A wave of layoffs is sweeping through the German automotive industry: the century-old manufacturing system faces a fundamental reshaping.

Introduction

In June 2025, Volkswagen Group CEO Oliver Blume revealed to *Manager Magazin* that the company plans to cut up to 100,000 jobs over the next few years, representing about 15% of its global workforce. At the same time, three vehicle assembly plants in Hanover, Zwickau, and Emden will be gradually closed between 2029 and 2031. This is not an isolated event—Ford, Stellantis, ZF, and other companies have previously announced European layoff plans. For German manufacturing, which has the automotive industry as its backbone, what do these signals mean?

Background: From "Cost Optimization" to "Restructuring for Survival"

Volkswagen's layoff plan is not sudden. In April 2025, Chief Financial Officer Arno Anlitz already made it clear that the company needs a "fundamental transformation" to survive. The now-released details show that the cuts involve multiple production sites in Germany and are directly aimed at the phasing out of traditional internal combustion engine models. Similarly, Ford's Cologne plant has cut thousands of jobs, and suppliers like Bosch and Continental are also downsizing. On the surface, this appears to be a routine response to declining profits, but the deeper cause points to a systemic shake-up of the profit model and industrial base that German automotive industry has relied on for a century.

Deep Causes: Triple Squeeze from Electrification, Costs, and Global Competition

1. High Sunk Costs of Electrification

The transition to electric vehicles requires huge investments—in battery technology, electric drive platforms, software-defined architectures—while assets and capacities in the traditional internal combustion engine field depreciate rapidly. Volkswagen has invested tens of billions of euros in electric platforms such as MEB and PPE, but the return on its EV business is far lower than that of combustion engine vehicles. According to industry analysts, EV profit margins are 5 to 10 percentage points lower than those of combustion engine vehicles. When sales growth is insufficient to spread fixed costs, cutting traditional capacity becomes inevitable.

2. The Cost Disadvantage of "Made in Germany" Continues to Widen

German industry has long relied on stable energy supply and relatively reasonable electricity prices, but energy costs have risen sharply after the Russia-Ukraine conflict and are unlikely to drop back in the short term. At the same time, labor costs and regulatory compliance costs (such as EU carbon emission fines) are among the highest globally. In comparison, manufacturing bases in China and Eastern Europe are more cost-attractive. Volkswagen's decision to close domestic plants while retaining overseas capacity is a reluctant response to this reality.

3. Pressure from the Chinese Market and Changes in the Global Competitive Landscape

China has long been the biggest profit source for German carmakers, but the situation is now reversing. Local brands (BYD, NIO, etc.), with faster electrification iteration and smart capabilities, are squeezing German carmakers' market share. Companies like Volkswagen have to lower prices to maintain market share, directly eroding profits. At the same time, US and EU trade barriers against China (such as the EU's additional tariffs on EVs) increase supply chain uncertainties, forcing companies to reassess their global layout, with German domestic plants bearing the brunt first.

Impact on Germany's Industrial System: From Manufacturing Hub to Technology Headquarters?

Loss of Manufacturing Jobs and Restructuring of Skills

The three factories Volkswagen is closing mainly produce combustion engine vehicles and parts, involving a large number of skilled technical workers.### Manufacturing Job Losses and Skill Structure Transformation

The three factories that Volkswagen is closing primarily produce fuel vehicles and parts, involving a large number of skilled technical workers. In the next ten years, the German automotive industry may lose more than 200,000 direct jobs. More critically, new jobs (battery production, software development) are often located in other regions or countries, and German workers face the risk of skill mismatch. This tests whether Germany's dual vocational education system can quickly transition towards electrification and digitalization.

The Chain Reaction of Small and Medium-Sized Suppliers

Germany has a vast network of automotive parts suppliers ('hidden champions'), which are highly dependent on OEM orders. The reduction in production capacity by automakers will directly lead to suppliers cutting production or relocating, especially small and medium-sized enterprises focused on machining and precision manufacturing. The decline in the localization of the supply chain may weaken the overall efficiency of Germany as a 'manufacturing cluster'.

Resilience of the R&D Hub Remains

Despite the contraction in manufacturing, Germany still retains deep technical expertise in areas such as high-end internal combustion engines, chassis, and autonomous driving algorithms. Companies like Volkswagen, BMW, and Mercedes are trying to transform their German bases into 'technology headquarters'—retaining high-value-added R&D while moving large-scale production abroad. However, this requires synchronized support from policies (such as R&D tax incentives) and talent supply (AI, software, electrochemistry).

European and Global Impact: Accelerated Restructuring of European Manufacturing

The wave of layoffs in the German automotive industry is creating ripple effects across Europe. Countries such as France, Italy, and Spain are also facing employment pressure from the electrification transition, but Germany, as the industrial 'locomotive', its structural adjustment will affect the migration direction of the entire European industry chain. On one hand, Eastern Europe (Hungary, Slovakia) may take over some of the relocated production capacity; on the other hand, EU industrial policies (such as the 'Battery Europe' plan) attempt to retain value within the region. However, if Germany's domestic manufacturing costs continue to be higher than those of competitors, the entire European manufacturing sector will face the risk of 'hollowing out'.

From a global perspective, China and Southeast Asia are becoming new centers for electric vehicle manufacturing, while the United States attracts battery and vehicle investments through the Inflation Reduction Act. The layoffs and capacity reductions by German automakers are essentially a footnote to the shifting power in the global automotive industry.

Long-term Trend Judgment: Three Possible Paths for the German Automotive Industry

In the next 3 to 5 years, the German automotive industry will enter a period of deep pain.

1. Premiumization and Brand Premium Route: Maintain differentiated advantages in internal combustion engines and high-end electric vehicles, masking cost disadvantages through technological leadership. However, this requires continuous innovation investment and may face fierce competition from upward-moving local brands in the Chinese market. 2. Manufacturing Relocation and Asset Lightening: Shift more production to lower-cost regions, with Germany retaining R&D and design headquarters. This will shrink the industrial scale in Germany but may improve corporate profitability. 3. Policy-Driven Reindustrialization: If the German government can significantly reduce manufacturing costs through measures such as lowering industrial electricity prices, speeding up approvals, and investing in digital infrastructure, some production capacity may be retained. However, current fiscal space and policy consensus pose challenges.

Regardless of the path taken, the German automotive industry cannot return to its 2019 structure.Regardless of the path taken, the German automotive industry cannot return to the landscape of 2019. Job cuts are not cyclical fluctuations but part of a structural reshaping. For the global advanced manufacturing competition, the challenges faced by Germany are also issues that all high-cost manufacturing economies must confront: in an era of technological paradigm shift, how to redefine the core value of "manufacturing."

*Note: This article is based on the Automotive World June 2025 report "Job Cuts Pile Up as OEMs Pushed to Drastic Change" and public information. All facts and data originate from that report and have not been fabricated.*