For the German automotive industry, China is the very reason for its past success as well as the source of its current predicament.

Many domestic consumers may not know that in January this year, Mercedes-Benz celebrated its 140th birthday at its global headquarters in Stuttgart. The core exhibit of the celebration was a handwritten document, the patent application for a "vehicle powered by a gas engine" submitted by engineer Karl Benz in 1886.

The New York Times wrote at the time: Mercedes executives talked about this document as if they were describing a sacred parchment. It was projected on the large wall of the campus, and the scene was more like a pilgrimage ceremony than a product launch event.

It is no wonder that this patent not only proves that Germany is the birthplace of automobiles, but also has supported an almost faith-like industrial pride for this country in the past few decades.

As is known to all, automobiles have never been just a means of transportation for Germans. "It is the pillar of national psychology, the living fossil of the post-war economic miracle, and the most decent export of engineer culture." Berenberg Bank's chief economist Schmiding put it bluntly: in addition to the chemical and machinery industries, automobiles are one of Germany's three traditional advantages, originating from the glorious era of engineers in the 19th century.

However, times have changed. The three pillars of Volkswagen, Mercedes-Benz and BMW are shaking at the same time. Three forces - US tariffs, the pains of electrification transformation, and fierce competition from Chinese enterprises - are pulling the foundation of German automobile manufacturing together.

Not long ago, Volkswagen's executives had to sit down to discuss closing local factories, cutting classic models, and laying off tens of thousands of jobs. These issues were almost unthinkable in the past, and the current crisis has long gone beyond the economic scope. It is eroding Germany's self-perception.

All these troubles are inseparable from the same country, that is, China. Thirty years ago, China pushed German automobiles to the throne of sales. Thirty years later, the same market is rewriting the fate script of German cars with its own hands.

China Built The German Auto Giants

Back in the 1980s, when the Chinese market opened its door to the West, German automakers were among the first to smell the opportunity. To enter this huge and fast-growing market, foreign automakers were required to establish joint ventures with local partners.

For Volkswagen, Mercedes-Benz and BMW, this deal was once incredibly cost-effective. China provided almost unlimited demand, and Germans only needed to export technology and brands to reap continuous profits.

By 2019, the Chinese market alone accounted for 37% of Volkswagen's global sales. Mercedes-Benz and BMW also relied on Chinese consumers to support half of their luxury car divisions. In those years, German cars in China were almost synonymous with status and quality. Driving an Audi or Mercedes-Benz on the road was itself a symbol of decency.

Of course, it must be admitted that the Sino-foreign joint venture model not only delivered profits, but also transferred technology. Through decades of observation, learning and investment, Chinese automakers have gradually mastered all links from supply chain management to vehicle integration.

When the electrification wave hit, the gap began to narrow rapidly. Chinese automakers such as BYD and Geely launched electric vehicles that meet local consumer preferences earlier than their German rivals. At the same time, relying on large-scale domestic infrastructure construction and purchase subsidies, they paved an acceleration track for local brands.

While German automakers were still obsessed with the precision and durability of internal combustion engines, Chinese automakers had already begun to work on smart screens, fast-charging batteries and autonomous driving. What stung the Germans even more is that BAIC Group is now the largest shareholder of Mercedes-Benz, holding nearly 10% of the shares. As many people said, the party that was once regarded as a student has now become an exporter of capital and technology in turn.

As a result, German car brands spent a long time launching competitive electric products, but they have fallen far behind. Because once consumers have tried newer products, brand loyalty changes much faster than expected.

The sales data for the first half of this year clearly reflects this reversal. Volkswagen's sales in China fell by 26% year-on-year, Mercedes-Benz by 28%, and BMW by 20%. Volkswagen Group CEO Blume confessed to employees: "Even with better products, we cannot match the cost and pricing of Chinese export models."

