The German automotive industry is in the midst of one of the deepest crises in its history. But the root causes run deeper than headlines about weak demand, Chinese competition, or the sluggish transition to electric mobility might suggest. The latest industry study by credit insurer Allianz Trade shows: A significant part of the problem is homegrown and stems from capital allocation over the past decades. For blog readers, investors, and industry observers, it’s worth taking a closer look at the numbers—because they reveal a great deal about the future of Germany as an automotive hub.

Past investment missteps are catching up with automakers

For too long, capital flowed into existing internal combustion engine platforms, short-term margin targets, and dividends, while investments in electrification and digitalization came too late. “The capital allocation of the past two decades is a boomerang that’s now coming back,” says Guillaume Dejean, an industry expert at Allianz Trade. When automakers finally shifted their capital, he adds, it was spread too thinly across too many projects. Instead of setting targeted priorities, there has been a lack of a clear strategy—a mistake that is now coming back to haunt them.

The current trend in investment further exacerbates the situation: Investment by European automakers plummeted by about one-fifth in 2026—the sharpest decline since 2018. At the same time, other major European corporations increased their investment by about 10 percent. This slump is hitting the industry at precisely the moment when software-defined vehicles, artificial intelligence, and autonomous driving are completely reshaping the competitive landscape. Experts are convinced that what is needed are fewer parallel vehicle platforms, joint pre-competitive research, partnerships in batteries and semiconductors, and targeted investments in chip design, AI, and cloud infrastructure.

Three billion euros in value creation at stake by 2030

The figures on German automakers’ performance illustrate just how urgent the need for action really is: In the first half of 2026, value added per vehicle sold in Europe was about 30 to 45 percent below the 2021–22 level. Since 2021, German automakers have lost about ten percentage points of market share in Europe, and only slightly less in China. Margins fell from about 13 percent in 2022 to about 4 percent.

Even small further losses in market share could have significant financial consequences. “If German manufacturers lose another three percentage points each in Europe and China by 2030, around three billion euros in value added would be at risk,” warns Milo Bogaerts, CEO of Allianz Trade in Germany, Austria, and Switzerland. Even a decline of just 0.5 percentage points in each of these two markets would reduce annual value added by around 480 million euros—and the three billion euros would, after all, correspond to roughly four percentage points of the annualized EBITDA margin in 2026.

Chinese manufacturers are taking over the European domestic market

Competitive pressure from China has long since extended beyond the Far East to reach German automakers right in the heart of their home market. By mid-2026, Chinese manufacturers’ share of new vehicle registrations in Europe reached nearly 10 percent—marking the first time Chinese brands sold more than one million vehicles in Europe. Their advance is particularly strong in the area of electrified powertrains: their market share stands at 16 percent for battery-electric vehicles and as high as 26 percent for plug-in hybrids.

The tariffs imposed by the EU have so far done little to slow this growth. Chinese manufacturers are increasingly focusing on hybrids and plug-in hybrids—whose registration figures rose by an impressive 206 percent—while at the same time systematically expanding their sales and service networks in Europe.

European electric cars are more competitive than their reputation suggests

Despite the general sense of crisis, the study also reveals a surprise: In the segment of sedans and compact cars priced under 50,000 euros, European electric models currently offer a price-to-range ratio that is three to five percent better than that of their Chinese competitors on the European market. Small and city electric cars from Europe certainly have nothing to be ashamed of when it comes to value for money.

According to Dejean, their problem lies less in competitiveness in their home market than in limited export opportunities: Different customer preferences and cheaper local offerings limit their potential in many growth markets. The message for European manufacturers is thus mixed—the product is right, but the reach of the business model isn’t necessarily.

Software as a Billion-Dollar Opportunity for New Revenue

While traditional vehicle sales are coming under pressure, digitalization is opening up entirely new sources of revenue. According to a study, the vehicle software market is expected to grow from approximately 300 billion euros in 2025 to 464 billion euros in 2035. A model calculation by Allianz Trade illustrates the potential: If a manufacturer sells one million vehicles annually for ten years and offers digital services for 50 euros per month—with usage rising from 33 to 50 percent—this could generate approximately three billion euros in recurring revenue in the tenth year. That would correspond to about 8 percent of the average annual revenue of major European manufacturers in 2025.

A “Made in Europe” label on batteries could add 2,000 euros to the price of electric cars

According to the study, Europe’s isolation from Asian battery technology is not a sufficient response to the crisis. Requirements for European battery cells could increase the cost of a battery pack—and thus the price of an electric car—by around 2,000 euros, which corresponds to about five percent of last year’s average price. At the same time, even with a realistic ramp-up, European cell production could cover only about half of domestic demand by 2035.

“Complete self-sufficiency is neither realistic in the short term nor economically sensible,” Dejean emphasizes. Instead, Europe should focus on partnerships and direct investment toward new technologies such as solid-state batteries—an area in which China’s lead is not yet as firmly established as it is with conventional battery cells.

Autonomous Trucks Instead of the Robotaxi Race

When it comes to autonomous driving, the study also sees opportunities beyond the widespread public attention focused on robotaxis. The market for autonomous trucks could grow to around 500 billion euros by 2035, making it even larger than the robotaxi market, which is estimated at around 370 billion euros. For European manufacturers, the opportunities lie more in autonomous freight transport, logistics, and public transit than in direct competition with established U.S. and Chinese providers. In addition, related growth sectors such as the defense industry can offer solutions to declining production capacity—especially for German manufacturers.

Conclusion: A crisis, yes, but not a hopeless scenario

The German automotive industry is at a turning point. The combination of shrinking margins, plummeting investment, and growing competitive pressure from China calls for strategic decisions that can no longer be postponed. However, the Allianz Trade study makes it clear that the situation is not hopeless: European electric cars are more competitive than their reputation suggests, software and digital services offer billions in potential, and the autonomous freight transport sector holds growth markets where European providers are well-positioned. The key will be whether the industry succeeds in deploying its capital in a more targeted manner in the future—rather than once again investing indiscriminately.