Major Shock in Germany’s Auto Sector, with the Epicenter Traced to China?

In July, 12,000 employees of ZF staged protests in response to the company’s announced layoff program. Recent reporting by Forbes indicates ZF has finalized concrete downsizing measures that will begin by cutting 7,600 domestic positions within its electric driveline division. ZF’s plan anticipates total reductions of 11,000 to 14,000 jobs in Germany by 2028, representing roughly 25% of its German workforce.

For context, Bosch, a leading global supplier, announced 9,000 job cuts in 2024 and projects an additional reduction of 13,000 positions by 2030. Bosch has framed these reductions as necessary to lower operating costs, estimating that eliminating about 22,000 German roles in its automotive unit could save over €2.5 billion in expenditures.

If Germany’s largest and second‑largest suppliers are implementing such deep adjustments, the downstream and mid‑tier suppliers face even harsher conditions. AE Group, a producer of aluminum castings for body‑in‑white and transmissions, has declared bankruptcy and halted operations. Kiekert, a 165‑year‑old specialist in vehicle door locks, has also filed for insolvency, placing more than 1,000 jobs at risk.

Across the OEM sector, major manufacturers have likewise announced large workforce reductions over the past year, with Volkswagen cutting 35,000 jobs, Mercedes‑Benz 40,000, Audi 7,500 and Ford Germany 2,900. Macro indicators further underscore the strain: by July, employment in metal, electronics, steel and manufacturing sectors closely tied to automotive production had contracted by 270,000 positions year‑on‑year. Germany’s industrial output fell 4.3% month‑on‑month in August, with automotive output plunging 18.5%.

Some industry observers on international social platforms have described the situation as more than cyclical weakness, arguing the German economy is approaching systemic distress. International outlets including Forbes and Agence France‑Presse have pointed to sluggish electric vehicle adoption in Europe and intensifying competition from Chinese suppliers as primary drivers of the industry’s broad deterioration. Deeper analysis and online commentary, however, suggest additional structural factors are at work.

A central thread in corporate explanations is the disappointing pace of the EV transition in Europe. ZF explicitly cited the slower‑than‑expected adoption of battery electric vehicles across Europe as the immediate rationale for closing divisions and cutting staff, and indicated it will reallocate resources toward components for plug‑in hybrid systems.

Europe pursued an ambitious regulatory path, committing to a 2035 ban on new internal combustion vehicle sales and setting an interim target of 30 million electric vehicles on the road by 2030 to reduce CO2 emissions. Legislation ratified in 2023 and approved by the European Parliament in February 2025 established a stringent legal framework pushing manufacturers toward electrification. Major OEMs responded with aggressive electrification targets: Volkswagen planned for over 80% BEV share in Europe by 2030, BMW targeted more than 50% BEV share by 2030, and Mercedes‑Benz aimed for full electrification by 2030. In practice, however, battery EV uptake in Europe has lagged expectations.

Data for Q1 2025 show the five largest European markets—United Kingdom, Germany, France, Italy and Spain—recorded BEV sales growth of 30.7% year‑on‑year and achieved a market share of 15.4%, with the broader European penetration at approximately 15.2% in Q1. By comparison, China’s BEV penetration for Q1 2025 is estimated at about 25%, with new energy vehicle penetration at 41.2% and BEVs accounting for roughly 61.2% of NEV sales, indicating substantially higher adoption rates in China.

European acceptance of BEVs is uneven, with Nordic markets outpacing many Eastern and Southern European countries. The gradual withdrawal of government subsidies and persistent gaps in charging infrastructure hinder broader adoption. Public sentiment on international platforms has at times been sharply critical of aggressive decarbonization policies, describing them as economically damaging.

The practical consequence is that legacy suppliers invested heavily to support OEMs’ electrification plans, yet face a mismatch between capacity and market demand. Bosch invested €77 million at its Schwieberdingen R&D center for battery‑related solutions and committed €1 billion in a Dresden chip plant in 2018. ZF announced global investments equivalent to RMB 23.8 billion, including RMB 6.3 billion to upgrade its Saarbrücken facility. Paradoxically, ZF’s electric driveline division—one of its key strategic investments, for which it spent €30 million on a new office building in 2019—now faces the bulk of the planned headcount reductions.

Bosch’s head of electrified mobility told AFP that the slower diffusion of BEVs has produced substantial overcapacity, particularly in Germany. At the same time, the rapid rise of China’s domestic supply chain has emerged as a material competitive threat to established global suppliers.

Reports from outlets such as Forbes and AFP highlight how aggressive pricing competition in China has compressed supplier margins. Bosch’s 2024 annual report reflected these pressures: an operating profit (EBIT) of €3.2 billion—about a 3.5% margin—representing a 30% year‑on‑year decline and a salient factor in the company’s 2025 workforce reductions.

The ascendancy of China’s supply chain has been tightly coupled with the rapid development of its NEV industry. Counterpoint Research indicates China’s NEV localization rate exceeded 90% in the first half of 2025. At the brand level, local manufacturers such as NIO report localization rates between 92% and 95%, while Tesla’s Shanghai‑produced Model 3 and Model Y surpass 95% local content. Rising localization reflects not only cost advantages but also shifts in technical requirements; legacy component sets designed for internal combustion powertrains no longer map directly onto electric architectures.

In critical battery‑related segments, domestic sourcing has become dominant: cathode materials localize at approximately 93%, anode materials at 98%, separators at 90%, and electrolytes at 100%. Motor controllers, high‑power semiconductors and other higher‑value EV components remain areas where traditional German suppliers could potentially compete, but so far they have not reclaimed substantial market share.

Multinationals anticipated this pressure and invested heavily in transformation beginning around 2018, seeking to secure positions in core electrification technologies. Nonetheless, in Europe these suppliers face weak local BEV demand, while in China they confront robust local competitors able to meet EV design and cost requirements more effectively.

Ultimately, the challenge boils down to competitiveness. Many commentators note that German OEMs and suppliers were slower to execute strategy and accelerate product development compared with their Chinese counterparts, and that this tactical lag translated into weaker product propositions in some segments of the market.

There is, nevertheless, an opportunity for recovery. Later this year, Mercedes‑Benz, BMW and Audi plan to introduce a new generation of battery electric models—examples include an electric CLA, a next‑generation BMW iX3 and the Audi Q6L e‑tron—built on dedicated BEV platforms with substantially improved electric powertrain performance. If these models are competitively priced, they have the potential to influence market dynamics.

For suppliers, however, meaningful recovery will require gains across technological roadmaps and core component performance. German OEMs increasingly source advanced functions such as intelligent driving solutions from Chinese providers, rather than relying solely on long‑standing partners like Bosch. If suppliers cannot reestablish relevance in EV value chains, they will forfeit growth opportunities. While the legacy internal combustion vehicle base offers near‑term revenue support, the longer‑term trajectory for suppliers looks challenging unless they can restore competitive advantage.