State support has never been more crucial for the survival of the automotive industry in Germany. An Autogipfel or “automotive summit” between political leaders, sector executives and unions was held this Thursday (10/9/2025) in Berlin, at a time of deep crisis. The sector is facing stagnation, mass layoffs and a difficult transition to electric vehicles (EVs).

Merz supports delaying the ban on diesel and gasoline

German Chancellor Friedrich Merz declared after the summit that he would do everything possible to eliminate the ban planned by the European Union on the sale of new vehicles with internal combustion engines from 2035.

The measure, approved in 2022, would impose heavy fines on automakers that do not reduce carbon emissions. German conservatives have called it a “straitjacket” for manufacturers’ competitiveness.

Consumer confidence in electric vehicles is key

“Consumers need clarity, not ambiguity, in these uncertain market conditions,” Craig Mailey, chief strategy officer at research firm Cox Automotive, told DW regarding Merz’s decision.

“Clearly, there is something else at stake, and it is China. Therefore, an industrial and trade policy response towards China is necessary,” Sander Tordoir, chief economist at the London-based Center for European Reform (CER), told DW. According to Tordoir, it is not clear whether Germany alone could repeal EU legislation so easily.

Subsidies for electric vehicles: boost to manufacturers

Ahead of the talks, German Finance Minister Lars Klingbeil announced the extension of a tax holiday for electric vehicles to help revive consumer and fleet demand. The exemption was due to expire on January 1, 2026, but will now be extended until the end of 2030, according to the bill.

On Thursday, Merz announced an additional €3 billion in subsidies to support the purchase of electric vehicles by low- and middle-income households.

“The obvious measure is to restore subsidies for the purchase of electric vehicles, which Germany cut at the end of 2023, and then coordinate them across the European Union,” Tordoir suggested. “There is excess capacity and a lack of demand for European car manufacturing across the continent. Therefore, we must work on demand,” he explained.

Automotive sector facing the most disruptive year in decades

The problems facing the German auto industry have been described as a polycrisis that includes: slowing sales of electric vehicles, fierce Chinese competition, rising US tariffs, high energy and labor costs, and structural changes towards electromobility.

In the first half of 2025, Mercedes-Benz’s profits plummeted by one percent to €2.7 billion. Volkswagen’s operating profit fell by a third to 6.7 billion euros, and BMW’s pre-tax profit fell 29 percent to 4.02 billion euros.

European car exports to China, driven mainly by Germany, plummeted 42 percent in the first half of the year, according to Eurostat, the EU statistics agency; while exports to the US fell 13.6 percent in the same period.

The sector lost around 6.7 percent of its workforce in Germany, almost 52,000 jobs, between June 2024 and June 2025, according to a report by global consulting firm EY.

Almost half of those surveyed by the German Automotive Industry Association (VDA) describe their current situation as “bad” or “very bad.” Nearly two-thirds of suppliers said they plan to cut jobs, while around 80 percent intend to delay, relocate abroad or cancel planned investments. Almost none plan to increase investment.

Boost EU demand, tougher response to China?

Speaking before the summit, Tordoir called for greater attention from Berlin and Brussels to boost the European automotive sector as a whole: “The best way out is to expand our own (European) market, which is still very considerable and has the potential to generate more demand than the current one.”

Some industry analysts believe the EU should adopt a comprehensive strategy to reduce the flood of Chinese electric vehicles, which benefit from huge subsidies from Beijing, by taking advantage of strong relationships with other major world automakers such as Japan, South Korea, the United States and the United Kingdom.

Despite numerous challenges, car production in Germany is far from over. Many experts believe the industry can buy itself the time needed to adapt, innovate and stay competitive in a rapidly evolving global market.

(rmr/rml)