A VW Golf GTI was observed in a parking lot near the brand tower at the Volkswagen plant in Wolfsburg, Germany, according to Julian Stratenschulte from Picture Alliance. Germany’s automotive industry, historically acclaimed for dependable and innovative internal combustion engine vehicles, is currently grappling to maintain its significance amid the shift to electrification. Prominent domestic manufacturers such as Volkswagen, Mercedes-Benz Group, and BMW have recently issued profit warnings, attributing this to economic challenges and sluggish demand in China, recognized as the world’s largest car market.
These challenges, although not exclusive to Europe’s largest economy, are alongside the potential for historic job reductions and possible plant closures in Germany at Volkswagen. Additionally, the abrupt cessation of Germany’s electric car subsidy program in late 2023 and the country’s inability to prevent European Union member states from approving EU tariffs on Chinese electric vehicles have added pressure. This situation raises concerns about Germany’s diminishing influence over regional policy, a notion that would have seemed unlikely just a few years ago.
The culmination of these factors has sparked fears that the distinguished ‘made in Germany’ label might be losing its shine in the transition away from internal combustion engine vehicles. Rico Luman, a senior sector economist for transport and logistics at Dutch bank ING, suggested that while the German quality label generally retains its value, this alone is insufficient as the automotive world undergoes significant changes. He noted that the essential mix of product, quality, and price remains crucial, yet it is now necessary to focus on new concepts as the model ranges undergo a comprehensive overhaul.
Luman emphasized the importance for German car manufacturers to adapt their product portfolios, alter their organizations, and enhance productivity swiftly to retain the status and relevance they have enjoyed for decades. The shift toward electrification means German automakers need to expand their tech-rich supplies for electric vehicles, particularly concerning batteries, which is an area yet to be fully developed in Berlin.
A spokesperson for Germany’s coalition government did not immediately respond to a request for comment from CNBC. Under Chancellor Olaf Scholz’s leadership, the government is considering support measures for Volkswagen to navigate the cost-cutting phase without resorting to plant closures domestically. Economy Minister Robert Habeck described Volkswagen as being of central importance to the country, as reported by Reuters.
Not everyone shares the concern regarding the future of Germany’s car industry. Sigrid de Vries, director general of the European Automobile Manufacturers’ Association (ACEA), expressed skepticism about the struggles of Germany’s auto sector to adapt to electrification. The ACEA, representing 15 major Europe-based automakers, including Volkswagen, Mercedes-Benz Group, and BMW, suggests that the industry is adapting more rapidly than believed.
De Vries stated that the competencies involved in automaking, which require advanced product production in high volumes, should not be underestimated. The capacity to innovate and master new technologies remains vital. Despite the need for some German automakers to catch up, she believes they are doing so swiftly and maintaining strong brand loyalty.
This week’s Paris Motor Show is seen by some as a potential turning point for Europe’s auto industry. Several carmakers have introduced low-cost electric vehicles in an effort to boost demand and reclaim market share from Chinese brands. BMW, for example, unveiled two budget electric Mini models at the event, aiming to strengthen their position in the emerging market.
Julia Poliscanova, senior director for vehicles and e-mobility supply chains at the campaign group Transport & Environment, highlighted two distinct issues affecting Germany’s auto sector: the consideration for manufacturing within Germany and the distinct needs of globally operating German manufacturers. She stated that the challenges faced by companies like Volkswagen are not entirely due to European regulations and electrification but stem from broader issues, including rising competition from China, patriotic consumer behavior in China favoring domestic vehicles, and overall car sales not returning to pre-pandemic levels.
Poliscanova argued that although mass-market German manufacturers might encounter difficulties, slowing down on electrification—the technology in high demand—is not the solution.
