Germany's automotive crisis 2026: Volkswagen, BMW, Porsche, Mercedes-Benz, and the Mittelstand supplier squeeze

The 2024 OEM scoreboard: a 30 percent profit collapse across the four houses #

Volkswagen AG closed 2024 with operating profit of 19.1 billion euros and net income of 12.4 billion, down from 22.6 billion and 17.9 billion in 2023 per the Volkswagen Annual Report 2024 and March 11, 2025 release. Group operating margin fell to 5.9 percent from 7.0 percent. Brand operating margin at the core Volkswagen Passenger Cars unit landed near 2.9 percent, well below the 6.5 percent target the Performance Programme set for 2026. Deliveries fell 2.3 percent to 9.03 million units. China proportionate operating result fell to about 1.7 billion euros from 2.6 billion as joint venture margin compressed under price competition from BYD, Geely, and Chery.

BMW Group reported revenues of 142.4 billion euros for 2024, down 8.4 percent, and net income of 7.68 billion, down 37 percent against 12.17 billion in 2023 per the BMW Group Annual Report 2024. Automotive EBIT margin fell to 6.3 percent, below the 8 to 10 percent target corridor, with the second half hit by the Continental ZF Integrated Braking System recall on 1.5 million vehicles and by China weakness. BMW group China deliveries fell 13.4 percent to 714,530. Mercedes-Benz Group AG reported revenues of 145.6 billion, and net income of 10.4 billion, down 28 percent against 14.5 billion. Cars segment adjusted return on sales compressed to 8.1 percent from 12.6 percent, below the 10 to 12 percent target. The September 20, 2024 profit warning had already cut full year Cars RoS guidance to 7.5 to 8.5 percent.

Porsche AG delivered 310,718 vehicles in 2024, down 3 percent, with China deliveries falling 28 percent to 56,887. Group operating profit was 5.64 billion euros at 14.1 percent return on sales, down from 18.0 percent in 2023. The April 2025 profit warning cut 2025 guidance to a 6.5 to 8.5 percent corridor, citing about 800 million euros of charges for a slower battery and software roadmap and the United States tariff impact. The four house earnings drop totals roughly 13.5 billion euros of net income destruction in a single year, a reset of the cash engine that has financed German R and D, supplier pricing, and Land tax bases for two decades.

Volkswagen, Wolfsburg, and the IG Metall settlement #

On September 2, 2024 Volkswagen CEO Oliver Blume and CFO Arno Antlitz told the Volkswagen brand workforce that the 1994 employment guarantee would be terminated and that German plant closures were on the table for the first time since the firm was founded in 1937. The company quantified the gap at about 4 billion euros of structural cost takeout for the Volkswagen brand and pointed to roughly 500,000 units of underused European capacity. Reporting around the October works council meeting put three sites under review, with around 35,000 jobs at stake against a German Volkswagen brand headcount of about 130,000.

After five rounds of negotiation and warning strikes coordinated by IG Metall on December 2 and December 9, 2024, the parties reached the Zukunft Volkswagen agreement on December 20, 2024. The package commits to no German plant closures and no operational layoffs until end 2030, with about 35,000 voluntary departures via early retirement, partial retirement, and severance. Capacity in Germany is cut by more than 700,000 vehicles, about 5 percent. The Dresden Glaserne Manufaktur stops assembly by end 2025, and Osnabruck loses the Porsche assembly contract after 2027. The deal defers the 2025 wage increase, with the negotiated 5.1 percent redirected into a fund.

The settlement preserves social peace but constrains the labor cost trajectory just as the brand needs the 4 billion of run rate takeout to defend a 6.5 percent margin by 2026. The brand also carries a 2.4 billion euro restructuring charge from the fourth quarter of 2024, and Cariad absorbed roughly 2.4 billion in operating losses on software. Cariad headcount is being cut by about 30 percent as Volkswagen hands central electronics for the next electric platform to the Rivian joint venture announced in November 2024 and expanded in June 2025.

