State support has never been more important for the survival of Germany’s auto industry. Thursday’s AutoSummit (“Auto Summit,” in English) – a high-level meeting of political leaders, automotive executives and unions in Berlin – took place at a moment of deep crisis as the sector faces stagnation, mass layoffs and a difficult transition to electric vehicles (EVs).
Once leaders in engineering and brand reputation, companies like Volkswagen, BMW and Mercedes-Benz now lag behind Chinese rivals in software innovation and EV adoption. China’s BYD, Nio and other companies are aggressively expanding into the European market, offering cheap, tech-savvy EVs.
US President Donald Trump’s protectionist policies have also dealt a blow to Germany’s major export sector.
Merz supports delay in ban on diesel/petrol
Showing that the government is willing to stand with the auto industry in difficult times, German Chancellor Friedrich Merz said after the summit that he would make “every possible effort” to lift the EU’s planned ban on sales of new internal combustion engine vehicles starting in 2035.
The measure, introduced in 2022, would impose heavy fines on automakers that fail to reduce carbon emissions. Germany’s conservatives have dubbed it a “straitjacket” on automakers’ competitiveness. The ban is currently under review by the European Commission amid intense lobbying by the auto sector.
Merz said that, in talks with Brussels, he would “advocate for broad technological progress towards climate neutrality, but not with a date on the calendar that we cannot meet, that is unrealistic.”
Consumer confidence in EVs is key
Craig Mellie, chief strategy officer at Cox Automotive Research House, told DW that Merz risks undermining confidence in the EV transition by asking for a delay.
,In these uncertain market conditions consumers need clarity, not ambiguity,” Meli said. “While some express concern that the 2035 deadline is stifling innovation, consumers need certainty that electric transportation is the technology of choice.”
Sander Tordoir, chief economist at the London-based Center for European Reform (CER), told DW that Merz’s protection of gasoline and diesel-engine cars is a “sideshow” to the much bigger threat facing Germany’s auto sector.
“It’s hard to argue that a 10-year time horizon is the reason behind Germany losing half of its net car exports over the past 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 could single-handedly withdraw EU law so easily. German media reported that Thursday’s summit is likely to agree a deal to allow hybrid vehicles 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 an extension of tax breaks on EVs to help revive consumer and fleet demand. The rebate was scheduled to expire on January 1, 2026, but according to the draft law, it is now set to be extended until the end of 2030, with early EV buyers receiving the biggest benefits.
Earlier on Thursday, Merz announced an additional €3 billion ($3.5 billion) in subsidies to support electric vehicle purchases by middle- and low-income households.
“The obvious step is to restore subsidies for the purchase of electric vehicles, which Germany cut at the end of 2023, then to coordinate those subsidies across the EU,” CER’s Tordoir said, referring to effective rebates of up to €7,500 ($8,750) on the purchase of a new EV. “There is a huge lack of capacity and demand for European car manufacturing across the continent. And so we need to work on the demand side.”
german business daily Handelsblatt It was reported on Tuesday that Berlin wants to combine support for the auto industry with aid for the domestic steel sector, allowing carmakers to reduce CO2 targets 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 crisis facing Germany’s auto industry has been described as a multicrisis, marked by slowing EV sales, fierce Chinese competition, rising US tariffs, higher energy and labor costs and structural shifts toward electromobility.
In the first half of 2025, Mercedes-Benz’s profits fell 56% to €2.7 billion, Volkswagen’s operating profit fell by a third to €6.7 billion, while BMW’s pre-tax profit fell 29% to €4.02 billion.
European car exports to China, mainly driven by Germany, fell 42% in the first half of the year, while exports to the US fell 13.6% in the same period, according to Eurostat, the EU statistics agency.
According to a report by global consultancy EY, the sector lost around 52,000 jobs, or 6.7% of its workforce in Germany, from June 2024 to June 2025.
The struggle has also spread to German auto parts suppliers, with almost half of those surveyed by the German Association of the Automotive Industry (VDA) describing their current situation as “bad” or “very bad”.
Nearly two-thirds of suppliers said they planned to cut jobs, while nearly 80% intended to delay, relocate abroad or cancel planned investments. The survey published this week found that almost no plans to increase investment because they do not expect business conditions to improve in the near term.
EU demands boost, strong response to China?
Speaking ahead of the summit, Tordoir called for greater attention from Berlin and Brussels to boost 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 is to develop your own [European] The market, which is still very large and has the potential to generate more demand than currently exists,” he told DW.
For example, France 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 45.3% EU import duties, although most manufacturers have negotiated much lower duties.
Some industry watchers believe the EU should adopt a global strategy to stem the flood of Chinese EVs that benefit from heavy subsidies by Beijing. He says this can be achieved by leveraging strong relationships with other top automakers in the world such as Japan, South Korea, the United States and the United Kingdom.
“Our major export markets are also our allies,” Tordoir said. “The US and UK are very important markets for German and European car manufacturing. So there is potential to create measures that will really move the needle.”
Meanwhile, Cox Automotive’s Malley warned against downplaying the threat of Chinese automakers solely as a “low-cost alternative.”
,Their offer extends to a large portion of the market across ICE [internal combustion engine] and electric vehicles, ranging from city cars to luxury SUVs. Their design and technology have generated a high level of interest among younger drivers, who are perhaps less concerned with the brand’s heritage,” he said.
German auto sector down but not out
Despite many challenges, car production in Germany is not over yet. With the right mix of policies and strategic investments, many experts believe the industry can buy the time it needs to adapt, innovate and remain competitive in a rapidly evolving global market.
For example, Tordoir believes that the European car industry “has some work left to do, but it is not that Europe shows no potential in building the cars of the future. Essentially it is worth providing some support to stay in the race and correct the transition,” he concludes.
Edited by: Uwe Hessler