?
Customer loyalty is becoming a critical success factor as the market transitions from growth to saturation. Loyal customers are less price-sensitive and generate recurring revenue. Especially in challenging times like the ones the automotive industry is currently experiencing, maintaining existing customer relationships becomes vital.
German manufacturers have structural advantages here. Their established brand names enjoy global trust, and their service networks facilitate long-term customer relationships. According to IBM studies, almost every second consumer (48 percent) considers the vehicle brand, combined with a strong understanding of the customer, to be highly relevant throughout the entire vehicle lifecycle.
Digitalization opens up new opportunities for personalized services and data-driven customer loyalty. Predictive maintenance and remote diagnostics can enable proactive service offerings, while connected vehicles create continuous touchpoints between manufacturer and customer.
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Why might production flexibility be the deciding factor?
The ability to flexibly produce different models and drive types is becoming a decisive competitive advantage. German manufacturers can use their existing plants for both combustion engines and electric vehicles, while pure electric car manufacturers are more vulnerable to market fluctuations.
VW is a prime example of this flexibility: The company produces exclusively electric vehicles in Emden, while other plants are capable of both drive systems. This diversification helps to optimally utilize capacity and respond to market fluctuations.
Experience in mass production pays off especially when scaling up. German manufacturers have spent decades learning how to efficiently organize complex production processes while maintaining quality standards. This expertise is becoming increasingly important as the market evolves from niche products to volume models.
What challenges remain for German manufacturers?
Despite their favorable market position, German manufacturers face significant challenges. High production costs in Germany—up to $8,000 per vehicle in some plants—force continuous efficiency improvements. Between 2014 and 2024, passenger car production in Germany already declined by 27 percent.
The transformation requires massive investments: BMW invested over ten billion euros in the development of the "New Class," while VW is planning more than 100 billion euros for electromobility and software. These sums put a strain on the balance sheets and require a successful market launch of the new models.
At the same time, German manufacturers must expand their software expertise to keep up with tech companies. VW's first ID models were criticized for their sluggish software—a problem that the new generations must solve.
Is Tesla facing a Nokia moment?
The parallels between Tesla and Nokia are striking, even if they aren't perfect. Nokia dominated the mobile phone market and missed the transition to the smartphone market. Tesla dominated the early electric car market and now risks missing the transition to the mass market.
Like Nokia, Tesla continues to rely on its established technology instead of developing new solutions in a timely manner. The 400-volt architecture of Tesla models already seems outdated compared to the new 800-volt systems of German competitors. These enable significantly faster charging times and demonstrate that technological leadership is not automatically permanent.
However, Tesla differs from Nokia in one important respect: The company still has time to react and has considerable financial resources. The question is whether Tesla will seize this opportunity or continue to focus on sideshows like autonomous robots.
Will VW become an unexpected comeback hero?
VW is showing all the signs of a classic comeback candidate. After years of criticism of its first generation of electric cars, the Wolfsburg-based company has done its homework. The ID.7 dominates the German market, and with nine models planned by 2027, VW is systematically building a broad electric range.
The strategy is clear: VW is leveraging its strengths in mass production and volume business to challenge Tesla and other competitors for the market. With models like the planned ID.2 for under €25,000, VW is targeting market segments that Tesla has previously neglected.
The group's strategy is particularly clever: While VW serves the volume business, Audi and Porsche position themselves in the premium segment. Skoda and Seat cover the entry-level segments. This diversification makes the group less vulnerable to fluctuations in individual market segments.
What new challengers might emerge?
Alongside the established players, new challengers are paving their way into the market. Chinese manufacturers like BYD are expanding their presence in Europe despite current challenges – BYD will open a factory in Hungary in 2025. This local production circumvents EU tariffs and enables competitive prices.
At the same time, tech companies are experimenting with new business models. Mobile service concepts like Lucid's could put traditional service networks under pressure if they can be successfully scaled.
The biggest unknown remains regulation. Tightened CO2 limits, potential changes to tariffs, and new safety standards can quickly change market dynamics. Manufacturers that can respond flexibly to such changes have significant advantages.
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What ultimately determines success or failure?
The new phase of the electric car industry will no longer be dominated by visionary CEOs or groundbreaking technologies, but by fundamental business drivers. Cost efficiency beats vision, customer loyalty beats hype, and production flexibility beats a pure tech mindset.
This shift favors experienced manufacturers with established structures over startups with big promises. German automakers have spent decades learning how to produce profitably, retain customers long-term, and manage complex supply chains. These skills are now becoming their decisive currency.
The market is consolidating, and only the most efficient and customer-focused providers will survive. Tesla must prove that it is more than a well-marketed technology demonstrator. BYD must show that Chinese manufacturers can also be successful outside their home market. And German manufacturers must translate their traditional strengths into the new electric era.
The final chapter of this story has not yet been written, but the rules are clear: In the automotive industry, the winner in the long run is the one that best combines technology, efficiency, and customer proximity.
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