Germany’s economy falters for a second year in a row as revered car industry sputters
Once a symbol of excellence, Germany’s flagship auto industry now grapples with rising Chinese competition and slowing demand, weighing on the nation’s economy.
Europe’s largest economy isn’t looking healthy.
Today, Germany reported a second consecutive annual drop in GDP, with high energy costs and rising interest rates constraining growth. At the same time, its iconic automotive industry is grappling with one of its biggest threats in decades: competitors from China, which last year became the world’s largest auto exporter.
Braking bad
This week, a slew of Germany’s top carmakers reported slumping deliveries in 2024. Global sales at Volkswagen, BMW, Porsche, and Mercedes-Benz slipped 2%, 4%, 3%, and 3%, respectively, from the previous year... largely driven by even sharper respective declines in China of 10%, 13%, 28%, and 7%.
That compounds a miserable few years for many of the car industry’s most revered names, having collectively shed hundreds of billions of dollars in market cap, with Volkswagen alone down nearly €100 billion since 2021.
Indeed, Chinese customers are turning away from these luxury European electric vehicles in favor of local brands like BYD — which achieved record sales in 2024 — drawn to their relatively low prices and generous government subsidies. According to the China Passenger Car Association, Chinese automakers now dominate their home market, capturing 70% of sales — a sharp rise from 38% five years ago, when the rest was held by Western rivals.
Meanwhile, car sales in Germany have been sliding for months, particularly in the EV segment after the government phased out subsidies at the end of 2023. According to Germany Trade and Invest, the automotive sector remains central to Germany’s economy, accounting for ~17% of the country’s exports and employing ~780,000 workers in 2023.
