German car manufacturers are increasingly losing ground to their Asian competitors. According to a recent analysis by consulting firm EY, five of the six most profitable automakers worldwide now come from Asia. The report, based on financial data from the 20 leading global car manufacturers, highlights a growing performance gap, with Asian firms, especially those from China, significantly boosting both revenue and profit while their German counterparts face mounting challenges.
In the first quarter of this year, the combined revenue of Germany’s three major carmakers—Volkswagen, BMW, and Mercedes—fell by 2.3%. While VW managed a slight increase, BMW and Mercedes saw notable declines. More striking, however, was the collapse in profits, which collectively dropped by around a third. U.S. automakers faced a similar fate, with revenue down 2.9% and profits shrinking by nearly 30%.
In stark contrast, Asian carmakers, particularly in China, are thriving. Chinese manufacturers saw their revenues rise by nearly 15% and profits surge by 66%. BYD and Geely, which owns Volvo, led this growth. Japanese and South Korean companies also outperformed their Western peers. In the latest global rankings, five of the six most profitable automakers were Asian. Only BMW managed to hold onto third place with a 9.3% profit margin.
According to EY market analyst Constantin Gall, there is no sign of a reversal in sight. “The automotive industry is fighting battles on multiple fronts. For some established brands, the entire business model is at stake,” Gall warned. “If profits continue to decline, the very survival of some companies could be called into question. The competitive pressure in the industry is immense.”
Gall outlined several reasons why German carmakers are under strain. Weak economic conditions are dampening demand, while high costs and sluggish progress in the electric vehicle transition are weighing heavily on results. Compounding the problem is the decline of the Chinese market, where domestic manufacturers are increasingly pushing Western firms aside.
Another serious blow comes from new U.S. tariffs. Since April, President Donald Trump has imposed a 25% import tax on foreign vehicles. Gall warns that “in the worst-case scenario, these tariffs could lead to losses amounting to billions—not just for European, but also for American manufacturers.” As a result, profit margins are likely to fall even further. “Chinese manufacturers, who aren’t present in the U.S. market, will only widen the gap.”
In response to the worsening outlook, several automakers and suppliers have already announced cost-cutting measures, including job reductions. Volkswagen plans to eliminate one in four jobs at its core brand in Germany by 2030. But Gall insists that cost-cutting alone won’t be enough. “Western automakers must completely reinvent themselves,” he said. That includes embracing full-scale digital transformation, accelerating product development, and making faster strategic decisions.