German Carmakers Are Shrinking While the Rest of the World Grows. 

Most supply chain teams working with European automotive suppliers have been watching individual company announcements. The EY study published this week puts all of them in a single frame, and the picture it reveals is considerably more serious than any one earnings report suggested.

Revenue at the world's major auto groups rose 2% in the first quarter of 2026, led by Japanese and US manufacturers. German carmakers, by contrast, posted a 4% decline. EY mobility specialist Constantin Gall described the entire German auto industry as caught in a deep structural shift, pointing to losses in the US and China, costly overcapacity, heavy software spending, and a slow electric ramp-up. He called 2026 "another crisis year for the automotive industry." 

A six-point gap between German performance and the global average does not sound catastrophic until you look at what sits behind it. The combined operating profit of Volkswagen, BMW, and Mercedes-Benz collapsed roughly 76% to approximately 1.7 billion euros in the third quarter of 2025, the lowest level since the depths of the 2009 financial crisis. 

The three pressures arriving simultaneously

The EY study does not identify a single cause, because there is not one. German carmakers are being hit from three directions at once, and none of them is resolving quickly.

The first is China. China's share of German manufacturers' global sales slid to 29% in 2025, down from 39% in 2020. Chinese brands including BYD have taken ground in the segments where German luxury and mid-range vehicles once dominated, competing on electric range, software features, and price simultaneously. The market that German carmakers counted on for growth has become the market where they are losing share fastest. 

The second is tariffs. The 15% Turnberry Agreement ceiling on EU vehicle exports to the US, covered in the previous edition of this newsletter, replaced what had been a more favourable trade environment for German exporters. Volkswagen reported first-quarter operating profit down 14.3% to 2.5 billion euros, describing wars, trade barriers, and intense competition as creating headwinds. German auto employment fell to approximately 744,000 in January 2025, down from 780,000 a year earlier. 

The third pressure is the EV transition itself. German manufacturers poured significant capital into electric vehicle development and software platforms over the past several years. That investment is visible in their balance sheets but not yet in their market share numbers, particularly in China where local competitors have a product and cost advantage that is proving difficult to close.

Why this matters for the supply chain, not just the balance sheet

German automotive manufacturing is the anchor of one of Europe's most complex supplier ecosystems. Tier-one and tier-two suppliers across Germany, Austria, Czech Republic, Slovakia, Hungary, and Poland have built their order books around BMW, Mercedes, and Volkswagen production volumes. Germany's car industry is the spine of its economy, the largest in Europe. Whole regions of Germany were built around those assembly lines. 

When the anchor customers post a 76% profit collapse and reduce their workforce by tens of thousands of positions, the downstream effect on the supplier base is not a planning scenario. It is already happening. The Thyssenkrupp Indiana closure covered in a recent edition of this newsletter, the Electrolux restructuring, and the VARTA Nördlingen shutdown are all symptoms of the same underlying dynamic: European industrial capacity built around automotive demand that is now contracting faster than the supply base can adjust.

The exposure for European and Asian companies

Higher fuel prices and inflation tied to the Iran crisis are expected to soften demand across Europe, adding pressure on top of the tariff and China problems. For non-German companies supplying components, materials, or logistics services into the German automotive ecosystem, the EY study is a forward-looking indicator, not just a backward-looking report. A customer base posting 76% profit declines and shrinking its workforce does not expand its supplier relationships. It consolidates them. 

The disruption does not arrive as a factory closure or a cancelled order in isolation. It arrives as a structural contraction across one of the world's most interconnected industrial supply chains, moving faster than most annual risk assessments have modelled it.