Germany's automotive industry is facing significant challenges and anxiously awaits the outcome of the snap elections on February 23.

The country's economy is grappling with a recession, and the former three-party governing coalition, which collapsed in November, is being held directly responsible for the crisis in the all-important auto industry.

How to kick-start slumping electric vehicle sales

One critical issue for all automakers is managing the shift away from combustion engine vehicles toward alternative modes of private transportation, notably battery-powered vehicles.

Independent auto industry analyst Jürgen Pieper sees ongoing uncertainty among automakers and consumers alike about the transformation, blaming a lack of a "clear [government] strategy on electromobility." The Frankfurt, Germany-based expert told DW that policymakers initially incentivized electric vehicle purchases, only to later abolish the subsidies.

Dirk Dohse from the Kiel Institute for the World Economy (IfW) echoed this sentiment, telling DW that the political "back-and-forth on state subsidies for electric cars" has created confusion. Specifically, the "sudden abolition" of state subsidies in December 2023 added to the uncertainty, he said. Additionally, the industry is struggling with "high energy costs and excessive bureaucracy."

The German Association of the Automotive Industry (VDA) also sees the weakening of Germany as an industrial hub, leading to a decline in competitiveness, as the "fundamental problem" for carmakers. In a statement to DW, VDA said that the trend of Germany "consistently slipping downward" in global competitive ranks was "alarming."

High manufacturing costs weigh heavily

The question of Germany's attractiveness as an industrial location is crucial for the VDA. The association demands that the new government in Berlin and the EU Commission in Brussels must do everything to "restore Germany to a leading global position."

To achieve this, the auto industry lobby group wants "affordable energy, less regulation and bureaucracy, as well as a competitive tax system."

IfW economist Dirk Dohse believes, however, that the EU's climate target of becoming carbon-neutral by 2045 is "leaving the German government with limited influence" at least as far as energy policy is concerned.

Additionally, Dohse says German carmakers themselves bore some responsibility for the current crisis. "Necessary structural adjustments were delayed for too long, leading to sharply reduced profit margins. German companies took far too long to partner with strong software companies," he told DW. As a result, he said, auto companies "do not have a true 'breakthrough' product in the electric car market."

Insufficient charging infrastructure hampers EV adoption

Dohse also emphasizes the urgency of "expanding charging infrastructure and providing planning security for EV buyers."

While debates about the value of subsidies for electric cars will continue, he insisted that rules governing access to chargers and billing should be "clear, transparent, and valid for a predetermined period." All policy measures regarding EVs must be reliable, and "avoiding abrupt changes based on budget constraints."

Jürgen Pieper also advocates for a "consistent strategy for new technologies." At the same time, he warned against overregulation and demanded "technological openness" where policymakers should set "precise, quantifiable [emission] goals while leaving the path to achieving them to the industry."

Carmakers' cozy relationship with politics

The relationship between the German auto industry and politics has always been deeply intertwined at various levels of political decision-making. Regional governments have played a significant role in ensuring that the industry enjoys favorable conditions, while carmakers guaranteed well-paid jobs for voters.

In the regional state of Lower Saxony, home to Volkswagen (VW), for example, the government holds a seat on the VW board giving it massive influence over company policy. Similarly, in the state of Baden-Württemberg, currently ruled by a Green party state premier, or in Bavaria, where the conservative Christian Social Union (CSU) wields enormous influence in premium carmakers BMW and Audi.

Experts say the cozy relationship between business and politics has not always been to the benefit of the auto industry because any change of government can significantly impact company policy. Automakers cannot afford to ignore political developments and must maintain relationships across the political spectrum to safeguard their interests regardless of election results.

Trump's tariffs threat

At the moment, however, one of the biggest threats to German carmakers' business prospects has emerged across the Atlantic, in the shape of the new US President, Donald Trump.

Trump has threatened carmakers from around the world, notably those in China and Germany, with a massive hike in import tariffs, urging them to produce in the US instead.

Jürgen Pieper says "Given the economic crisis and expected pressure from the Trump administration, the new German government may try to ease the burden on the auto industry." This could include postponing an EU ban on sales of combustion engine cars by 2035 and reintroducing purchase incentives for electric and hybrid cars, he told DW.

But the measures taken by the next German government, Pieper added, are as unpredictable as the makeup of the government itself, which pollsters say could be led by the conservative Christian Democratic Union (CDU), either with the environmentalist Greens or the Social Democratic SPD.

"It's highly likely the planned 2035 phase-out of combustion engine cars may be pushed back to 2040. But in a coalition with the Greens that is less likely."

This article was originally written in German.