In Germany, cars are a feature of national identity and symbol of affluence. To some, nothing tastes more like freedom than flooring their Audi at 210km/h on the Autobahn.
For a long time, the ride was smooth. But lately, the industry has run into trouble as the German economy struggles to reinvent itself. Under pressure from growing competition and slowing exports, German carmakers have resorted to cutting costs, with consequences rippling across European supply chains.
Visualisation by Sebastian Gräff.
Germany's export model hits the wall
For decades, Germany's economy thrived on cheap energy, high innovation, and, crucially, exports. But every trade relationship creates dependencies, and those are currently starting to hurt.
When the export model worked, German companies like Volkswagen (VW), Mercedes, and BMW drew a third of their global sales from China. But no longer: “China's car industry has now become equally strong and is competing directly with Germany. This means Germany is exporting significantly less to China,” Philipp Jäger, policy analyst at the Jacques Delors Centre, told The European Correspondent.
Chinese electric vehicle (EV) models are the new frontier in terms of cost, quality, and innovation: they produce almost ten times as many EVs as Germany, and some can charge 400km range in under five minutes. While China was busy mastering them and capturing the European EV market, European (and especially German) carmakers clung to the combustion engines they spent decades perfecting.
Today, it seems they underestimated how fierce the competition would be, even before high energy costs and US tariffs added additional external pressure.
For all the talk of competitiveness, the industry's upheaval also has a human toll. Between 2024 and 2025, the German car industry cut 51,500 jobs, nearly 7% of its entire workforce. As VW and other major firms cut costs, the impacts trickle down to suppliers across Europe.
Having ideas is difficult and expensive. Let's lobby instead!
Faced with these pressures, and an EU deadline banning new sales of combustion engines by 2035, the German car industry turned to a trusted strategy: lobbying.
Car lobbyists are frequent guests in the German government and in the European Commission. The revolving door between German elite politics and boardrooms spins reliably: Eckart von Klaeden went straight from minister in Angela Merkel's chancellery to chief lobbyist at Daimler in 2013.
“Almost every chief lobbyist of the German automotive industry previously held an important government or party position,” Nina Katzemich of the NGO LobbyControl told TEC.
The Association of the Automotive Industry (VDA), Germany's second largest business association, spends around €10 million a year on lobbying – which sounds like a lot, but amounts to just 0.05% of VW's €21 billion R&D budget.
The logic is clear: innovation is expensive and uncertain, whereas lobbying to keep current products on the road is cheap and reliable. In the long run, lobbying to keep outdated technology relevant promises an irresistible return on investment compared to innovation that may unseat decades of investment into those technologies.
When China started competing in the US, this is exactly what happened. The least innovative firms were the strongest lobbies, asking for protections and financial support. Following this logic, German firms will keep pushing for carveouts instead of innovating, and catching up will become impossible.
Nice, it's working! Let's lobby more!
The best example of the car lobby's influence is the 2015 Dieselgate scandal, which exposed VW's extensive cheating of pollution tests: its vehicles emitted ten times more than EU limits allowed.
Civil society accused German and EU regulators of turning a blind eye. In the two years after the scandal broke, car lobbyists met with the German government more than once every two days.
“In the EU Council, Germany acts as an extended arm of the German car industry,” Katzemich said. “Even after Dieselgate, European pollutant limits were allowed to be exceeded for much longer following massive pressure from the industry.”
Since then, the industry has kept busy. They lobbied to weaken the EU's vehicle emission standards, arguing money should go towards EVs instead – then lobbied against EVs. After the 2035 ban on combustion engines was all but a done deal, lobby pressure convinced the German government to block its final adoption.
The Commission ultimately downgraded its emission rules from a 100% to a 90% CO₂ reduction and allows environmentally dubious “e-fuels” to compensate for the rest – a direct request from the industry.
These changes risk undermining progress towards electrification, the very thing needed to compete with China. But the lobby has a solution for that too: through the EU's Automotive Action Plan, carmakers secured fresh import protection from Chinese competitors.
“Every federal government has considered it its duty to shield the car industry from stricter rules,” Katzemich told TEC. Society bears the cost: “We breathe far too much nitrogen on our streets, and transport remains one of the sectors contributing most to the climate crisis. Consumers still can't afford EVs because they are not being produced – at least not by German manufacturers.”
The canary would like a word
German chancellor Friedrich Merz – impressed by Chinese working conditions – recently lashed out at German workers to “simply do a little more,” suggesting work-life balance is the main reason for Germany's stagnation.
The car industry is Germany's canary in a coal mine: a warning sign for the rest of the economy. If you listen closely, the canary has taught us a clear lesson about the real problem. Protecting old technologies rather than investing in new ones and allowing the industry itself to call the shots doesn't work.
It's led to less innovation, losses in competitiveness, more emissions, and job cuts. Besides jobs, research and administration are also increasingly relocated to other countries. “What is lost does not come back quickly. Destroying viable industrial structures unnecessarily is irresponsible,” IG Metall, Germany's largest worker's union, told TEC. “This is a creeping catastrophe for the country in terms of prosperity and resilience.”
If Merz (himself a former Blackrock lobbyist and executive) wants a competitive and innovative German economy, he should listen to more yellow songbirds and fewer lobbyists.
The car industry is the loudest example of Germany's outdated industrial model, but it's not the only one. Across the economy, a pattern of export-dependent industry persists. Even if the lesson towards more innovation, competitiveness, and sustainability is finally learned, all sectors depend on the same crucial input: energy. There, too, Germany has a problem.
Next week, we look at Germany's turbulent energy policy.