Germany's automotive industry leaders are facing challenges in maintaining their relevance.

• In recent weeks, major domestic manufacturers including Volkswagen, Mercedes-Benz Group, and BMW have issued profit warnings.
• Amidst the threat of job cuts and potential plant closures at Volkswagen, the end of Germany's electric car subsidy program, and Berlin's inability to prevent EU member states from imposing tariffs on Chinese EVs, warnings have been issued.
• According to Rico Luman of ING, the issue is whether German car manufacturers can adapt their product offerings, restructure their organizations, and increase productivity rapidly enough to maintain their position and significance in the market.

The German automotive industry, renowned for producing high-quality ICE vehicles, is facing challenges in maintaining its significance during the era of electric vehicles.

In recent weeks, major domestic manufacturers including Mercedes-Benz Group and BMW have issued profit warnings due to economic weakness and sluggish demand in China, the world's largest car market.

The challenges facing Germany's automotive industry, including headwinds, job cuts, and plant closures at Volkswagen, are compounded by the abrupt end to Germany's electric car subsidy program, Berlin's failure to prevent EU tariffs on Chinese electric vehicles, and the specter of historic job cuts.

The possibility of Germany's declining power in regional policy was suggested by the latter, which was previously considered an unimaginable idea.

According to Rico Luman, senior sector economist for transport and logistics at Dutch bank ING, while the German quality label generally still holds, it is not enough as the automotive industry is changing rapidly.

Luman stated that the product, quality, and price are always intertwined. While quality is linked to the past, we are currently undergoing a complete overhaul of our model ranges. As a result, customers are exploring new ideas.

"Whether German car makers can adapt their product offerings, restructure their organizations, and increase their productivity rapidly enough to maintain their long-standing status and significance remains a crucial question."

German automakers need to focus on developing tech-rich supplies for EVs, particularly batteries, as the industry shifts towards electrification, according to Luman.

A representative from Germany's ruling coalition government declined to provide a comment when contacted by CNBC.

Germany's government, led by Chancellor Olaf Scholz, is considering ways to support Volkswagen during a period of cost-cutting without resorting to domestic plant closures. Economy Minister Robert Habeck described Volkswagen as of "central importance" to the country, according to Reuters on Sept. 19.

Brand loyalty

Not everyone is as concerned about the outlook for Germany's car industry.

Sigrid de Vries, the director general of the European Automobile Manufacturers' Association (ACEA), a car lobby group, stated that she finds it "incredible" that Germany's auto industry is facing challenges in adapting to electrification.

The 15 major Europe-based automakers, including Volkswagen, Mercedes-Benz Group and BMW, are represented by the ACEA.

As I mentioned earlier, I am more inclined towards products made in Europe than those made in France or Germany. However, I believe that there is a significant tradition in automaking, which is a skill in itself, as de Vries stated at the Paris Motor Show.

"The product is both complex and advanced, requiring high-volume production and precise execution. Additionally, we must consider the capacity to innovate and master new technologies."

While some may contend that German automakers need to accelerate, de Vries of ACEA believes they are closing the gap quickly.

She added, "They have really good and interesting technology and products to offer, and don't underestimate the name and fame of brand loyalty."

In an effort to stimulate demand and regain market share from Chinese brands, several car manufacturers have introduced affordable electric vehicles.

At the trade show, BMW unveiled two electric Mini models within the budget range, namely the John Cooper Works Electric and the John Cooper Works Aceman.

Slowing down on electrification is 'not the answer'

Poliscanova stated in the Paris Motor Show that what is better for manufacturing in Germany and what is better for German manufacturers that are global and generate profits worldwide are not always the same thing.

"While I agree that the German industry and carmakers like Volkswagen face serious global issues, I don't believe that all of these problems are solely due to European regulations and electrification. There are other factors at play as well."

Some of the challenges facing Europe's auto giants include increased competition from China, the "patriotic" trend of Chinese consumers choosing to buy domestic vehicles rather than ones made in Europe, and overall car sales failing to return to pre-Covid-19 levels, as stated by Poliscanova.

"Yes, slowing down on electrification or the technology that everyone wants to buy will not be the answer for a mass-market German manufacturer, as it will only cause them to suffer," she stated.