The comeback of the German car manufacturers

German car manufacturers are currently going through a deep crisis, triggered by rapid technological change, the electrification of powertrains and new regulatory requirements to reduce emissions. But these challenges also offer the chance for an impressive comeback. How can the German automotive industry emerge stronger from this situation and usher in a new era of success?

The golden era of the German automotive industry

For decades, the German automotive industry was synonymous with quality, engineering and technological innovation. Brands such as Mercedes-Benz, BMW and Volkswagen set global standards in terms of vehicle technology, reliability and driving experience. These successes were based on dominance in the field of internal combustion engines, outstanding manufacturing processes and deep-rooted engineering knowledge. The focus on hardware, the precision of mechanical systems and excellent production capabilities have long been the main pillars of this success.

But in the last ten years, it has become clear that the former strengths have also made the German automotive industry vulnerable. The technological shift towards electric mobility and digitalization required a completely new approach, faster innovation cycles and a different way of thinking.

The current crisis as a turning point

The switch to electromobility and the increasing importance of software pose major challenges for the automotive industry. While competitors from the US and China, such as Tesla and BYD, are making impressive progress with agile and technology-oriented approaches, German OEMs are struggling to combine their traditional strengths with the new requirements. Electrification, digitalization and new mobility concepts are forcing companies to fundamentally rethink their product development.

First successes and necessary transformations

However, the current challenges also act as a catalyst for necessary changes. Initial successes of German car manufacturers show that investments in electrification and digitalization are paying off. For example, BMW increased sales of fully electric vehicles by 74% to 376,000 units in 2023—a significant step for electric mobility. Nevertheless, a comparison of profitability shows that German manufacturers are lagging behind: While Tesla achieved an operating margin of around 17%, BMW’s margin was around 8%. BYD, a leading Chinese electric vehicle company, also posted impressive numbers with a margin of about 9%.

In order to increase profitability, German manufacturers are implementing various measures. BMW is increasingly focusing on platform strategies to reduce costs and is investing heavily in production automation. Volkswagen has announced that it will increase the efficiency of its production lines through digitalization and focus more on high-margin models. In addition, collaborations with technology companies such as Bosch and Continental are accelerating the development of advanced driver assistance systems. The pressure of regulatory emissions requirements and the potential switch of customers to more innovative competitors make this transformation inevitable.

Policy developments in the EU and their impact

Political developments in the EU also play an important role. The EU’s Fit for 55 program, which aims to reduce CO2 emissions by at least 55% by 2030, is forcing automakers to electrify their fleets faster. High penalties for non-compliant emissions create additional pressure. These policy frameworks create both incentives and challenges to drive innovation in sustainable technologies and electrification.

How German car manufacturers can redefine their strengths

To successfully shape the future, German car manufacturers must combine lessons learned from the past with new approaches to innovation. The following strategic measures are essential:

• Software Defined Vehicles (SDVs): The transition to SDVs is inevitable. SDVs make it possible to continuously improve vehicles through software updates, thus offering unprecedented flexibility. German OEMs must therefore invest more development resources in software competencies and attract IT talent.
• Agile methodologies and strategic alliances: The shift from traditional development processes to agile, iterative methods is another key to the comeback of German automakers. At the same time, OEMs need to rethink their traditional collaborative approaches and increase partnerships with technology companies and startups. The successful market launch of the VW ID.4, one of the best-selling electric vehicles in Europe, was supported by close cooperation with a specialized startup for battery management systems.
• Data-based decision-making and integration of technologies: The use of data is crucial to anticipate future market demands and implement technological developments in a timely manner. Technologies such as machine learning and artificial intelligence offer enormous potential to make vehicles smarter and provide more value to customers. In addition, data-driven production optimization enables a significant reduction in operating costs, which increases profitability.

Securing competitiveness for the future

Sustainability is not only a regulatory requirement, but also a decisive competitive advantage. The first successes are already visible: Audi has significantly reduced CO2 emissions in production by using “green steel”. Volkswagen is investing heavily in the expansion of its own battery cell production. The opening of the Gigafactory in Salzgitter is a concrete step towards reducing dependence on Asian suppliers and gaining control over the value chain in the field of battery technology. Studies show that demand for zero-emission vehicles will rise sharply by 2030, and manufacturers with a comprehensive e-strategy can take advantage of this opportunity to regain market share.

The way back to the top

The current crisis in the German automotive industry is a major challenge, but it also offers the opportunity to make fundamental changes and emerge stronger from them in the long term. The crisis has paved the way for profound changes that were previously unthinkable. Old structures are increasingly being questioned, unions have to make more concessions and long-standing processes are being reviewed to increase flexibility and innovation.

By focusing on software-defined vehicles, using agile methods, data-driven decisions and collaborating with technology companies, German automakers can regain their innovative strength. The path back to the top requires questioning old structures, breaking new ground and further building strengths in vehicle architecture and engineering.