China is to blame: German automakers are losing profits
Well-known German brands report an impressive decrease in operating profit for 2025. However, they still play a significant role in the global automotive industry. What happened to the Mercedes-Benz business model, why Porsche fell out of love in China and what role anti-Russian sanctions play here — in the Izvestia article.
They earn less from each car.
The Volkswagen Group's operating profit in 2025 amounted to 8.9 billion euros, which is 54% less than a year earlier. Mercedes-Benz Group is also in serious negative territory — €5.8 billion (-58%).
At the time of writing, the BMW Group had not yet published its full-year results. For the three quarters, the company's operating profit amounted to €8 billion, a decrease of 9.1% compared to the same period last year.
At the same time, the sales results of the listed German manufacturers do not look like a disaster. BMW has become the most popular premium brand, with 2.17 million cars sold worldwide in 2025 (-1.4% by 2024). This is followed by Mercedes-Benz with 1.8 million (-9%) and Audi with 1.62 million cars (-2.9%). Porsche cars sold up to 279 thousand cars minus 10%. Vehicles of the more popular Volkswagen brand were sold to 4,730,600 vehicles (-1.4%).
The combined sales of BMW and VW groups, taking into account all the brands included in them, were at the level of last year, and only the Mercedes-Benz Group showed a decrease of 10%.
Trump, China, and the Green Transition
In general, German car companies performed well in Europe, with only Mercedes-Benz and Porsche in the red. Automakers blame the cost of US customs duties, as well as a significant drop in sales in the Chinese market, for the reduction in operating profits.
Despite the fact that sales of BMW, VW and Audi electric vehicles have shown global growth, hopes for an early electrification of transport have not materialized. Porsche had to rethink its strategy in favor of reducing the development of electric vehicles and returning to internal combustion engines. It cost the German company over €3 billion. As a result, the operating profit of Porsche AG for 2025 dropped dramatically — by 92.7%, to €413 million.
— The most alarming thing here is that unit sales have not fallen as dramatically as profits. This suggests that the business model itself has broken down: Germans are spending more and more, and earning less from each car sold," Irina Frank, CEO of Frank Auto, told Izvestia. China is at the epicenter of this crisis, she noted.
Faced with fierce competition
In previous years, China was the largest market for BMW, Mercedes-Benz and Audi. However, in 2025, the three brands collectively managed to sell only 260 thousand cars, which is 12.3% less than last year. The fall of Porsche is more dramatic — minus 26% and only 42 thousand cars. The collapsed sales in China are primarily caused by a change in demand — government support programs have revived the mass segment, and the market for premium and luxury cars has declined.
In addition, the luxury of the Chinese buyer is less and less associated only with the German car industry. German automakers are facing fierce competition from local brands offering autonomous driving technologies, ecosystems, electrified platforms and, importantly, a lower price.
This applies not only to the premium segment - sales of mass—produced VW electric vehicles in China in 2025 collapsed by 44.3%, to 115.5 thousand units, unable to withstand competition. In order to reduce the technological gap and regain its position in the Chinese market, the German automotive industry is actively cooperating with local companies.
Switching to Chinese
Back in 2019, Mercedes transferred the production of smart city cars to a Chinese joint venture with Geely. The experiment was considered successful and now the Phoenix platform, which can form the basis of compact Mercedes A-Class, GLA and CLA, will be developed outside Germany using the Geely methodology. This is expected to save both time and money on design. Moreover, such Mercedes are planned to be sold not only in China.
VW opened a $1 billion engineering center in Hefei, Anhui Province, at the end of last year. He plans to invest another €2.5 billion in its expansion. Following the principle of "in China and for China," the Germans plan to create electrified models that meet the tastes of the local market in partnership with several Chinese automakers. It is known that VW plans to introduce over 30 such new products to the Chinese market by 2030, and production of the first model on the XPeng platform is scheduled to begin this year.
VW did the same with its Audi brand. A special AUDI sub—brand has been created for China - in capital letters and without the branded four rings. Its models are created in partnership with the Chinese SAIC on a joint platform. The Germans are responsible for the design and premium feel, while the Chinese are responsible for innovation and the component base. This approach should speed up the process of developing new cars by a third at once.