China: the share collapse and the joint venture margin reset #

The structural shock under the German earnings collapse is the loss of pricing power and share in China, the market that contributed about 40 percent of group profits at Volkswagen, BMW, and Mercedes-Benz between 2018 and 2022. Per CAAM and Volkswagen Group China data, the Volkswagen brand China retail share fell from roughly 19 percent in 2017 to 14.5 percent in 2024, with the FAW Volkswagen and SAIC Volkswagen joint ventures together delivering about 2.93 million units, down 9.5 percent. BYD lifted its 2024 China retail share past 17 percent and Chery, Geely, and Xiaomi together added another 18 points. Battery electric and plug in hybrid vehicles together reached about 47 percent of the Chinese passenger car market by December 2024 per CAAM, where German brand new energy penetration sits in low single digits.

Mercedes-Benz Cars deliveries in China fell 7 percent to 683,600. Porsche fell 28 percent to 56,887, taking China from the brand's largest single market in 2022 to its third largest behind North America and Europe. The earnings translation is severe: Volkswagen group's China proportionate operating result fell from 2.6 billion euros in 2023 to roughly 1.7 billion in 2024, against more than 4.6 billion as recently as 2018. CATL and BYD have reset the bill of materials cost curve for new energy vehicles by about 20 percent over 24 months per Bloomberg NEF teardowns, a gap German OEMs cannot close at their current platform cost base.

The strategic response is two tier. Volkswagen has committed about 2.5 billion euros to the Xpeng partnership announced in July 2023 and expanded in April 2024, with two B segment models on the China for China platform (CMP) for Hefei production from 2026. Mercedes-Benz announced in February 2025 a 14 billion euro programme in China through 2027 anchored on a long wheelbase electric CLA. BMW is pushing the Neue Klasse architecture through Shenyang for a 2026 launch. Porsche is restructuring the China dealer network, with about 30 percent of dealers expected to exit by end 2026.

The Mittelstand supplier squeeze: Continental, ZF, Bosch, and the cluster math #

The German auto supplier base, anchored by 818,000 direct employees per VDA membership data and roughly 270,000 jobs in core Tier 1 firms (Bosch Mobility, Continental Automotive, ZF Friedrichshafen, Mahle, Schaeffler, Brose, ElringKlinger, Hella, BorgWarner Germany, Webasto), entered an open contraction phase in 2024. Continental AG announced on November 22, 2024 the spin off of its Automotive division, to be completed by September 2025, and confirmed about 7,150 administrative job cuts across the group. The ZF Friedrichshafen plan announced July 26, 2024 targets 11,000 to 14,000 German job losses by 2028, with five sites including Saarbrucken and Schweinfurt under review. Robert Bosch GmbH announced cuts of about 5,500 jobs in late 2024 in its Mobility division, with about 3,800 in Germany, and added 5,500 more on January 23, 2025 across software and ADAS units, with operational headcount reductions of about 1,750 at the Hildesheim and Schwaebisch Gmuend Cross Domain Computing Solutions sites by end 2027. Schaeffler closed two German plants in early 2025 as part of a 4,700 person plan, and Mahle disclosed about 1,500 job cuts at thermal management and engine systems sites.

The Bavarian, Baden Wurttemberg, and Niedersachsen labor markets together carry about 70 percent of German automotive direct employment per Destatis Statistik der sozialversicherungspflichtig Beschaeftigten data. Stuttgart Region (the Mercedes-Benz, Porsche, Bosch, and Mahle home), Ingolstadt and Munich (Audi, BMW), and the Wolfsburg, Hannover, Salzgitter, Brunswick triangle (Volkswagen) account for the dense cluster. The combined direct cuts announced through April 2025 total more than 30,000 positions in supplier roles and about 35,000 voluntary departures at Volkswagen, around 60,000 to 70,000 jobs in motion against a 778,000 person OEM and Tier 1 base, before second order effects on Tier 2 and 3 firms across the Sauerland forging cluster, the Bergisches Land electronics sites, and the Saxony machine tool corridor.

