2025 was a harsh year for Germany’s major automakers. A mix of punitive US tariffs, costly strategic pivots and weak demand in some key markets produced a record decline in profits across the industry.
Porsche was among the hardest hit. After betting heavily on fully electric models that sold below expectations, the company reversed course and restarted development of new combustion‑engine models. That shift — at an estimated cost of about €3.9 billion — plus the impact of tariffs nearly wiped out the previous year’s earnings. Volkswagen and Mercedes‑Benz also reported stagnating revenues and sharply lower profits in 2025, while BMW proved the relative outlier: its net margin fell by only about 3%, whereas Volkswagen’s and Mercedes’ profits were nearly halved.
Taken together, Germany’s three big groups — BMW, Mercedes and the Volkswagen Group — reported earnings before interest and taxes of just €24.9 billion in 2025, the lowest combined level since 2020. Overall industry earnings were almost 44% lower than in 2024, according to Handelsblatt calculations, leaving the sector in a visibly gloomy mood.
Still, observers stress these companies are not collapsing. Frank Schwope, an automotive consultant and lecturer at the Cologne University of Applied Sciences for SMEs (FHM Köln), points out that the manufacturers remain profitable and continue to pay dividends. He notes the industry was spoiled by exceptionally high margins from 2021–2023 and suggests comparing current results with 2019 as a more realistic benchmark.
A short history of swings
The industry has experienced sharp cyclical swings in recent years. In 2018 Volkswagen, BMW and Daimler (now Mercedes‑Benz) jointly generated just under €30 billion in net profit. The pandemic year 2020 saw profits fall to about €16.6 billion amid shutdowns and supply disruptions — still better than many had feared. Then 2021 became a boom year: combined profits exceeded €40 billion, helped by supply shortages that pushed up prices and a shift toward higher‑margin premium models.
What’s driving the current turbulence?
Analysts point to three structural pressures: the costs of the technological transformation to electrification and autonomy, sluggish internal decision‑making, and weakness in important overseas markets — notably China. Jürgen Pieper, a long‑time car industry analyst, summarizes the problem as the high price of transformation plus structural inefficiencies and competitive pressure from Chinese manufacturers.
China, in particular, has been a battleground. As domestic Chinese brands grew and government subsidies for electric vehicles were scaled back, market dynamics shifted at the start of 2026. Reuters‑reported data from China’s passenger car association showed Volkswagen regaining market leadership in the first two months of 2026 with a combined share of 13.9% alongside partners SAIC Motor and FAW Group. Rival Geely was close behind on 13.8%, and Toyota held 7.8%. The change was driven partly by falling EV subsidies that squeezed pure electric makers such as BYD, while demand for traditional combustion models from established players proved more resilient.
How companies are responding
Pressure to adapt remains intense. Schwope says automakers are effectively permanent restructuring projects and will need to review their organizations regularly as geopolitics, tariffs and new competitors reshape the playing field. He also highlights the anticipated widespread adoption of autonomous driving around 2030 as a further structural shift firms must prepare for.
BMW’s strategy has won praise. Analysts credit the firm’s technological openness and its decision not to put all its chips on pure electrification. BMW has completed much of its development spending for upcoming models and boosted local production in the United States at its Spartanburg, South Carolina plant — which builds roughly 400,000 vehicles a year, with over 60% exported — helping it avoid some tariffs and currency risks.
Porsche’s luxury positioning may be an advantage in recovery. Schwope argues that high‑end brands typically rebound faster than mass‑market producers: wealthy customers tend to remain loyal to aspirational marques, while price‑sensitive buyers are more likely to switch to lower‑cost competitors.
Longer‑term bets: batteries and autonomy
A big part of the industry’s future hinges on battery technology. German manufacturers are investing in next‑generation solutions such as solid‑state batteries that promise higher energy density and faster charging. Volkswagen aims for mass production of electric cars with solid‑state batteries from 2028; BMW and Mercedes‑Benz have set targets around 2030. Pieper describes progress as incremental rather than revolutionary so far — a classic pattern of gradual German engineering gains — but he sees these improvements as sustainable and part of a slow, steady turnaround.
Outlook
Doomsday predictions about the end of Germany’s car industry are premature, according to several experts. While risks are real — from tariffs to fast‑moving Chinese rivals and costly technological shifts — the domestic manufacturers still have cash, engineering depth and brands that matter globally. The immediate challenge is managing the cost of transformation, shortening decision‑making cycles and keeping market share in key regions.
If companies execute restructuring, continue investing selectively in new technologies, and adapt their global production footprints, the sector is likely to stabilize and recover, albeit along a different, more competitive path than the one that produced record profits in the recent past.