VW’s Struggles Highlight Industrial Decline in Germany

Nothing represents the decline of Germany’s historically dominant vehicle sector as clearly as the troubles facing Volkswagen, one of the pillars that have held up automaking in Germany for decades. Germany has been at the forefront of vehicle innovation in Europe for a long time and was home to the continent’s largest auto industry, but it is now facing headwinds that signal a major decline in German automaking. 

One of the main reasons German carmakers are struggling is the ongoing transition to electric cars coupled with the dominance of Chinese companies. While most Western automakers still sell their EVs at a premium most drivers simply cannot afford, Chinese automakers are developing EVs that are far cheaper than Western alternatives, making them extremely attractive to buyers on a budget. 

European automakers raised the alarm in 2024 after a flood of Chinese-made electric cars began streaming into the continent. Significantly cheaper than any EV Volkswagen or any other Western carmaker has manufactured so far, these vehicles represented an existential crisis for Europe’s carmakers. Most people don’t care who built a car as long as it is affordable and runs well; Chinese EVs typically check these boxes. 

The European Commission responded by levying import tariffs on Chinese-made EVs, but Chinese companies began building local factories and assembling EVs in Europe to avoid them. In early October, EU Trade Commissioner Maroš Šefčovič revealed that the regional bloc and China have signed an agreement that would see imports of Chinese plug-in and full hybrids drop below forecasts by 50%. 

The decision came after Friedrich Merz, the Chancellor of Germany, teamed up with President Emmanuel Macron of France to pressure the EU Commission to take a stand against the threat posed by Chinese EVs. 

The two officials sent a joint letter to Ursula von der Leyen, the EU Commission President, calling for the EU Commission to be granted additional powers to address market distortions caused by countries outside the union. Such powers could even allow the EU to ban companies or whole countries from exporting into the EU market. 

For Volkswagen, a firm that has been in crisis in recent years, these rules represent a critical lifeline. Volkswagen is set to cut tens of thousands of jobs worldwide, with over 30,000 of these positions in Germany. With competition in the German and overall EU markets becoming increasingly fierce, Volkswagen says it cannot guarantee it can use the capacity at its Zwickau, Hanover, and Emden facilities competitively. 

It is a clear sign of decline for Germany’s once-mighty auto industry and a warning sign for other carmakers across the EU. Could the struggles being faced by legacy automakers like Volkswagen give startups like Rivian Automotive Inc. (NASDAQ: RIVN) an opportunity to grow their footprint in Europe? 

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