Europe
German automakers restructure operations as Chinese rivals capture market share
The German automotive sector is facing an unprecedented level of restructuring pressure.
As Chinese manufacturers establish dominance in the domestic market for electric and hybrid vehicles, German automakers are rapidly losing market share.
In the first half of 2026, sales figures in China for BMW, Mercedes, and Volkswagen fell by more than a quarter.
Volkswagen is undergoing the largest restructuring process in its history. Chief Executive Officer Oliver Blume is planning to halve the company’s model lineup, reduce production capacity by approximately one million vehicles, and cut up to 100,000 jobs worldwide.
Volkswagen is not limiting its strategy to radical cost-cutting measures alone. For the first time, the company is considering the possibility of introducing models developed specifically for the Chinese market to Europe, with a view toward manufacturing them in European plants over the long term.
At the same time, other European manufacturers are relying increasingly on joint ventures established with Chinese companies.
This marks the beginning of a new era: the driving force behind the modernization of the Chinese market is no longer European manufacturers; rather, China is shaping the future of the European automotive industry.
Opel is planning an SUV project in which Chinese engineers will develop the powertrain and battery, while German engineers will handle only the design and seats.
German brands lose ground in the Chinese market
According to an analysis published by German Foreign Policy, the decline in sales for German automakers in the Chinese market is worsening.
In the first half of 2026, sales for BMW, Mercedes, and VW plummeted by over 25%. BMW recorded a drop of nearly one-fifth, while VW and Mercedes fell by 26% and 28%, respectively.
In the wake of the war in Iran, gasoline prices rose in China. This accelerated demand for electric and hybrid vehicles, dealing a negative blow to sales for German automakers, which continue to sell predominantly internal combustion engine vehicles in the country.
Changes in tax regulations governing luxury automobiles are compounding the problem. The tax threshold for new vehicles (excluding VAT) was lowered from the previous level of 1.3 million yuan to 900,000 yuan (approximately €116,000).
The German Association of the Automotive Industry (VDA) assesses that this situation will yield highly negative consequences for European manufacturers, particularly German producers.
According to forecasts by the China Passenger Car Association (CPCA), demand for internal combustion engine vehicles has dropped significantly, especially in the price segment between 900,000 and 1.3 million yuan.
Consumers purchasing luxury vehicles are increasingly turning instead to Chinese-origin electric or hybrid models.
BMW, Mercedes, and VW have already been forced to significantly scale back their plug-in hybrid operations.
Tax incentives targeting partially electrified powertrains now apply exclusively to vehicles capable of traveling at least 100 kilometers on electric power alone.
This state of affairs is forcing a restructuring of model portfolios across German automakers.
Fewer models, fewer plants
VW CEO Oliver Blume intends to counter this trend.
VW management plans to reduce its model lineup by up to 50%. Product and variant diversity will be cut by 75%.
Furthermore, annual production capacity will be scaled down from the current 10 million vehicles to approximately 9 million. The vehicle model count, which currently stands at around 150, will be halved.
This development primarily affects the internal combustion engine segment in China. In China, VW management has already closed or sold five plants, reducing local capacity by approximately one million vehicles.
Over the long term, the company aims to return to annual sales of 10 million vehicles. Of the 1 million vehicles that VW plans to withdraw temporarily from the market, half are situated in European plants, specifically in Germany.
The remaining half of the excess capacity remains in China, despite the closures executed to date.
To shrink production capacity, the VW Group plans to eliminate up to 50,000 jobs globally. In Germany, the future of four plants is currently under review.
These layoffs will take place in addition to the 50,000 job cuts already planned through 2030.
Oliver Blume characterizes this as the largest transformation in the history of the VW Group: “This is not merely a cost-cutting package; it is the most comprehensive and far-reaching transformation package we have ever implemented at the Volkswagen Group.”
Plunging operating profits spur workforce cuts
VW management is consequently taking radical action to trim model counts, production capacity, and headcounts.
At the same time, the Group is not abandoning its profit targets. In the first half of 2026, the group’s operating profit dropped 11.6% to €5.93 billion.
The operating margin fell to 3.8%, meaning VW generated only €3.80 in operating profit for every €100 in revenue.
Chief Financial Officer Arno Antlitz called the results “another wake-up call to act.”
The profit contribution from Chinese operations fell by one-third to €856 million.
However, Blume views this not as a “Volkswagen crisis,” but rather as an “industry crisis.”
Alternatives: Defense production and China-specific models
Oliver Blume views potential plant closures in Emden, Zwickau, Hanover, and at Audi’s Neckarsulm facility as a “last resort.”
He also noted that utilizing these plants for defense industry manufacturing represents a distinct possibility.
Another option involves producing China-specific VW models for the European market. This refers explicitly to VW models that have hitherto been sold exclusively in China, but it does not imply opening production to other manufacturers.
Additionally, VW plans to increase exports from its Chinese factories to other markets, such as Australia, India, and Central Asian nations, in the future.
The plan to bring its own China-specific models to Europe includes both the importation of finished vehicles and, at a later stage, the manufacturing of those vehicles or their components within Europe.
According to internal sources, the VW plant in Zwickau is being evaluated as a prospective production site.
VW already imports the Cupra Tavascan from China, a model belonging to Cupra, the Spanish brand owned by the VW Group.
In Germany, the Tavascan ranks among the top ten best-selling electric cars, currently holding ninth position.
Within the VW Group, it was decided that the motor for the planned €20,000 electric vehicle, the ID. EVERY1 model, will be imported from a VW component factory in China.
Olaf Lies, the SPD Prime Minister of Lower Saxony, expressed openness to producing Chinese models in German VW plants following a trade trip to China.
European auto giants deepen partnerships with China
Other European car manufacturers are also seeking to offset falling capacity utilization by establishing joint ventures with Chinese producers.
Stellantis plans to use four of its plants in Spain, France, and Italy to assemble models for the Chinese groups Leapmotor and Dongfeng.
Stellantis brands—including Opel, Jeep, Fiat, and Peugeot—are currently utilizing only about half of their assembly capacity within the EU.
In the future, Leapmotor models will be manufactured at Stellantis plants in Madrid and Zaragoza, Spain.
Together with Dongfeng, the production of an electric car in Rennes, France, is under consideration.
A small electric vehicle belonging to Leapmotor will be produced in Pomigliano, Italy.
An Opel SUV model featuring Chinese technology will also be manufactured in Madrid.
The powertrain, battery, and software will be sourced from Leapmotor. German engineers will remain responsible solely for design, seats, and the chassis.
EU sanctions against China risk worsening auto crisis
The VW Group’s strategy to import vehicles developed entirely in China carries inherent risks.
The EU imposes a baseline tariff of 10% on Chinese-made electric vehicles, alongside additional duties termed “countervailing” tariffs.
These countervailing tariffs stand at 35% for SAIC (VW’s Chinese joint-venture partner), 17% for BYD, and slightly under 8% for Tesla.
However, countervailing tariffs affect German manufacturers as well. The Cupra Tavascan was initially subjected to a 20.7% tariff.
Following extended negotiations, the European Commission dropped the additional duty for the VW Group model.
In the US, Mercedes faces the threat of market exclusion due to proposed legislation.
The proposed bill would ban the sale of connected vehicles if more than 15% of the manufacturer’s shares are owned by Chinese shareholders.
Just under 20% of Mercedes’ shares are currently held by Chinese investors.
Europe
Russia stays in ITER nuclear fusion project despite EU sanctions
Despite European Union sanctions and deteriorating relations with Brussels, Russia continues to take part in ITER, the world’s largest nuclear fusion experiment.
According to a report by Euronews television, this situation represents a rare example of cooperation in the ongoing crisis between Moscow and the West.
Following the war in Ukraine, the EU decided to reduce its dependence on Russian energy resources. Accordingly, Russian state institutions were excluded from various scientific programmes, and the provision of Russian funding to European scientific bodies was prohibited.
In contrast, ITER rules do not permit the expulsion of participating states from the project.
Owing to this legal structure, Moscow retains its 9.1% share in the venture. The Russian government continues to provide specialist personnel and technological support, while Russian engineers work alongside their European counterparts at the reactor site.
More than 30 countries, including Russia, are partners in the International Thermonuclear Experimental Reactor (ITER) initiative, where construction began in southern France in 2010. In this massive project, estimated to cost approximately 19 billion euros, critical technical assignments remain entrusted to Russian specialists.
Russian scientists and engineers are responsible for manufacturing complex components, including switchgear equipment, busbar systems, energy-absorbing resistors for power supply, and protection systems for the reactor’s superconducting magnetic assembly.
To manufacture these reactor components, a new industrial facility with an annual production capacity of 30 tonnes of superconductors was established at Rosatom’s site in the city of Glazov.
Moscow’s continued participation in the project is causing unease among some EU officials. In 2025, Members of the European Parliament approached the European Commission to enquire about ways to eliminate dependence on Russia within ITER.
EU Commissioner for Energy Dan Jørgensen replied that a participating state can leave the project only of its own volition.
The European Commission had previously announced plans to ban Russian nuclear fuel and technology, though the adoption of the measure was subsequently delayed.
Certain member states continue to import Russian fuel, with Hungary, for instance, building new nuclear power plants of Rosatom design.
World Nuclear Association data show that Rosatom alone accounts for approximately 44% of global uranium enrichment capacity.
According to a Financial Times report published in January, executives from energy companies Urenco and Orano called on the EU to draft a plan for the phased cessation of enriched uranium imports from Russia.
The companies argued that continuing these supplies creates long-term dependence on Moscow.
A report published in the summer by Sprott Asset Management indicates that, despite EU efforts to diversify sources, European dependence on Russian uranium is increasing.
According to Eurostat data, EU countries purchased 172.6 million euros worth of Russian nuclear fuel during the January to April period of 2026. Imports rose from 253.2 tonnes to 280.9 tonnes compared with the same period of the previous year, when purchases stood at 31.9 million euros.
Total EU imports of Russian nuclear fuel, including uranium, plutonium, and their compounds, reached 347.9 million euros across the whole of 2025. The Netherlands and France accounted for more than 90% of these purchases.
Commenting on the developments, Urenco Chief Executive Officer Boris Schucht noted that European producers are struggling to attract investment for enrichment capacity due to uncertainty over the future of imports from Russia.
Schucht stated that making new investment decisions remains difficult because Russia possesses significant idle capacity that could return to the market.
Europe
German Christian Democrats clash over proposed AfD party ban
Following the state election in Saxony-Anhalt, the Christian Democratic Union and Christian Social Union (CDU/CSU) are seeking a strategy against the victorious Alternative for Germany (AfD).
Hendrik Wuest, the Minister-President of North Rhine-Westphalia whose name is mentioned for the CDU leadership, proposes examining the possibility of banning the party.
The Hessian CDU and its Bavarian sister party, the CSU, reject the idea, arguing that the outcome would be uncertain and that the process would take too long.
Wuest’s push to establish a federal and state-level working group on the constitutional handling of the AfD is met with scepticism even among influential CDU colleagues.
“I still believe that the AfD must be politically marginalised,” said Hessian Minister-President Boris Rhein.
Rhein added that, in principle, everyone should have the freedom to discuss any subject, but warned against believing that a quick solution is possible.
In this context, the CDU politician referenced his experiences with the last ban proceedings against the NPD (National Democratic Party), which lasted several years and proved inconclusive.
Speaking on the sidelines of an event at the Representation of the State of Hesse in Brussels, he noted that this should always be kept in mind.
At the time, the judges of the Federal Constitutional Court ultimately concluded that the NPD was indeed pursuing unconstitutional aims.
However, according to their assessment, the party lacked the potential to successfully achieve those aims, and they therefore rejected the ban application.
CSU leader and Bavarian Minister-President Markus Soeder had previously expressed a view similar to Rhein’s.
“I completely understand that one might prefer the AfD not to exist, but the reality is that a ban under constitutional law is practically unenforceable,” Soeder said following a cabinet meeting in Munich.
In addition to years of legal proceedings, he stated that there is also a risk of the AfD gaining “martyr” status. Soeder argued that the AfD must be confronted on the substance of its policies.
Following the AfD’s election victory in Saxony-Anhalt, Wuest had earlier called for the party to be examined by a group consisting of federal and state experts, constitutional scholars, and officials from the Federal Office for the Protection of the Constitution.
“The real question is how the state, under constitutional law, should handle a party that pursues unconstitutional aims in at least some states,” the CDU politician explained.
According to him, the inquiry should be open-ended and not automatically lead to proceedings to ban the party.
Speaking in Brussels, Rhein said that following the elections in Saxony-Anhalt, the Union’s goal must be to “bring people out from behind the firewall and build bridges to the political centre.”
