“Germany’s automotive sector is currently undergoing a process of profound transformation,” the Bundesbank writes in its latest Monthly Report. Manufacturers of motor vehicles face major challenges as a result of the transition to e-mobility and changes in international competition, it states.

Production of motor vehicles and motor vehicle parts in Germany peaked in 2017. It has declined considerably since then and, averaged across 2023, was 15% lower than in 2017 in calendar-adjusted terms, the authors of the report continue. In the second and third quarters of 2024, output increased on the quarter. However, at last count, it remained below the previous year’s level.

In particular, the number of passenger cars with an internal combustion engine produced in Germany has fallen sharply between 2017 and 2023 – by just under half. At the same time, exports of combustion engine vehicles fell by roughly two-fifths. During the same period, domestic production and the export of electric cars increased many times over, the Bank’s economists explain. However, this increase was far from enough to offset the decline in combustion engine vehicles.

Sluggish growth in the global automotive market reflected in German production

Global passenger car sales cooled off after 2017 and fell sharply during the pandemic, the Bundesbank’s experts write. This led to a slump in production in Germany, too, as the German passenger car industry is heavily dependent on exports: Around three-quarters of passenger cars produced in Germany are destined to go abroad.

The global market has recovered since then, the experts write; nonetheless, the number of new passenger car registrations worldwide remained around 10% below 2017 levels in 2023.

Rising competitive pressure from China hurting German manufacturers

German manufacturers have recently fallen behind in the important Chinese market, the report explains. This is because, in China, one in two cars sold is already an electric vehicle and Chinese suppliers dominate this segment. German manufacturers only hold very low market shares there, it states. However, falling sales in China also mean few exports of German motor vehicles to China. The authors write that these have declined noticeably since 2023.

In addition, Germany has lost export market shares in many important customer countries for motor vehicles and motor vehicle parts since 2017. The rising competitive pressure from China is probably a contributory factor, the authors explain. China has advanced to the most important exporter of passenger cars in recent years, they say. Chinese electric cars have made their way into Europe, in particular.

The transition to e-mobility requires adjustments on the part of the automotive industry

New registrations of electric cars in Germany fell sharply again in 2023 and also suffered a large drop in 2024. At the same time, the report goes on to explain, new registrations of vehicles with internal combustion engines rose significantly.

According to the Bank’s experts, German car manufacturers are basically well equipped to successfully accomplish the transition to e-mobility. A study finds that this is true in terms of the skilled labour required for the transition and the number of green patents.

One prerequisite for a successful transition to e-mobility is a sufficiently developed charging infrastructure, the report notes. This is an area where further progress will have to be made, it goes on. In addition, a clear economic policy framework is needed that leaves no doubt as to the political backing for the transition, the report concludes.