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
Iran weighs strikes on US bases in Europe if tensions escalate
The Iranian leadership is weighing the option of striking American military facilities in Europe should US President Donald Trump escalate tensions.
According to a report by the Financial Times citing two sources close to Iranian officials, Tehran has worked on potential strike plans targeting American facilities in Southeastern Europe. In this context, Bezmer Air Base in Bulgaria, used by the US military for aircraft refuelling, alongside Cyprus, which hosts British military bases, were listed among potential targets. Iran was also reported to have evaluated the possibility of attacking undersea fibre-optic cables in the Strait of Hormuz.
The sources stated that in the event of a new conflict, Tehran could expand its strike range beyond the borders of the Middle East. One source said: “If the US goes too far, Iran will defend itself at all costs, go beyond the region’s borders, and strike Europe.”
The Tehran government has previously attempted strikes against long-range targets. The US announced in February that missiles were launched towards the Diego Garcia base in the Indian Ocean, while Türkiye stated in March that it intercepted Iranian-origin ballistic missiles in mid-air. The report noted that Tehran might find it more convenient to act through allied groups in Iraq, Lebanon, and Yemen rather than via direct action.
Iran accelerates preparations for potential major conflict
According to a report by The Wall Street Journal citing Iranian and Arab officials, Tehran has prepared a comprehensive plan against the possibility of conflict reigniting in the Middle East. Sources indicated that Tehran views the memorandum signed with the US in June as an attempt by Washington and Israel to buy time ahead of a new offensive.
Iran has been conducting preparations over the past two months against the prospect of an expanded conflict. The report noted that officials have increased Islamic Revolutionary Guard Corps oversight of the regular armed forces, appointed veterans of the Iran-Iraq War to key posts, expanded counterintelligence operations, and accelerated missile and drone production.
Data from Arab intelligence services indicates that Iran also maintains contact with armed groups in Yemen and Iraq. Tehran’s objective is reportedly to raise costs for the US and prevent a recurrence of the previous conflict.
The Wall Street Journal sources also reported that Tehran expects attempts to instigate domestic unrest. Commenting on the matter, Mehdi Mohammadi, an adviser to Iran’s chief negotiator, said: “Iran is ready for a major conflict.”
The war between the US and Iran began in February. The two countries signed a ceasefire memorandum in June, but the resulting agreement lasted only a few weeks. Following the resumption of hostilities, Iran maintained its naval blockade in the Strait of Hormuz, while the US continued its blockade of Iranian vessels and ports.
Negotiations for a new agreement are currently suspended. Trump stated that the US is maintaining negotiations and economic pressure on Tehran, adding that ending the Iranian nuclear programme remains one of the primary goals of the American operation. However, citing its own sources, Al Arabiya reported on 17 August that Washington and Tehran had extended the peace agreement.
Europe
German drone start-up CEO in hiding over alleged Russian plot
The head of a German defence start-up supplying strike drones to Ukraine has been living in hiding for months due to an alleged Russian assassination plot.
Stefan Thumann, the head of Donaustahl, said in a joint interview with the television channel RTL and Stern magazine that German authorities warned him in late 2025 about a plot by Russian intelligence.
The CEO of the company, which produces strike and reconnaissance drones as well as military drone software, said he has effectively been living underground since then.
Thumann said:
“I am locked in a duel for my life with the Russian military intelligence service. I am constantly moving, living under 24-hour personal security; my private life is now gone.”
Prosecutors announced in March the arrest of two “disposable agents”—individuals typically hired for relatively low pay and given minimal training—who had allegedly surveilled the CEO in preparation for the assassination attempt.
However, according to reports, the danger to the CEO may not yet be over. RTL cited a German lawmaker who stated that the plans targeting him were at a very advanced stage and involved the use of a nerve agent.
The 39-year-old CEO said that following the “shock” of learning about the plot, he wrote his will and filled out an organ donor card.
“Things you would not normally think about at my age,” Thumann said.
To avoid dwelling on his personal situation, he sleeps next to his computer and starts working as soon as he wakes up.
He added that the war in Ukraine has become “a completely personal war” for him.
Donaustahl is among the defence technology start-ups in Germany that have come to prominence by developing high-tech drones, which are playing an increasingly central role in the Ukrainian conflict.
