As we enter the new year of 2025, the German economy is still stuck in recessionand the crisis in the country’s most important automotive industry, caused by declining sales of electric vehicles in Europe and falling demand for combustion cars in China, is significantly contributing to the economic slowdown.
The current state of the German car industry is obvious to everyone, but opinions on the causes of this crisis differ.
Where to look for the causes of the crisis in Germany
In the opinion of industry expert Stefan Bratzel from the Center for Automotive Management (CAM), the situation of the German automotive industry is “a combination of difficulties”. The expert told Deutsche Welle (DW) that the German automotive industry is still learning new skills necessary for the transformation towards e-mobility, software-based vehicles and autonomous driving. Moreover, in Bratzel’s opinion, new strong competition has appeared in the industry.
A spokesman for the German Automotive Industry Association believes that Policymakers are partly to blame for the sector’s difficulties, as the electric vehicle (EV) subsidy program was abruptly ended in December 2023. Moreover, consumers became discouraged from electric cars due to insufficient charging infrastructure in Germany.
Ferdinand Dudenhöffer from the think tank Center for Automotive Research (CAR) shares this view and criticizes politicians for sending contradictory signalswho one minute want electric cars and the next promote combustion engines. “It confuses people,” Dudenhöffer told DW.
The future is electric cars
DW notes that it has been clear for several years that The future of the automotive industry lies beyond the traditional combustion engineregardless of what fuel is poured into the tank. The trend in the industry is definitely towards electric carswhich China took advantage of.
As Bratzel notes, German car manufacturers still lead in building conventional cars, but they lag far behind in the production of electric vehicles. In Bratzel’s assessment, the erosion of old paradigms and knowledge is truly tragic because new designs require software and electronic components, not mechanical parts.
Dirk Dohse from the Kiel Institute for the World Economy (IfW) believes thatGerman programmers and engineers are still among the world’s elite, however, the industry lacks the flexibility to attract new groups of tech-savvy customerssuch as young people in Asia.
New rivals are also emerging on the market. Bratzel believes that in the medium term, stronger players will appear in India, modeled on Chinese producers. Many companies from China and Korea are likely to enter India.
High stakes for the automotive industry
According to Stefan Bratzel, 2025 will be a decisive year for the German car industry’s efforts to catch up. “Germany must be at least as innovative as it is expensive,” Bratzel told DW.
Frank Schwope thinks so German car manufacturers still see some hope in the development of cutting-edge batteries, a key element of electric vehicles. Switching to solid electrolyte batteries can be a game changer.
Meanwhile, a study conducted by the Swiss Prognos Institute on behalf of the German Automotive Industry Association (VDA) perfectly illustrates the challenges the German automotive industry faces.
According to the Prognos Institute, If the current trend in the EV sector continues, the number of jobs in the automotive industry in Germany will increase by approximately 186,000 by 2035. lower than in 2019 Between 2019 and 2023, the industry has already lost approximately 46,000. jobs, and another 140,000 will probably disappear by 2035.
Difficult challenges for 2025
Even if policymakers create more favorable conditions and German carmakers regain competitiveness, the industry will take time to recover, Bratzel warns.
Dohse from IfW, however, predicts that the situation in the industry may get even worse before it improves. “I think 2025 will be a very difficult year for the German car industry and it will also be a year in which setting the right course for the future will be essential,” Dohse said.
However, in Ferdinand Dudenhöffer’s opinion, much will depend on how the markets develop in the United States, where Donald Trump has not yet decided whether he wants to return to the era of combustion engines, and in China.
Frank Schwope believes there is a glimmer of hope for German carmakers as he expects currently sluggish electric vehicle sales in Germany and Europe to accelerate in 2025 or 2026 at the latest.
