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Germany Auto Industry Faces Existential Crisis Amid EV Push

By Amit Kulkarni
3 min read
Will combustion engines survive?

Berlin Pushes Back on EU's 2035 Combustion Engine Ban as Industry Struggles to Transform

Germany's legendary car industry, home to BMW, Mercedes-Benz, Volkswagen, and Porsche, is facing one of the most serious crises in its history.

As the global market rapidly shifts toward electric vehicles (EVs), German automakers are losing ground to aggressive Chinese competitors and struggling to adapt to a future dominated by battery technology.

Now, in a surprising twist, Berlin is challenging the EU's 2035 ban on combustion engines, arguing that hybrids, plug-in range extenders, and synthetic fuels (e-fuels) should remain part of Europe's decarbonization strategy. The move, government officials say, aims to protect jobs and allow more time for transformation.

Key Takeaways

  • Germany is opposing the EU's 2035 ban on combustion engines, advocating for hybrids and synthetic fuels.
  • Chinese automakers are rapidly gaining ground, both in China and across Europe.
  • The transition to EVs threatens millions of jobs, particularly in Germany's vast supplier network.
  • Synthetic fuels may serve niche roles but are not viable for mass-market cars.
  • Experts believe the crisis could ultimately force the German auto industry to evolve, much like it did after past industrial shifts.

An Existential Crisis for German Carmakers

The combustion engine isn't just a car component, it's the ultimate competitive advantage of the German automotive industry.

Losing it overnight would shake the very foundation of this sector.

The numbers paint a stark picture. German automakers have lost significant market share in China, once their biggest growth market, while Chinese EV brands like BYD, NIO, and XPeng are entering Europe with affordable, feature-rich models.

At home, profit warnings and job cuts are becoming increasingly common, especially among suppliers, thousands of whom depend on combustion engine components. A traditional engine contains around 2,500 parts, while an electric motor has just 200, a devastating gap for Germany's vast supplier network.

Synthetic Fuels: Lifeline or Distraction?

Berlin's latest proposal calls for synthetic fuels, produced using renewable energy, to remain legal for new vehicles beyond 2035.

Advocates claim these e-fuels could keep internal combustion engines alive while reducing emissions.

But experts caution that synthetic fuels are energy-intensive and costly, limiting their role to niche markets such as motorsports or aviation. For the mass automobile market, e-fuels are far too expensive. "They can complement the transition, but not replace battery electrics."

Consumer Skepticism Slows EV Adoption

Despite massive investments, EV adoption in Germany remains slow.

Consumers cite range anxiety, high upfront costs, and a lack of charging infrastructure as major deterrents.

Automakers made a strategic error by introducing EVs to their most conservative customer base, the luxury segment.

Instead of targeting new buyers open to innovation, brands like Porsche pushed EVs to their existing clientele. That's the opposite of how breakthrough technologies succeed. This conservative approach, combined with limited charging infrastructure, has created a "perfect storm" of consumer hesitation and industrial stagnation.

Germany's Broader Competitiveness Problem

Even beyond the EV debate, Germany faces deep-rooted economic challenges.

Overregulation, high labor costs, and rigid social standards have eroded competitiveness.

Reinventing Germany is as urgent as saving its auto industry. While Chancellor Olaf Scholz has acknowledged the need for reform, his coalition government, with competing priorities among the Social Democrats and Greens, has struggled to deliver sweeping industrial policy changes.

The Road Ahead: Cautious Optimism

The German car industry has world-class engineers and deep technical know-how.

This crisis might just be the wake-up call it needs to reinvent itself.

Battery electric vehicles will eventually dominate, driven by efficiency gains and falling battery costs. In the long run, there's no alternative. Germany must go through this painful transformation to emerge stronger.

Conclusion

Germany's automotive dominance, built over a century of engineering excellence, now faces its most severe test.

Whether through synthetic fuel compromises, policy flexibility, or a full EV transformation, one truth remains: the future of mobility in Germany, and perhaps Europe, will be decided in this defining decade.