5 Main reasons why German car manufacturers are loosing their ground

Reason #1: Poor Sales in Chinese domestic market

During my masters studies my Marketing Management professor said "If your business runs successfully in China then it can survive in any other country in the world." That stands true for today. Since major sales of all German car manufacturers comes from China. VW's market share reduced to less than 15% first time in decades. The rapid growth of electrification in China slowed the demand of ICE powered vehicles and better alternatives in Chinese domestic market like BYD, NIO to name few.

Reason #2: Delayed eletrification roadmap

German car manufaturers were too much focused and invested on the internal combustion engine technology rather than eletric drive train technologies. The management of major German car brands didn't sense the future and delayed their decision to introduce electric vehicles in their portfolio, where other car manufacturers like Tesla and BYD, NIO invested heavily in the R&D of EV's. Still the German Car manufacturers like Mercedes Benz, Porsche will offer ICE engines along with EV's to their customers.

Reason #3: High production costs and energy crysis

Germany shut down all the nuclear powerplants in April 2023, and relied on the fossil fuels to meet the energy demand. The costs associated with decomissioning of nuclear power plants and higher dependence on fossile fuel made the energy expensive. Running a car manufacturing plant requires immense energy. Addition to this, the war in the eastern europe made it worse, and the energy costs shot up the production costs through roof since March 2022, till now the prices are still not stable in the end of 2024. The labour costs are also high compared to other regions of the world which makes challenging to stay competitive in terms of pricing of the vehicle. Thats why German car manufacturers like VW are shutting down their production facilities in Germany and producing cars in other locations like Asia, Eastern Europe, Africa and South American continents.

Reason #4: Weak demand in Europe

As the whole world is recovering from the pandemic, Europe faced energy crisis and inflation in their domestic markets. With high living costs people were and still are not so keen to purchase new cars. This shrank the demand for new cars and car buyers are moving towards used car market and getting better deals which are financially making sense. German car manufactures over produced due to inaccurate sales forecasts and the inventory of cars is sitting in the yards waiting for buyers. This resulted in overproduction and costs are not recovered from the produced goods.

Reason #5: Intense global competition

Delayed decision to include electric mobility in road map made German car manufacturers laggard in the race. Which they are still not able to match the pace, quality and pricing with other car manufacturers like Tesla, BYD and NIO. German car manufacturers are still struggling with software issues, Electric vehicle platforms, finding reliable suppliers, procurement of parts, electric battery efficiencies, digital features offered by competition like ADAS, car software and its updates. To give you a concrete example, I drove NIO ET 7, they are way to ahead of the electrification game where German cars could not stand at all. The price of NIO ET7 was almost €30.000 cheaper that Mercedes Benz EQS with better features. NIO was just one example reflecting where German car manufacturers stand in terms of competition.

In a nut shell German car manufacturers are struggling due to High Production cost, Over production, Late EV adoption, weak demand in home market and intense competition. The good old days are gone where German car manufacturers enjoyed their market dominance for decades but there is rough time ahead. I hope German cars will bounce back and learn from the past.

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