Behind this sentence is a cruel reality: China is no longer just a sales market for German automobiles, and Chinese automakers have also become competitors on the same playing field. Data from the German Association of the Automotive Industry also verifies this trend. Since 2016, Germany's domestic automobile production has dropped by 28%, and its global ranking has been left behind by China, the United States, Japan and India, and is about to be overtaken by South Korea and Mexico.

Dragged down by high energy costs, high taxes and strict rules that make layoffs difficult, some analysts say Germany, or Europe as a whole, needs to do a lot to improve its competitiveness. Therefore, when German automakers decide to build new factories, they prefer to choose locations in Hungary, Mexico or China, rather than their local Bavaria or Lower Saxony.

The Same Market Begins To Backfire

What really makes German automakers feel suffocated is that the rules of the game in the Chinese market itself are changing, and the speed of change exceeds everyone's expectations.

First, the sales volume of China's auto market has peaked, and competition has become increasingly fierce. Dozens of local Chinese automakers have launched a brand new competition model in the electrification era. Unprecedented competitive pressure has spawned a brutal elimination mechanism, and the law of survival of the fittest has forced them to iterate new products rapidly.

It is reported that it takes an average of only 18 months for Chinese automakers to launch a new model, while their Western counterparts usually take two to three times that time. While Germans are still discussing how to balance profits and job security, their Chinese rivals have completed two rounds of product updates.

At the same time, Chinese automakers have begun to target overseas markets. European consumers are also happy to buy these cars. According to the latest data from the European Automobile Manufacturers' Association (ACEA), sales of Chinese cars in the EU surged 63% in the first half of this year, and are expected to grow from 338,000 units in 2025 to nearly 549,000 units in 2026, accounting for about 10% of total EU car sales. In June, the monthly sales of Chinese brands in Western Europe surpassed that of Japanese brands for the first time.

This wave of impact is not limited to German cars, and even hurts European car brands that have no business in China. Data from Renault shows that sales of its low-cost brand Dacia fell by 8% in the first half of the year. Analyst Schmidt said bluntly that Chinese electric vehicles, with more advanced technology, are eating into Dacia's traditional market share.

Although the EU tried to block the influx of Chinese electric vehicles by imposing additional tariffs, the tariffs do not cover plug-in hybrid models, so Chinese automakers still have room for profit in this market segment. Therefore, Germans have to consider a once unspeakable solution, which is to directly sell models produced in China to Europe.

This shift in the situation has prompted some European automakers to consider cooperating with Chinese companies. According to ACEA data, the French-Italian-American joint venture Stellantis has established a cooperative relationship with Chinese electric vehicle manufacturer Leapmotor, and its sales have soared from 7,701 units in the first half of 2025 to 48,261 units this year.

Blume revealed to investors that Volkswagen may adopt a similar strategy. But this self-rescue method is accompanied by another voice: once Chinese-made cars with Volkswagen badges are placed in the exhibition halls in Wolfsburg, will consumers turn to buy the cheaper original Chinese versions? Brand premium has become a kind of burden at this moment.

Moreover, the Alternative for Germany party is using the panic of auto workers to harvest votes wantonly. Party leader Weidel publicly stated that the plummeting profits of giants such as Volkswagen, Porsche and Infineon and their plans to lay off hundreds of thousands of people prove that Germany's "de-industrialization" has reached a shocking level. Merz called on voters not to be coerced by social media emotions, but promises and warnings often appear pale in front of factory closures.

Analyst Narayan of Royal Bank of Canada made a meaningful judgment: "These German companies will survive, but they will probably be much smaller than they are today."

140 years ago, when Benz built the first car in his workshop in Mannheim, he probably never thought that the fate of this industry in the future would no longer be decided by engineers in Stuttgart, but by programmers in Shenzhen and Shanghai, as well as thousands of ordinary consumers on the streets of China who vote with their feet.

This article is from the WeChat official account "Auto Community" (ID: iAUTO2010), written by Yang Jing, and authorized for release by 36Kr.