German automakers are facing their deepest crisis in decades, squeezed by collapsing sales in China and the rise of Chinese brands now preparing to launch an offensive into Europe.
Volkswagen saw its net profit fall 30.7% in the first half of this year, to €3.103 billion, with sales in China dropping 31.6%, wiping out growth recorded in South America and other markets. Mercedes-Benz, meanwhile, posted a 6% drop in profits to €2.519 billion, also hurt by a 30% decline in Chinese sales, while BMW saw its net result fall 28.5% to €2.872 billion after sales in the Chinese market fell more than 30% in the second quarter.
Behind this crisis lies a transformation that began more than a decade ago in the Asian country. For years the primary growth engine for German automakers, China prepared its transition to electric vehicles through industrial policy that secured it a dominant position across the entire value chain, from access to critical raw materials to battery manufacturing.
In 2025, more than half of the cars sold in the Chinese market were new-energy vehicles, either electric or hybrid. That same year, China exported a record 7.09 million vehicles, cementing its position as the world’s largest automobile exporter.
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“Traditional brands are bringing analog toys to a digital playground,” Tu Le, founder of consultancy Sino Auto Insights, told Lusa. “It’s no longer just a car. It’s a technology platform,” he said.
New Chinese models offer autonomous parking, AI-powered voice assistants, advanced driver-assistance systems, and batteries that, in the latest models, promise ranges exceeding 700 kilometers with charging times of around 15 minutes.
“The period when China was copying is over. Innovation is happening here,” acknowledged Jochen Sengpiehl, Volkswagen’s former marketing director in China, in comments to Lusa. For the German executive, the pace of innovation is forcing traditional manufacturers to rethink their strategy.
“We can no longer do everything alone,” he admitted, referring to Volkswagen’s partnership with Chinese manufacturer Xpeng.
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Carlos Martins, director of Portuguese company Sodecia’s factory in northeastern China, believes the main competitive advantage held by Chinese manufacturers lies in their speed of execution. “European companies have very heavy structures. Here they manage to develop and bring new products to market much faster,” he explained to Lusa.
Pressure on foreign manufacturers intensified after Tesla entered the Chinese market in 2019. Tu Le recalled that the catalyst forcing Chinese brands to make a qualitative leap was the opening of Tesla’s Shanghai factory that year. Local production gave the American automaker access to the same subsidies and tax incentives enjoyed by Chinese competitors.
“It was the catfish effect,” the consultant told Lusa, referring to the fish that is one of the largest predators in European and Asian rivers, posing a threat to the survival of several local species. “There were many fat, lazy fish in the lake, but the arrival of a catfish forced them to become stronger.”
Brands like BYD, Xiaomi, Xpeng, Li Auto and Aito are now preparing an international offensive, including a push into Europe’s premium segment. Xiaomi intends to enter Germany in 2027 and become one of Europe’s top five premium brands by the end of the decade, having recruited engineers from BMW, Porsche and Tesla, with autonomous driving as its main differentiator.
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Li Auto is also preparing to enter Europe with its i6 model, while Xpeng aims to export not just electric cars but also humanoid robots and flying cars.
In the first half of this year, Chinese brands already captured 9% of new car sales in continental Europe and 15% in the United Kingdom. Consultancy AlixPartners estimates that share could reach 16% across the European Union by 2030.
“If I were Mercedes-Benz, BMW or Porsche, I’d be worried,” said Tu Le.
Not everyone shares that view. In a speech at the opening of the Beijing auto show in April, Burkhard Weller, president of the German Association of Car Dealers, argued that European consumers’ loyalty to premium brands will continue to serve as an important barrier.
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But even European manufacturers acknowledge that the nature of the competition has changed. “In no other region of the world is the transformation of the automotive industry happening as fast as in China,” said Oliver Blume, Volkswagen’s chief executive. “The Chinese market has become a high-performance hub for us. We have to work harder and faster to keep up with it,” he stressed.
