Germany—the strongest economy in Europe—is facing a crisis. German car manufacturers, hit particularly hard by the economic downturn, are now looking to the upcoming elections for signs of improvement.
The German automotive industry is in deep trouble, anxiously awaiting the results of the snap elections scheduled for February 23. With the economy slipping into recession, the so-called “traffic light coalition” (Social Democrats, Greens, and FDP), which held power until recently, is being directly blamed for several of the industry’s grievances.
Electric Vehicle Subsidies in Question
One major sticking point for automakers is the transition away from combustion engines toward alternative models. Like many experts, independent analyst Jürgen Pieper from Frankfurt notes persistent uncertainty among both carmakers and consumers. The primary reason? A lack of “clear direction in e-mobility.” Politicians initially encouraged electric vehicle purchases, but later policy changes introduced confusion and hesitation.
Dirk Dohse of the Kiel Institute for the World Economy (IfW) echoed similar concerns in an interview with DW, citing “stalled state support for electric vehicles.” In particular, the “sudden removal of the so-called environmental bonus in December 2023” has deepened uncertainty. On top of that, the industry is grappling with “high energy costs and excessive bureaucracy.”
When asked about the biggest challenges facing German car manufacturers, the German Association of the Automotive Industry (VDA) pointed to a fundamental issue: an increasingly hostile industrial environment. This is eroding companies’ global competitiveness. The trend is especially worrying: “Germany consistently ranks low in international comparisons of industry-friendly conditions.”
High Energy Costs and Industrial Attractiveness
The attractiveness of Germany as an industrial hub is critical. The VDA is now calling on both Berlin and Brussels to take action to restore the country’s global competitiveness. Experts interviewed by DW emphasize the need for “cheap energy, fewer regulations and bureaucracy, and a more competitive tax system.”
IfW economist Dirk Dohse also pointed to the European Union’s role: “Climate targets come from the EU, and the federal government has only limited influence over them.”
Moreover, Dohse sees the industry itself as partly responsible for the current crisis: “The necessary structural adjustments were delayed for far too long, causing profit margins to shrink considerably. German companies took too long to partner with strong software firms.” The result? German carmakers lack a true market-leading electric vehicle.
A Call for Charging Infrastructure
Dirk Dohse insists that a rapid expansion of electric vehicle charging infrastructure must be a top priority, alongside clear and reliable planning for EV buyers. While the effectiveness of purchase subsidies can be debated, he argues that “rules must be clear, transparent, and fixed for a defined period.” Frequent policy shifts based on financial conditions must be avoided.
Jürgen Pieper calls for a “clear line on new technologies.” However, he warns against overregulation and supports keeping the path open to various technological solutions. Politicians should “set well-defined goals but leave the road to reaching them up to the industry.”
Politics and the Auto Industry
Ties between the auto industry and politics in Germany run deep—not only at the federal level. Regional politics play a major role too, as automakers rely on favorable tax policies even at the local level. For state governments, the jobs created by the car industry are vital and worth protecting.
In Lower Saxony, where the SPD-led state government in Hanover holds a supervisory board seat at Volkswagen, this connection is especially evident. Similar ties exist in Baden-Württemberg under Minister President Winfried Kretschmann, home to industrial giants like Mercedes and Porsche (which belongs to the VW Group), and in Bavaria, governed by the conservative CSU for decades, with Audi in Ingolstadt and BMW headquartered there as well.
Because of Germany’s federal structure, the automotive industry pays close attention to which party is in power. That’s why no car manufacturer can afford to ignore political developments. At the same time, corporations must remain open to all political outcomes in order to protect their influence—regardless of the election result.
Fears of a Trump Comeback
However, industrial policy changes won’t be shaped solely in Berlin or Brussels. The direction of the next U.S. administration will also play a significant role, says Jürgen Pieper: “Given the ongoing economic crisis and expected pressure from a potential Trump administration—such as the threat of higher tariffs—the new German federal government is likely to take steps to ease the burden on the auto industry.” This could include “postponing the ban on new combustion engine registrations” or reinstating subsidies for electric and hybrid car purchases.
For independent analyst Jürgen Pieper, predicting a shift in German industrial policy starting in March is just as uncertain as the election outcome itself.