Cross border, the German auto cluster reaches deep into Czech, Slovak, Hungarian, and Italian supplier nodes. The Slovak ratio of automotive value added to manufacturing GDP exceeds 30 percent per Eurostat structural business statistics. Czech employment in motor vehicle manufacturing sits near 180,000 per Czech Statistical Office data. Italian Tier 1 and Tier 2 suppliers in Piemonte and Lombardia ship more than 7 billion euros of components to German OEMs annually per ISTAT trade flows. The German production cut therefore propagates as a 4 country shock, with Stellantis Italy already cutting Mirafiori output and Skoda Auto signaling 1,000 fewer Czech temporary contracts in early 2025. The IG Metall pilot deal of November 11, 2024, settled at a 5.5 percent pay rise over 25 months (3.1 percent in April 2025 and 2.4 percent in April 2026) plus a 600 euro one off Inflationsausgleichspraemie, locks in nominal wage trajectory while volume falls.

Trade defense, regulation, and the 2025 Section 232 shock #

On April 2, 2025 the United States announced a 25 percent Section 232 tariff on imported passenger vehicles, with a separate 25 percent tariff on imported automotive parts following on May 3, 2025 per the Presidential Proclamation 10908 and the related Federal Register notice. German vehicle exports to the United States totalled about 36.8 billion euros in 2024 per Destatis Aussenhandelsstatistik (HS 8703), with parts exports adding around 13 billion, putting roughly 50 billion euros of German auto exports inside the new tariff perimeter. Mercedes-Benz, BMW, and Porsche are the most exposed at the brand level: Mercedes-Benz exported about 350,000 units to North America in 2024 from Germany and Hungary, BMW exported about 225,000 units from Spartanburg of which roughly 60 percent are re exported, and Porsche shipped its full United States volume of about 86,000 units from Leipzig, Stuttgart Zuffenhausen, and Bratislava. Porsche carries no United States manufacturing footprint and absorbed the largest first order tariff shock at about 800 million euros in 2025 per the April 2025 profit warning.

Inside the European Union, three regulatory layers compound the cost reset. First, the European Council Regulation EU 2023 851 fleet emission standard mandates a 100 percent reduction in CO2 from new passenger cars by 2035, with the 15 percent step from 2025 onward (CO2 fleet target at about 93.6 g per km from January 2025) creating immediate compliance pressure. The Commission proposal of March 3, 2025 averaging the 2025 to 2027 compliance window relieves the immediate fine risk, with VDA estimating that more than 15 billion euros in potential fleet penalties were at stake before the easing. Second, the Carbon Border Adjustment Mechanism (CBAM) entered its definitive phase from January 1, 2026 covering steel and aluminum used by the auto sector. Third, EU Emissions Trading System Phase 2 (ETS2) bringing road transport fuel into scope from 2027 will pass through fuel cost increases that the European Commission impact assessment estimates at 10 to 50 euros per tonne CO2 in the first compliance years.

China retaliation and EU countervailing duties on Chinese battery electric vehicles add a second front. The EU implementing regulation of October 29, 2024 set additional duties on Chinese BEVs at 17.0 percent (BYD), 18.8 percent (Geely), and 35.3 percent (SAIC), on top of the 10 percent most favoured nation duty. The China Ministry of Commerce response in early 2025 included a provisional 39 percent anti dumping duty on EU brandy and a continued investigation into EU pork and dairy. None of these levers structurally help German EV margins inside China, where the price war is between domestic OEMs.

Macro, Land finances, and the 2026 corridor #

Bundesbank monthly reports through April 2025 confirm German real GDP at minus 0.2 percent in 2024 and project 0.7 percent for 2025 and 1.1 percent for 2026, with downside risk skewed by the Section 232 tariff and weaker capex. The ifo Institute Geschaeftsklima Automobil index sat at minus 30.7 in March 2025, the weakest reading outside the 2008 to 2009 collapse, and ifo's April 2025 employment expectations index for the auto sector hit minus 38.9. Statistisches Bundesamt data show that in 2024 motor vehicles, trailers, and motor vehicle parts contributed about 4.7 percent of German GDP and accounted for about 16.2 percent of manufacturing turnover, the single largest manufacturing branch. Auto and parts exports were 268.4 billion euros, about 16 percent of total German goods exports per Destatis Aussenhandelsstatistik. Every 10 percent volume contraction in the cluster therefore subtracts roughly 0.5 percentage points from German GDP before second order effects.

