Germany’s automotive reset

By Markus Baum, Sebastian Gundermann, Felix Mogge and Florian Deichmueller

Germany’s automotive industry is under intense pressure. Its traditional success model is being undermined by weaker global growth and intensifying Chinese competition, combined with high costs and slow adjustment at home. A reset is now required, with the sector needing to streamline its footprint and build a more competitive cost base. With the right strategic decisions, we believe Germany can preserve a sustainably profitable core of automotive value creation. But radical action is needed to make this possible. We examine what the automotive sector needs to do and how the framework conditions for manufacturing must change for Germany to remain competitive.

Germany’s automotive success model is breaking down

For decades, German automotive manufacturers enjoyed a powerful combination of growing global demand and strong margins in China. High factory utilization supported production in Germany, while premium positioning generated disproportionate profits abroad. That model is now breaking down. Regionalization is weakening the export base , and German original equipment manufacturers (OEMs) have seen their share of China’s passenger-car market fall sharply – from 21 percent in 2018 to just 14 percent in 2025. Meanwhile, the strong profits from China that once helped German OEMs sustain weaker profitability elsewhere have largely disappeared and are unlikely to return.

This reversal is being accelerated by the rise of Chinese competitors in Europe, whose share of European registrations rose from 0.1 percent in 2018 to 5.2 percent in 2025 and is forecast to reach 12.1 percent by 2030. Chinese manufacturers are busy expanding with competitive products and aggressive pricing. They are also establishing production in Europe – but, notably, not in Germany.

Germany’s structural disadvantages are becoming harder to absorb

The mounting pressure from abroad is being compounded by structural weaknesses at home. One such weakness is speed: German OEMs have not responded decisively enough to changing conditions, with product development remaining too slow . German manufacturers require 48-60 months to develop a new model, compared with just 18-24 months for Chinese new energy vehicle OEMs.

The second is cost: Chinese manufacturers now enjoy a vehicle-cost advantage of around 30 percent over German OEMs. This cost gap is widened by Germany’s slow adjustment to lower volumes. Thus, German OEM plants were utilized at only around 60 percent in 2025, pushing manufacturing costs to EUR 3,500-5,000 per vehicle, compared with EUR 2,000-2,500 at a European best-cost location. The result? Growing pressure on profitability and employment in Germany.

A smaller but profitable automotive core can remain

Incremental adjustment will no longer be enough. Production capacity must be brought into line with lower volumes, while development cycles need to become much shorter. Underutilized plants will need either a viable alternative use or an orderly closure. The employment consequences will be substantial: Germany’s automotive workforce could shrink by around 200,000 full-time equivalents (FTEs) over the next five years, even under favorable conditions.

Companies cannot deliver this adjustment alone. Germany also needs more competitive framework conditions if domestic manufacturing is to remain viable. The objective is not to recreate the old model of global success, but to preserve a sustainably profitable core of automotive value creation. That core will be smaller than today – with stronger economics and an industrial footprint better aligned with future demand.

Read our study to find out what Germany’s automotive companies and policymakers need to do to preserve a profitable core of value creation in Germany.

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