What's next for Germany's troubled car giants?

2025 was a record-breaking negative year for German car manufacturers. In addition to tariffs imposed by US President Donald Trump, companies faced billions in costs due to strategic restructuring.

Porsche was hit particularly hard. Rather than sticking exclusively to fully electric models — which fell short of sales expectations — the carmaker is now shifting back to developing new combustion-engine vehicles.

The roughly €3.9 billion ($4.5 billion) cost of this pivot, combined with tariffs, almost entirely erased last year's profits.

Volkswagen and Mercedes-Benz also saw revenues stagnate in 2025, while profits dropped sharply. BMW was a notable exception. While profits at Volkswagen and Mercedes were nearly cut in half, BMW fared significantly better, with a decline in net margin of only about 3%.

Bleak mood in German car industry

Overall, German car companies earned nearly 44% less in 2025 than in 2024.

BMW, Mercedes and the Volkswagen Group together achieved earnings before interest and taxes of just €24.9 billion in 2025 — the lowest level since 2020, according to calculations by the German business daily Handelsblatt.

As a result, the mood in the industry is bleak. However, according to Frank Schwope, an automotive consultant and lecturer at the Cologne University of Applied Sciences for SMEs (FHM Köln), German carmakers are far from facing collapse.

"All of them are still making profits, and dividends are still being paid out," said Schwope. But, he added, "German manufacturers were spoiled by the COVID years from 2021 to 2023, when they posted exceptionally high profits."

That's why it makes sense to compare current profits with those from around 2019.

COVID and the German car industry

In 2018, the three major German car manufacturers — Volkswagen, BMW and Daimler (as Mercedes-Benz was officially called at the time) — generated a combined net profit of just under €30 billion.

A low point came in the first COVID-19 year, 2020, when the three industry giants together made around €16.6 billion in net profit. Still, despite weeks-long factory shutdowns and a massive drop in sales in the spring, the results were significantly better than experts had feared at the start of the crisis.

However, 2021 turned into a record-breaking year, with the three seeing profits soar to over €40 billion. Supply chain issues pushed up car prices, while shortages of chips and components led companies to focus on more profitable premium models.

Car market remains volatile

These ups and downs highlight how volatile the car business is.

"First, I see the technological transformation and its costs; second, structural problems such as overly long decision-making processes; and third, the weakness of the Chinese market," car analyst Jürgen Pieper told DW.

In the case of Volkswagen, the impact of growing competition from domestic manufacturers in China — the world's largest car market — is particularly visible and has hit VW's market share there.

But at the beginning of 2026, a surprising turnaround began to emerge. According to data from China's passenger car association reported by Reuters, VW regained market leadership in the first two months of the year.

With a market share of 13.9% (together with its partners SAIC Motor and FAW Group), VW moved back into first place. It was followed closely by Geely (13.8%) and Toyota (7.8%). 

The shift was largely driven by declining government subsidies for electric vehicles, putting pressure on purely EV makers like BYD, while demand for traditional combustion-engine models from VW and Toyota remained steady.

Car industry remains in flux

Regardless of how good German carmakers perform in key markets like China and the United States, the pressure to adapt remains high.

"Automakers continue to be restructuring projects and will have to review their structures every year. The geopolitical situation, punitive tariffs and new Chinese competitors are not making life any easier," said Schwope.

"In addition, widespread adoption of autonomous driving is expected to start around 2030," he added.

Auto analyst Pieper, meanwhile, said BMW was particularly well positioned, noting that its technological openness had paid off last year.

BMW benefited from not focusing exclusively on electric vehicles and having already completed much of its development spending for new models. It also gained by ramping up production at its Spartanburg plant in the US, which helped it avoid some US tariffs.

BMW's Spartanburg plant in South Carolina builds 400,000 cars a year with over 60% exportedImage: Dreamstime/IMAGO

Schwope is optimistic about Porsche. 

"A luxury manufacturer like Porsche will certainly recover from the crisis faster than a mass-market producer like Renault or Fiat," he said. "A Porsche customer sticks with their car; an Opel customer might switch to a Chinese brand."

German carmakers still on the brink?

Pessimists claim the days of Germany carmakers are numbered, but Schwope disagrees.

"The obituary is premature," he said. "Just a few years ago, Tesla was predicted to have an unbeatable lead, and then Chinese manufacturers suddenly caught up. In addition, solid-state batteries could become a game changer for electric mobility."

German automakers are already investing in this technology. Volkswagen plans to begin mass production of electric cars with solid-state batteries from 2028, while BMW and Mercedes-Benz want to reach that target by 2030.

"There are indeed signs of hope, mainly because the products are improving," said Pieper.

He notes that there hasn't been a sudden breakthrough, describing the progress so far as incremental, a German specialty. However, he emphasized that the changes are sustainable improvements and points to a slow but steady turnaround.

This piece was originally written in German.