The Land balance sheets are concentrated. Niedersachsen owns 11.8 percent of Volkswagen AG ordinary shares with 20 percent voting rights through the Volkswagen Law, and Volkswagen pays the bulk of Wolfsburg municipal Gewerbesteuer (trade tax). Bavaria's Quandt and Klatten families hold roughly 47 percent of BMW. Baden Wurttemberg is exposed through the Mercedes-Benz, Porsche, Bosch, ZF, and Mahle headquarters. Stuttgart municipal Gewerbesteuer fell about 11 percent in the 2025 budget projection vs. 2024 actuals, and Wolfsburg projected a 110 million euro deficit in its 2025 budget. The Bundeshaushalt 2025 includes a 1 billion euro auto industry support package focused on charging infrastructure, semiconductor capacity (the IPCEI Microelectronics 2 round and the Intel Magdeburg pause), and EV purchase incentives, after the December 2023 Umweltbonus closure.

Through 2026 the corridor for the German auto cluster is set by four levers. First, China stabilization, where Volkswagen, BMW, and Mercedes are running parallel local for local platforms to recover Chinese new energy vehicle relevance. Second, the United States tariff outcome, where any negotiated quota or transplant route (Mercedes-Benz Tuscaloosa, BMW Spartanburg, Volkswagen Chattanooga, Porsche has none) reshapes 2026 earnings by 5 to 10 percentage points of group operating margin. Third, the IG Metall and Volkswagen labor settlements, where the agreed 5.5 percent pilot pay rise and the 35,000 voluntary departures dictate labor cost trajectory through 2030. Fourth, the supplier reset, where Continental's Aumovio spin off, ZF's Saarbrucken decision, and Bosch's software repositioning either preserve or hollow out the German Tier 1 base. The base case carries a further 50,000 to 80,000 job reduction in the German auto cluster from end 2025 to end 2027, real GDP growth at 0.7 to 1.1 percent in 2025 to 2026 per Bundesbank, and German auto export volumes 8 to 12 percent below 2024 levels in 2025. The upside case requires a United States tariff carve out and a stabilization of Chinese share above 13 percent for the Volkswagen brand. The downside case is a hard Section 232 implementation through 2026, Chinese share below 12 percent, and a second IG Metall round in 2026 that pushes nominal wages above productivity.

Sources #

• Volkswagen AG Annual Report 2024
• BMW Group Annual Report 2024
• Mercedes-Benz Group Annual Report 2024
• Porsche AG Annual Report 2024
• Continental AG Press Release on Aumovio Spin Off
• ZF Friedrichshafen AG, Plan for Germany Restructuring (July 26, 2024)
• Robert Bosch GmbH, Cross Domain Computing Solutions Announcement (January 22, 2025)
• VDA Verband der Automobilindustrie, Jahresbericht 2024
• Kraftfahrt-Bundesamt (KBA), Jahresbilanz 2024
• Statistisches Bundesamt, Aussenhandelsstatistik (2024)
• Deutsche Bundesbank Monthly Report April 2025
• ifo Institute Konjunkturperspektiven April 2025
• European Commission Implementing Regulation EU 2024 2754 on Chinese BEV Duties (October 29, 2024)
• European Council Regulation EU 2023 851 on CO2 Emissions Performance Standards
• Presidential Proclamation 10908 on Section 232 Auto Tariffs (April 2, 2025)
• IG Metall Tarifabschluss Metall und Elektro Industrie 2024
• Volkswagen and IG Metall Zukunft Volkswagen Tarifeinigung (December 20, 2024)
• China Association of Automobile Manufacturers (CAAM), 2024 Annual Statistics
• ACEA New Passenger Car Registrations 2024