According to a CNN report, in 2024 the US foiled a Russian plot aimed at assassinating Armin Papperger, the CEO of German defence giant Rheinmetall.
Rheinmetall is Germany’s largest defence group and one of the principal suppliers of ammunition and weapons to Ukraine.
Europe
Marine Le Pen plans French constitutional referendum on immigration
The presidential election to be held in France in the spring of 2027 will mark the end of the Emmanuel Macron era. Although the official election campaign has not yet begun, the principal political actors, including the right-wing National Rally (RN), have selected their candidates.
On 7 July, the Paris Court of Appeal effectively lifted the barrier to the eligibility of Marine Le Pen, leader of the RN group in the National Assembly, and Le Pen declared her candidacy on the same day.
Recent opinion polls show Le Pen significantly ahead of her rivals, including the ruling camp, with voter support between 34% and 35.5%.
Support for former Prime Minister Gabriel Attal of Macron’s centrist Renaissance party remains at 13-15%, while the vote share of Édouard Philippe, leader of the centre-right Horizons party who served as prime minister between 2017 and 2020, is measured at between 16.5% and 19%.
In March 2025, the court found Le Pen guilty of embezzling European Parliament funds and barred her from public office for five years.
Evaluating the appeal against the ruling, the Paris Court of Appeal upheld the conviction but ruled that there was no element of personal enrichment.
Under the finalised sentence, Le Pen was handed a fine of 100,000 euros, a three-year prison term with two years suspended, and a 45-month ban from public office with 30 months suspended.
Because the disqualification period was applied from the first-instance court’s decision of 31 March 2025, Le Pen effectively secured the right to contest the 2027 presidential election.
While the RN plans to unveil its election programme at the beginning of next year, Le Monde newspaper warned in an 18 August report that Le Pen’s pledge for a constitutional referendum on immigration would constitute “a coup d’état in form and substance”.
The referendum proposal in question was first raised by Le Pen ahead of the 2022 presidential election.
The RN group submitted this proposal to the National Assembly in January 2024 as a 14-article constitutional amendment bill titled “Citizenship, Identity, and Immigration”.
The text envisages restricting or abolishing birthright citizenship to make it harder for children of foreign nationals to acquire citizenship, introducing the principle of “national priority” in employment, housing, and social assistance, making it more difficult for refugees to obtain legal status, and tightening entry rules into the country.
A separate constitutional amendment block in the proposal aims to make French law superior to international obligations and European Union law in the Constitution of the Fifth Republic.
Le Pen explained the purpose of these regulations as “preventing supranational courts from forcing France to pursue policies contrary to the will of the French people”.
Following the 2024 parliamentary elections, the RN removed the most controversial article from the proposal. This article included a ban on appointing dual nationals to certain public posts.
Le Pen stated that this provision was removed from the text on the grounds that it could create a false impression of unequal treatment of people based on their origins.
No other changes were made to the draft, and Le Pen maintains her determination to enact the provisions.
According to Le Monde, Le Pen plans, in the event of an electoral victory, to combine the referendum with the first round of the parliamentary elections to be held immediately after the presidential election.
In this process, she aims to use Article 11 of the French Constitution, which empowers the head of state to submit an issue directly to a referendum without parliamentary debate.
Article 89 of the Constitution, however, stipulates that constitutional amendments must be approved by both the National Assembly and the Senate before being submitted to a popular vote.
Jean-Éric Schoettl, former Secretary General of the Constitutional Council, described Le Pen’s proposed method as a “double coup, both in procedure and substance”.
Laurent Fabius, the former president of the council, and Richard Ferrand, its current president, also stated that immigration does not fall under the scope of Article 11 and that the procedure in Article 89 must be applied.
The RN camp, for its part, points to the precedent set by Charles de Gaulle, who used Article 11 twice for constitutional changes.
General de Gaulle preferred this route in 1962 for the direct election of the president by universal suffrage, and in 1969 for the reform of the Senate and regional administration.
Philippe Olivier, a special adviser to Le Pen, pushed back against the criticism, asking: “Do Richard Ferrand and Laurent Fabius know the Constitution better than General de Gaulle, and do they reject the interpretation of the founder of the Fifth Republic?”
According to information obtained by Le Monde, