These are the challenges facing the German automotive industry in 2024

Competition from China, high costs and now the abrupt end of e-car subsidies: Germany's car industry is facing a huge upheaval. But the transition to e-mobility is slow. The recently canceled state purchase premium for e-cars is likely to further hamper the ramp-up. Added to this are geopolitical uncertainties and a weakening economy. Industry experts see sand in the gears and expect the coming year to be challenging. Experts seethese five challenges for the German automotive industry in 2024:

1. China:

The Germans' position in China is eroding as the shift there towards e-mobility progresses, says Fabian Brandt from management consultancy Oliver Wyman. "It's really alarming when you look at how differently the industry is performing with combustion engines and electric cars," says Brandt. The industry urgently needs to act, he says, and the key levers are attractive e-vehicles, significant cost reductions and a stronger focus on brand positioning. In its current structure, the business of German manufacturers is not sustainable without success in China.

According to industry expert Ferdinand Dudenhöffer, decoupling from China would severely damage the German automotive industry in the long term. China is the most important car market in the world and the innovation center of the automotive industry. "German car manufacturers are dependent on China and not the other way around," says Dudenhöffer. Stuttgart-based car manufacturer Mercedes-Benz, for example, sold more than a third of its cars in China in the first three quarters of the year. The figure for premium competitor BMW was also a good third.

Volkswagen even sold almost half of its core brand. "The Chinese used to copy from us, now we have to copy from them," says Stefan Reindl, Head of the Geislingen Institute of Automotive Economics. Chinese suppliers are much faster in their development. The Germans are resting too much and "can't get out of their comfort zone". They have to leave their comfort zone, says Reindl. The fact that German vehicles are among the best in the world is not a fundamental law.

2. costs:

According to Brandt, German manufacturers need to improve their international competitiveness in terms of costs. More room for maneuver is needed in the aggressive price competition. Accordingly, costs would have to be reduced by an average of at least 3000 to 4000 euros per vehicle - and significantly more for electric cars. However, after the end of the e-car premium, the burden on companies is even increasing. This week, several manufacturers have announced that they will take over the state share of the purchase premium that has now been discontinued, at least for a limited period. The federal government had originally planned to grant a purchase premium of up to 4,500 euros for new cars until the end of the year. In addition, the manufacturers were to receive half of the bonus, i.e. up to 2250 euros. On January 1, 2024, the government bonus was to be reduced to 3000 euros and then expire at the end of 2024.

In recent years, manufacturers have done good business despite the crisis mode, which they have tried to safeguard, says Brandt. "A strong focus on costs and resilience are often at odds with each other." Instead of making savings in procurement, however, manufacturers should also pay attention to their personnel costs and "streamline" there, advises Brandt.

This is already becoming a reality in some places: after months of wrangling with the works council, Volkswagen agreed on the key points of a multi-billion euro savings program this week. Personnel costs at the core Volkswagen brand are to be reduced by 20 percent in the administrative area, but the company has announced that there will be no compulsory redundancies. Significantly greater savings are to be made in material and fixed costs.

3. software:

Software in cars will become increasingly important in the future, be it for assistance systems when driving or infotainment (entertainment or information), for example. Manufacturers are sensing a billion-euro business here.

The still weak position of German manufacturers in the area of software is a burden on business and, according to Brandt, is increasingly becoming a decisive competitive disadvantage compared to Tesla and Chinese providers. The industry must now deliver, including with technology partners who can demonstrably do certain things better. However, the manufacturer must maintain a clearly recognizable position with the end customer. If the display looks like Apple, for example, then the manufacturer has lost the customer. "Then it's just a mobile base."

Constantin Gall, automotive expert at the auditing and consulting firm Ernst & Young (EY), also sees a personnel problem in the software sector. The software departments of the major manufacturers are "actually a shambles at the moment". Agile structures are needed for these tasks, but many managers find this difficult.

4th raw materials:

Gall sees recycling as one way of reducing dependencies on other countries for raw materials for e-car batteries. Manufacturers could extract a large proportion of the materials from older battery generations and put them back into new batteries. However, the prerequisite is that they seriously focus on the recycling of resources and consistently invest in these technologies. "There is a threat of significant consolidation".

5 Suppliers:

According to Brandt, many suppliers are in a critical situation following the crises of recent years and with the switch from combustion engines to electric motors. The rise in interest rates is also making business more difficult. "There is a threat of significant consolidation in the supplier landscape, which is highly relevant for the automotive industry," says Brandt. What is needed is a model that is more strongly geared towards partnership between suppliers and car manufacturers. After all, the innovative strength of the location is also highly dependent on the suppliers.