Cost efficiency beats vision – Customer loyalty beats hype – Why the USA and China need to be careful – Image: Xpert.Digital
German brands, strong service networks: a competitive advantage in saturated markets
The Tesla Illusion – A New Era in the Automotive Industry
What happens when heroes fall and the rules of the game change completely? The electric car industry is experiencing its most dramatic turning point since the invention of the automobile itself. Tesla, once the invincible disruptor, is suddenly grappling with the same problems as any 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 the technology, but in the fundamental shift in market dynamics. Tesla suffered a dramatic loss of market share 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 plummeted to just 1.1 percent, while sales figures simultaneously collapsed 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 phone to smartphone, Tesla now seems to be missing the transition from the pioneering phase to the mass market phase.
How could Tesla fall from the top so quickly?
The reasons for Tesla's decline are multifaceted and demonstrate that even technology leaders are not immune to market forces. 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 the product strategy. Tesla has barely expanded its model portfolio – the most recent addition was the Cybertruck, which, however, fell far short of expectations with only 9,019 registered units in 2024. While Tesla focused on autonomous taxis and robots, the company neglected the development of new, affordable models.
Added to this are the polarizing political statements by CEO Elon Musk, which particularly damaged the brand image in Europe. These factors exacerbated the company's already existing structural problems.
What makes BYD different – and why is its Chinese competitor also fighting?
BYD, long considered Tesla's toughest competitor, is experiencing a similarly difficult period in 2025. The Chinese electric car manufacturer had to lower its sales targets for 2025 by a substantial 16 percent, from 5.5 to 4.6 million vehicles. Net profit plummeted by almost 30 percent in the second quarter to 6.4 billion yuan – the first quarterly decline in over three years.
The reason lies in the relentless price war in the Chinese domestic market. BYD itself fueled this battle with price reductions of sometimes more than 30 percent starting in May 2025. These price wars systematically destroy the profit margins of all involved and force manufacturers into a vicious cycle of falling prices and dwindling profits.
The situation is particularly problematic for plug-in hybrids, where BYD has traditionally been strong. PHEV sales have plummeted by 22.69 percent, and this decline has been ongoing for five months.
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How can 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 topped the 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 a significant milestone.
German manufacturers benefit from three crucial advantages that Tesla and BYD lack. First, they have a comprehensive service network that guarantees genuine customer proximity. While new providers like Lucid have to develop innovative mobile service concepts, BMW, Mercedes, and VW can rely on established structures.
Secondly, German manufacturers have mastered the complex art of mass production while simultaneously ensuring quality. This decades-long experience is now paying off as the market transitions from the pioneering to the volume phase. German premium manufacturers are focusing specifically on their strengths – BMW still achieves a profit of almost €4,800 per car, Mercedes €3,960.
Thirdly, German manufacturers score points with a broad model range that covers diverse customer needs. VW plans 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 is becoming the decisive differentiating factor in the 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 complemented by manufacturer-independent providers like ATU, which offer multi-brand compatible diagnostic tools and qualified technicians for high-voltage systems.
The complexity of modern electric vehicles further increases the importance of service. Customer loyalty is no longer solely based on the product itself, but 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 customer relationships.
Innovative service providers like Lucid are experimenting with mobile service hubs that come directly to the customer. However, these approaches are expensive and difficult to scale, while established manufacturers can optimize their existing structures.
How does the price war change the rules of the game in the industry?
The brutal price war in the electric car industry reached a new dimension in 2025. The average EBIT margin of the major manufacturers plummeted from 7.5 to just 4.3 percent. On average, manufacturers now only make a profit of €1,673 per vehicle – a decrease of 43 percent compared to the previous year.
This trend is further intensified by the EU's stricter fleet-wide CO2 emission limits. Manufacturers must increase their electric car sales to avoid penalties, leading to a price war in the second half of 2025. Thomas Peckruhn of the German Association of the Automotive Industry (ZDK) 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 it is no longer the most innovative technology that wins, but rather the one who can deliver quality at competitive prices.
What does the cost-efficiency revolution mean for the future?
The shift from an innovation phase to a cost-efficiency phase marks a fundamental transformation in the automotive industry. While German plants have the highest personnel costs worldwide – an average of $3,300 per vehicle compared to just $597 in China – they compensate for this through higher productivity and a focus on the premium segment.
Currently, 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 shows.
German manufacturers are pursuing a technology-neutral approach. BMW is investing in hydrogen technology and synthetic fuels in parallel, 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 decide 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 a growth to a saturation phase. Loyal customers are less price-sensitive and generate recurring revenue. Especially in challenging times, such as those currently affecting the automotive industry, maintaining existing customer relationships becomes vital for survival.
German manufacturers have structural advantages here. Their established brand names enjoy worldwide trust, and their service networks enable long-term customer relationships. According to IBM studies, almost half of all consumers (48 percent) consider the vehicle brand, combined with a good understanding of the customer, to be highly relevant throughout the entire vehicle lifecycle.
Digitalization opens up new possibilities 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 could production flexibility be the deciding factor?
The ability to flexibly produce different models and drive systems is becoming a decisive competitive advantage. German manufacturers can use their existing plants for both combustion engine and electric vehicles, while pure electric car manufacturers are more vulnerable to market fluctuations.
VW exemplifies this flexibility: The company produces exclusively electric vehicles in Emden, while other plants handle both drive types. This diversification helps to optimize capacity utilization and respond to market fluctuations.
Experience in mass production pays off particularly well when scaling up. German manufacturers have spent decades learning how to efficiently organize complex production processes while maintaining high quality standards. This expertise becomes increasingly important as the market evolves from niche products to high-volume models.
What challenges remain for German manufacturers?
Despite their favorable market position, German manufacturers face significant challenges. High production costs in Germany – reaching up to $8,000 per vehicle in some plants – necessitate continuous efficiency improvements. Between 2014 and 2024, passenger car production in Germany already declined by 27 percent.
The transformation requires massive investments: BMW has poured over ten billion euros into the development of its "New Class," while VW is planning more than 100 billion for electromobility and software. These sums strain balance sheets and necessitate a successful market launch of the new models.
At the same time, German manufacturers need to expand their software expertise to compete with tech companies. VW's first ID models were criticized for their sluggish software – a problem that newer generations must address.
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 smartphones. 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 appears 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 sustainable.
However, Tesla differs from Nokia in one crucial aspect: the company still has time to react and possesses considerable financial resources. The question is whether Tesla will seize this opportunity or continue to focus on peripheral areas such as autonomous robots.
Will VW become the 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 vehicle range.
The strategy is clear: VW is leveraging its strengths in mass production and volume sales to challenge Tesla and other competitors. With models like the planned ID.2 for under €25,000, VW is targeting market segments that Tesla has so far 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 making their way into the market. Chinese manufacturers like BYD are expanding their presence in Europe despite current problems – 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. Stricter CO2 limits, potential changes in tariffs, and new safety standards can quickly alter market dynamics. Manufacturers who can react flexibly to such changes have a clear advantage.
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What ultimately determines success or failure?
The new phase of the electric vehicle industry is no longer dominated by visionary CEOs or groundbreaking technologies, but by fundamental business factors. 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 grand promises. German automakers have spent decades learning how to produce profitably, build long-term customer relationships, and manage complex supply chains. These competencies are now becoming their decisive asset.
The market is consolidating, and only the most efficient and customer-focused providers will survive. Tesla must prove it's more than just a well-marketed technology demonstrator. BYD must show that Chinese manufacturers can succeed 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 set: In the automotive industry, the long-term winner is the one who best combines technology, efficiency, and customer proximity.
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