The German Automotive Industry in Crisis
The German automotive industry is in crisis. Increasing competitive pressure, an uncertain political future, and bureaucracy lead to declining sales and bleak prospects. Domestic suppliers also feel the effects, with waves of layoffs and bankruptcies making headlines. The industry's transformation towards electromobility is particularly problematic.
While there is now a broad consensus in the expert community that battery-electric vehicles represent the future due to their high efficiency, the shift is challenging for the German industry. Electric cars are far less complex than traditional combustion engines, creating opportunities for new companies to enter the automotive market. Tech giants and startups can now develop vehicles using well-known components like electric motors and batteries that compete on par with German models. More and more brands, especially from China, are entering the market. As the focus of this new generation of cars shifts away from the powertrain, Chinese manufacturers are leveraging their expertise in the software sector, integrating the latest entertainment systems and features that German manufacturers are unable to offer their customers.
China-Speed and Software
"Software-defined vehicles" are a hot topic in the industry. This term describes a car primarily built around its software architecture, and this is where Tesla and Chinese manufacturers excel. The automobile is becoming a rolling smartphone. Over-the-air updates, which allow you to update your vehicle via Wi-Fi like a mobile app and download the latest features, have become the new standard. Unlike German cars, with Tesla and others, you don't have to wait until the next generation of cars. Thanks to their software expertise, updates can be developed and delivered to customers at a high frequency.
And in Germany? The industry is often its own worst enemy. Complex corporate structures and bureaucratic decision-making processes slow down quick decisions and proper responses. Bloated hierarchies stifle development, especially in the software sector. While clear directives and goals are pursued in the U.S. and China, German companies lack the courage to move forward and make decisive choices.
In the end, Price Decides
As a result of sluggish and over-regulated structures in German companies, the prices of local products are also rising. Since electric vehicles are already more expensive than comparable combustion models due to costly batteries, more and more customers are turning to cheaper alternatives. Chinese manufacturers, financially backed by the government in Beijing, are leveraging this advantage to lower vehicle prices. As seen in other industries, China aims to flood the market with affordable products to increase its market share. Tesla, with its innovative developments and efficient production systems, also significantly undercuts the prices of German competitors. This all leads to increasing competitive pressure on German automakers. With more competition and a more comprehensive range of choices for consumers, the market share of individual brands is declining.
To mitigate low-cost competition, the European Union has announced tariffs on the import of Chinese automobiles. However, potential retaliatory measures by the Chinese government could restrict the distribution of European vehicles in China, potentially harming German manufacturers more than helping them.
Uncertain Politics and Future Outlook
The industry is also facing challenges due to the policies of the EU and the German government. One of the key issues is the lack of planning certainty, which is crucial for businesses. Laws and regulations are often changed right up until they are passed, forcing companies to allocate significant resources just to adapt to newly finalized rules on short notice.
These various influences are creating significant pressure on the German automotive industry. Geopolitical factors and the pride of the Chinese population in their newly established automotive sector make it difficult for foreign manufacturers to gain a foothold in the Chinese market. As a result, more German companies are turning to alternative markets like India or are attempting to strengthen their presence in established markets such as the U.S. Due to the increasing competition, German brands will have to share their dominance in the future. German vehicles, however, remain ahead of their competitors in many areas, thanks to decades of accumulated expertise. If companies can streamline their structures and successfully advance in software development, the outlook for a profitable future is promising. Additionally, it is unclear how long unprofitable companies can continue to receive financial support from the Chinese government.
One thing is certain: much like the entry of Japanese automakers in the 1990s, not all major manufacturers will emerge from these turbulent times unscathed. Therefore, the coordination between political frameworks and businesses must improve significantly to secure Germany’s future as an automotive hub. Only in this way can electric vehicles become an opportunity to usher in a new era of German engineering in the automotive industry.
Kerim Ibrisim, Automotive Engineer
The future of the German automotive industry depends on bold decisions. We must leverage our strong position to actively shape the transformation ourselves.