Chinese models are entering the European market with the help of traditional car brands. BMW, in partnership with Great Wall, has created a separate line of Mini electric models, which are manufactured in China. The only thing they have in common with gasoline cars of the brand is their design. However, an unexpected difficulty arose with the export of these "electric trains" to Europe due to duties. BMW is currently negotiating with the European Commission on how to reduce the impact of duties on the price of cars.
In addition, the Chinese crossover Leapmotor C10 is planned to be sold under the Opel logo in Europe, writes Automotive News Europe. It is available in both electric and hybrid versions. They plan to produce the Chinese Opel in Spain in order to reduce costs.
Earlier, Opel management admitted that the ambitious plan for a complete transition to electric vehicles by 2028 was too optimistic. The development of its own platform for compact cars, STLA Small, was initially frozen, and then it began to be refined for hybrid power plants.
Factories are closing, workers are being laid off
In Germany, things are not going well with the automotive industry. It has become too expensive to produce cars there. In addition, electric vehicles contain much fewer parts than cars with internal combustion engines. Therefore, factories for their production require fewer people than traditional car companies.
In December last year, Volkswagen was forced to close its "Glass Manufactory" in Dresden. She was just engaged in the production of ID electric vehicles.3. They decided to turn the company into an innovation campus, and another car factory in Zwickau was converted to car recycling.
In a letter to shareholders, Volkswagen CEO Oliver Blume said that the company would reduce the number of employees in Germany by 50,000 by 2030, writes Brussels Signal.
VW is going to lay off 35 thousand people. Further cuts are planned at Porsche and a subsidiary of the Cariad software development group. In 2025, Volkswagen Group employed 287,000 people in Germany.
Mercedes promised employees compensation of 100-500 thousand euros for voluntary dismissal, depending on the length of service. Several thousand employees responded to such a tempting offer.
If prompt action is not taken, the German automotive industry may lose 200,000 jobs in the next ten years, warns industry expert Professor Ferdinand Dudenheffer. China, as well as EU countries such as Hungary, attract businesses with low labor and energy costs. Even in the economically strong United States, the hourly rate is lower, the Bild expert quotes. In his opinion, the main reason for Mercedes' poor performance is the large number of severance payments.
Professor Stefan Bratzel notes that the cost of manufacturing German cars is too high, which is difficult to justify their quality. As a result, they are too expensive for the Chinese, and the duties imposed by President Donald Trump make their exports to the United States unprofitable.
The refusal to purchase Russian energy resources resulted in a sharp increase in costs, a reduction in production facilities and personnel in Germany and the EU, as well as the relocation of production facilities to China, Southeast Asian countries, and the United States, Mikhail Khachaturian, PhD in Economics, Associate professor at the Department of Strategic and Innovative Development at the Financial University, told Izvestia.
— German automakers face some of the highest labor costs in the world, a legacy of powerful trade unions and decades of generating large revenues. Attempts to reduce costs by shifting production to countries with cheaper labor have led to a reduction in production in Germany," he said.
The Russian factor
A significant factor in the depressing financial results of German automakers was their withdrawal from the Russian market, Mikhail Khachaturian believes.
— Despite the fact that in 2022 the Russian market accounted for only about 1-1.5% of global sales of German automakers, the withdrawal from Russia led to much more significant losses, which remain relevant for the financial results of the companies to this day. On average, as a result of the withdrawal from Russia, German automakers faced a reduction in revenue in the range from 44 to 47% and an almost twofold reduction in profitability," the expert noted.
With the withdrawal from Russia, German brands have lost their strategic foothold, Irina Frank believes.
— Yes, direct sales accounted for a small percentage of turnover at the time of departure, but the main loss was elsewhere. After leaving the market, the Germans voluntarily gave it to the Chinese for "testing" and gaining experience. Today, Chinese brands are learning to work in Russian climatic and logistical realities, rebuilding dealer networks, and the former German infrastructure has already been redesigned. It will no longer be possible to return to Russia tomorrow simply by delivering ships with cars — the market is busy, and it is getting used to another product, the expert notes.
"The transition of German cars to Chinese platforms is a half—measure, because companies from China will always sell something one step behind what they have," said Anton Shaparin, Vice President of the National Automobile Union (NAS). — Why should they cultivate competitors? For example, Samsung sells screens to everyone but the previous generation.
German automakers should use lobbying efforts to reduce the level of international tension, Shaparin believes.
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