Never has state support been more critical to the survival of Germany’s auto industry . Thursday’s Autogipfel («auto summit,» in English) — a high-stakes meeting in Berlin of political leaders, automotive executives and unions — comes at a moment of deep crisis as the sector faces stagnation, mass layoffs and a rocky transition to electric vehicles (EVs).
Once dominant in engineering and brand prestige, the likes of Volkswagen, BMW and Mercedes-Benz now lag behind Chinese rivals in software innovation and adopting EVs. China’s BYD, Nio and others are expanding aggressively into the European market, offering cheaper, tech-savvy EVs.
US President Donald Trump’s protectionist policies have also dealt a blow to Germany’s dominant export sector.
Merz backs delay to diesel/petrol ban
There are signs that Germany’s government is preparing a robust response to such challenges in the summit with the auto industry.
To help boost the sector’s fortunes, German Chancellor Friedrich Merz has called for scrapping the European Union’s planned ban on the sale of new internal combustion engine vehicles beginning in 2035.
The measure, introduced in 2022, would levy heavy fines on automakers that fail to reduce carbon emissions. Germany’s conservatives have labeled this a «straitjacket» on automakers’ competitiveness. The ban is currently subject to a review by the European Commission amid fierce lobbying by the auto sector.
Merz told broadcaster NTV on Monday that the planned EU ban was «wrong,» adding that «we should not ban: We should enable technologies, and that is my goal.»
Consumer confidence in EVs is key
Craig Mailey, chief strategy officer at Cox Automotive research house, told DW that Merz risks undermining confidence in the EV transition by calling for a delay.
«Consumers need clarity, not ambiguity, within these uncertain market conditions,» Mailey said. «While some express concerns that the 2035 deadline is stifling innovation, consumers need certainty that electric transport is the technology of choice.»
Sander Tordoir, the chief economist at the London-based Centre for European Reform (CER), told DW that Merz’s defense of petrol and diesel-engine cars is a «sideshow» to the much larger threat facing Germany’s auto sector.
«It is hard to argue that a deadline 10 years away is the driving factor behind Germany losing half of its net car exports in the last four years,» Tordoir said. «There’s clearly something else going on here, and that’s China. So there needs to be an industrial and trade policy response to China.»
Tordoir said it was unclear whether Germany alone could roll back EU legislation so easily. German media reported that a compromise was likely to be agreed at Thursday’s summit to allow hybrid vehicles — those with batteries and internal combustion engines — to be sold beyond 2035.
EV subsidies could boost automakers’ fortunes
Ahead of the talks, German Finance Minister Lars Klingbeil announced the extension of a tax break on EVs to help reignite consumer and fleet demand. The exemption was due to expire on January 1, 2026, but is now set to be extended until the end of 2030, according to draft legislation, with those buying EVs earlier receiving the largest benefits.
«The obvious move is to reinstate subsidies to purchase electric vehicles, which Germany cut at the end of 2023, then to coordinate those subsidies across the European Union,» said CER’s Tordoir, referring to an effective discount of up to €7,500 ($8,750) on purchases of new EVs. «There is overcapacity and a lack of demand for European carmaking across the continent. And so we need to work on the demand side.»
German business daily Handelsblatt reported Tuesday that Berlin wants to link auto industry support with aid for the domestic steel sector, which could see carmakers CO2 targets eased if they use European green steel, which is more climate-friendly than steel from China, for example.
Auto sector faces most disruptive year in decades
The woes facing Germany’s auto industry have been described as a polycrisis, marked by slowing EV sales, fierce Chinese competition, escalating US tariffs, high energy and labor costs, and structural shifts toward electromobility.
In the first half of 2025, Mercedes-Benz saw profits plummet 56% to €2.7 billion, Volkswagen’s operating profit fell by a third to €6.7 billion, while BMW’s pre-tax profit dropped 29% to €4.02 billion.
European car exports to China, mostly driven by Germany, plunged 42% in the first half of the year, according to the EU’s statistics agency Eurostat, while exports to the US dropped by 13.6% in the same period.
The sector lost around 6.7% of its workforce in Germany, nearly 52,000 jobs, from June 2024 to June 2025, according to a report by global consultancy EY.
The struggle has also spread to German auto parts suppliers, with nearly half of those surveyed by the German Association of the Automotive Industry (VDA) describing their current situation as «poor» or «very poor.»
Nearly two-thirds of suppliers said they plan to cut jobs, while around 80% intend to delay, relocate abroad or cancel planned investments. Almost none plan to increase investment as they don’t expect business conditions to improve in the near term, the survey published this week found.
Boost EU demand, tougher response to China?
Tordoir called for more attention from Berlin and Brussels to boosting Europe’s auto sector as a whole, noting that France, Italy and Spain were also losing global export market share to China.
«The best way out is to grow our own [European] market, which is still very sizeable and has the potential to create more demand than it currently does,» he told DW.
France, for example, has revised its incentive scheme of up to €7,000 per vehicle to exclude those from non-EU countries, including China, whose EVs are produced with coal-heavy energy. Chinese EVs are also subject to up to 45.3% EU import tariffs, although most manufacturers negotiated a much lower levy.
Some industry watchers believe the EU should adopt a global strategy to cut the flood of Chinese EVs that benefit from huge subsidies by Beijing. They say this can be achieved by leveraging strong relations with the world’s other top automakers, like Japan, South Korea, the United States and the United Kingdom.
«Our key export markets also happen to be our allies,» said Tordoir. «The US and the UK are very important markets for German and European carmaking. So there is the potential to create measures that will really move the needle.»
Cox Automotive’s Mailey, meanwhile, warned against downplaying the threat from Chinese automakers as purely a «low cost option.»
«Their proposition spans a huge portion of the market, across ICE [internal combustion engine] and electric vehicles, from city cars to luxury SUVs. Their designs and technology have drawn a high level of interest from younger drivers who may be less concerned with the heritage of the brand,» he added.
German auto sector down but not out
Despite the many challenges, car production in Germany is far from over. With the right mix of policies and strategic investment, many experts believe the industry can buy the time it needs to adapt, innovate and remain competitive in a rapidly evolving global market.
Tordoir, for example, believes the European car industry has «some catching up to do, but it is not like Europe shows no potential in building the cars of the future. It’s worth providing some support to essentially try to stay in the race and to get the transition right,» he concludes.
Edited by: Uwe Hessler
