German carmakers hit a dead end as China drives past

FRANKFURT – After decades of making bumper profits in China, Germany’s carmakers have run out of road and sales have slumped dramatically, forcing painful job losses at home.Volkswagen’s woes in China pushed Europe’s largest carmaker to a €5.8 billion (S$8.3 billion) loss for the three months to end-September.The 10-brand group’s declining fortunes in the world’s largest car market are the main reason behind a historic restructuring drive that could see it shed up to 120,000 jobs by the end of the decade.BMW and Mercedes-Benz are also cutting jobs, and all three have issued profit warnings in 2026.“Nobody was prepared for the swiftness or the violence of the pivot,” Tu Le of Sino Auto Insights told AFP. “The fall for the German automakers has been really abrupt.”The big three German carmakers’ annual vehicle deliveries in China fell about a third between 2019 and 2025 to 3.87 million, according to AFP calculations based on company disclosures.Chinese carmakers’ shares of their domestic market meanwhile rose to 65.3% from 37.8%, according to the China Passenger Car Association (CPCA).‘Disbelief’The rapid fall has come as a shock to Germany, a nation that has regarded itself as a key player ever since Carl Benz invented the motor car in 1886.German carmakers’ rich history meant they were long dismissive of Chinese competition and slow to react, said a former Mercedes-Benz strategy expert who later consulted for BMW.“When I was doing analyses of the market in China there was not appreciation, more a sort of confusion,” she told AFP.“It was coming from a place of elitism, a thought of ‘Oh we’re better’. There was disbelief that others could do things differently.”The German brands meanwhile had to compete with the likes of China’s BYD, which started out making batteries for mobile phones, and Xpeng, founded by software entrepreneur He Xiaopeng.The Chinese government stepped up support for electric vehicles with subsidies and charging infrastructure at the same time.That made Germans’ key strength – long experience in improving internal combustion engines – increasingly irrelevant and perhaps soon obsolete.“What the market demanded was not a skillset they had”, Le said. “The legacy automakers in China were bringing analogue toys to a digital party.”Looking eastGermany’s carmakers have held up better in China’s combustion-engine segment. Volkswagen is the country’s number-one carmaker for petrol and diesel vehicles.But that is a wasting asset in China, where so-called new energy vehicles made up a record 67.8% of sales in October, according to the CPCA, leaving combustion-engine cars looking tired.“In China people associate brands with specific technologies now. If you think of Volkswagen, you think petrol, not electric,” Ingo Speich of Deka Investment, which holds shares in the German carmakers, told AFP.“It’s like after 2007 when Apple invented the iPhone. Nokia started coming out with good smartphones by 2009, 2010, but it was too late, people just didn’t think of them as smartphone-makers.”Germany’s carmakers are now trying to shift engineering east, both to stay competitive in the Chinese market as well as to integrate technologies developed there into cars sold abroad.Volkswagen said a year ago that it could now design cars from start to finish in China at its centre in Hefei.Both BMW and VW have said they hope to export vehicles from China into other parts of the Asia-Pacific region.The low-cost Volkswagen ID.Every1, slated for European launch in 2027, will meanwhile have an electric motor made in China.“You can see us also as a Chinese player”, Volkswagen chief executive Oliver Blume said in July. “We can do the same as the Chinese can do.”Speaking in October, Mercedes-Benz chief executive Ola Kaellenius said the company would overhaul its China strategy, adding that giving up on the world’s toughest but largest market was not an option.“We’re not looking at China as something (like), ‘Oh that’s going away and let’s focus on the other things’,” he said.“There’s not a play where you put China aside.” AFP