This means talking to people, taking their concerns seriously, and then translating these into very concrete policies.
One of the most critical statements regarding the AfD came from former CDU Chancellor Angela Merkel.
Saying that “as a CDU member, her heart bleeds,” Merkel noted that she views the Saxony-Anhalt election results as a turning point in the history of the Federal Republic of Germany.
Merkel also took a clear stance on how her party should deal with the AfD. She implied that she is not very fond of the “firewall” (Brandmauer) policy used by the CDU and Chancellor Friedrich Merz against the AfD.
“I did not invent it, nor do I particularly like it,” the former Chancellor said, noting that they cannot convince anyone with this slogan and that “democratic parties” must stop obsessing over the AfD and instead explain their own projects.
Merkel advised political parties to adopt a different communication style. Recommending that “democratic parties” seek greater contact with the public, the CDU politician argued that the absence of a shared information pool due to “personalised feeds” on social networks makes this more difficult.
Europe
German business urges swift reform after AfD win in Saxony-Anhalt
Germany’s small and medium-sized enterprise sector, known as the “Mittelstand”, has urged the federal government to implement “reform” following the Alternative for Germany’s (AfD) clear victory in Saxony-Anhalt.
Representing the group that forms the backbone of Europe’s largest economy, Christoph Ahlhaus, head of the German Federal Association of the Mittelstand, told Bloomberg that an urgent change in policy is needed to restore confidence in Germany’s economic future and to curb support for “populist” parties.
In an interview on Monday, Ahlhaus stated that the AfD’s victory in Saxony-Anhalt was “a clear signal for all people in Berlin and for Chancellor Merz,” adding, “The disappointment is very, very big.”
Germany’s traditional industrial sectors, ranging from automotive to chemicals and engineering manufacturers, are under intense pressure to adapt to a rapidly shifting competitive landscape.
High energy prices, bloated bureaucracy, and fierce price competition from Chinese rivals are eroding profits and triggering sweeping restructurings, fuelling anxieties over the economic future among industrial workers.
Ahlhaus noted that the vast majority of companies do not support the AfD’s policy aimed at reducing economic integration in Europe, arguing that crackdowns on immigrants could become a “major problem” for small and medium-sized enterprises.
Martin Lück, chief capital markets strategist at Franklin Templeton, said in a note: “The extremely strong performance of the AfD is, above all, an important political signal, but not yet an acute development for the capital market.” He continued:
“From an investor’s perspective, this creates problems if doubts arise regarding the state’s European integration, fiscal reliability, openness to international skilled labour, or the continuity of its energy and industrial policies.”
Lück added: “Saxony-Anhalt, which is particularly reliant on fresh investment and skilled labour, can hardly afford such doubts.”
Speaking to Bloomberg ahead of Sunday’s elections, the AfD’s lead candidate, Ulrich Siegmund, rejected the criticism and insisted that the party’s policies would actually help attract investment.
“Many companies want to invest in Saxony-Anhalt because they view it as a competitive edge, and having an administration that provides planning certainty once again is seen as an asset for the region,” Siegmund said.
According to Siegmund, the business community wants “to eliminate ideology entirely from economic development support and, in general, grant freedom back to companies.”
Saxony-Anhalt has the lowest per-capita GDP among Germany’s 16 federal states.
Since national reunification, Saxony-Anhalt has suffered a sharper demographic decline than any other region; between 1990 and 2024, its population fell by more than a quarter.
Marcel Fratzscher, president of the Berlin-based German Institute for Economic Research (DIW), contended that the election result was “an economic disaster as well,” saying: “Whoever forms the next government will struggle to implement reforms. Yet Germany needs very tough reforms.”
Speaking to Bloomberg, the former European Central Bank official warned that the “far-right” party’s platform could lead to catastrophe:
“If you look at the consequences of what the AfD wants, there will be a massive drop in GDP and a massive rise in unemployment. Germany is very export-dependent. Almost half of Germany’s GDP comes from exports, and the AfD will ruin [its] economic model; that will have terrible, as well as economic, repercussions.”
Major cutbacks across core sectors such as the chemical and automotive industries have heightened anxiety among workers regarding their economic future.
Far-reaching reorganisations, such as Volkswagen’s restructuring programme approved late on Thursday, will generate a domino effect across various regions of Germany, including Saxony-Anhalt.
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