German automakers struggle as China's EV dominance reshapes the market
German automakers are facing severe challenges as China's dominance in the electric vehicle market grows. Trade imbalances, falling profits, and shifting consumer preferences have hit major brands hard. Volkswagen and Porsche are now exploring new strategies to counter the downturn. Germany's trade deficit with China reached a record €90 billion in 2025. State subsidies for Chinese manufacturers and an undervalued currency have made European imports far less competitive. German auto exports to China plummeted by 54%, dropping from nearly €30 billion in 2022 to just €13.6 billion.
Volkswagen's operating profit fell 53% to €8.9 billion, with profit margins shrinking to 2.8%. The company is now in talks with Israeli defence firm Rafael to repurpose its Osnabrück plant. Instead of cars, the site could soon produce components for the Iron Dome missile defence system.
Porsche's struggles in China have been equally stark. Sales there dropped 26% in 2025 to 41,938 units—less than half the volume seen in 2021. The brand now ranks China as its third-largest market, behind the U.S. and Germany. Chinese domestic EV brands, such as Huawei-backed Maextro S800 and Xiaomi SU7 Ultra, have taken over the ultra-luxury segment. The Maextro S800 alone outsold both the Porsche Panamera and BMW 7-Series combined.
Porsche's reliance on China's luxury market has made the downturn particularly painful. Its shares now trade at around €37.50, barely above the 52-week low and 14% below the 200-day moving average.
Meanwhile, Chinese automaker Geely has expanded its European presence. Its new division, Geely Technology Europe, aims to cut the delay between Chinese and international product launches to under six months. The shift in China's auto market has forced German manufacturers to rethink their strategies. Volkswagen's potential move into defence production and Porsche's declining sales highlight the pressure on traditional carmakers. With Chinese brands gaining ground, the industry faces a period of significant change.
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