German Automakers Feel Pressure in Shifting Market Dynamics

German Automakers Feel Pressure in Shifting Market Dynamics
VW Headquarters, Wolfsburg, Germany (Photo: Volkswagen Group)

German car manufacturers are facing headwinds. The transition to electric mobility and autonomous driving is causing higher costs for the German car industry, while the necessary funds, still coming mostly from sales of combustion engine vehicles, are increasingly uncertain, the international broadcaster Deutche Welle (DW) said in its Sunday article.

While major German car producers such as Volkswagen, Mercedes Benz, and BMW reported satisfactory business figures for the first half of 2023 with increased revenues and higher profits, their outlooks for the remainder of the year have disappointed investors and shareholders. Factors such as inflation, rising interest rates, and a decline in new vehicle demand are dampening the industry's prospects.

Car orders are declining in Germany, especially for battery-powered vehicles, with demand plunging to only about 60% of volumes from the previous year.

Booming Chinese Car Market

China, which holds the position of being the biggest and most significant automotive market globally, is experiencing rapid expansion in its electric car industry, extending its lead not only in new registrations but also in production. At present, China accounts for half of all electric vehicles being driven globally.

Chinese automakers are making significant strides in terms of technological advancements, quickly closing the gap with industry frontrunner Tesla. Chinese car buyers are increasingly favoring domestic brands. China’s biggest carmaker BYD sold 29% more purely electric cars than Tesla in the first half of this year.

VW’s high-end brands Porsche and Audi are also feeling mounting market pressure, as are Germany’s two other luxury carmakers Mercedes-Benz and BMW.

Overall, the Chinese auto market, which includes vehicles with internal combustion engines, Chinese brands are expected to surpass foreign brands in sales for the first time this year, capturing a market share of 51%. Furthermore, projections indicate that this share is set to increase to 65% by the year 2030, according to the Global Automotive Outlook report for 2023 by management consultants, AlixPartners.

In Europe, car sales are expected to continue being around 15% lower than the levels seen before the COVID-19 pandemic. European manufacturers are facing increasing pressure from Chinese electric vehicle manufacturers even in their home markets. Notably, China has overtaken Japan as the leading global exporter of automobiles in the first quarter of 2023. In 2020, it was still in sixth place. The Asian country is advancing as a sales market, as an exporter, and as a production location.

“China is on its way to becoming an automotive superpower,” says Fabian Piontek, AlixPartners’ automotive expert, adding that, "the era of record profits for German automakers is coming to an end."

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