A new report warns that one in six German auto manufacturing jobs could vanish by 2035, signaling a period of painful deindustrialisation for Europe's largest economy.
Germany’s automotive sector, long the engine of its economic prowess, is projected to eliminate another 125,000 jobs by 2035, according to a grim new report from the VDA, the country's automotive industry association. The forecast comes after the sector has already lost 100,000 jobs since 2019, putting the government on notice that its industrial core is at risk.
"The list of challenges goes on," the VDA report states, citing "high taxes and levies, expensive energy, high labor costs, excessive bureaucracy" as key drivers of the decline. The association warns that the European Union's mandate to ban new combustion-engine cars by 2035 single-handedly jeopardizes more than 50,000 of those jobs.
The internal pressures are compounded by a formidable external threat. A report from the Centre for European Reform (CER) notes that Germany's trade imbalance with China surged to $94 billion as its surplus doubled between 2024 and 2025. This "China Shock 2.0," the CER warns, risks a repeat of the hollowing out of American manufacturing towns two decades ago.
At stake is what the German government itself describes as “by far the most important industrial sector” in the country. The combination of self-inflicted policy costs and targeted foreign competition has created what the CER calls the "phantom pain" of an amputated limb: "That missing limb is export demand, chopped off by China’s profound pressure on Germany’s industrial base."
China Shock 2.0
The CER report, titled “China Shock 2.0: the cost of Germany’s complacency,” argues that Berlin has been hesitant to diagnose the problem. It points to a specific Beijing policy project named “10,000 little giants” that is directly targeting Germany’s Mittelstand—the ecosystem of small and medium-sized industrial firms that form the backbone of its economy.
The think tank attributes the growing imbalance to three factors: dampened domestic demand in China, a yuan potentially undervalued by as much as 30 percent against the euro, and a state-directed industrial policy ruthlessly targeting Germany's core industries. The report urges Berlin to support efforts at the IMF and G7 to confront China's trade model before deindustrialisation becomes irreversible.
EV Mandates and High Costs
The EU’s push toward electric vehicles is a primary catalyst for the job losses. While Berlin and other governments successfully lobbied for a watered-down EV directive in December 2025 to allow traditional engines for longer, the broader regulatory direction remains. EVs are less complex and require fewer workers to assemble, a transition other legacy automakers are also struggling with. Japan's Honda, for instance, recently posted its first operating loss in nearly 70 years after EV-related write-offs totaled $9.9 billion, forcing a pivot back toward hybrid vehicles.
The situation has left German auto giants with painful choices. Volkswagen CEO Oliver Blume has openly discussed converting parts of the company's underutilized Osnabrück factory to produce military vehicles for Israel's Iron Dome system, a stark indicator of overcapacity in its core business. The same factories are also being eyed by Chinese competitors like Xpeng, which is in talks with VW about acquiring a plant in Europe. This comes as Germany's industrial energy prices are now approximately double what American manufacturers pay, according to recent analysis, and the country ranks a dismal 30th out of 38 OECD countries on corporate tax competitiveness.
This article is for informational purposes only and does not constitute investment advice.
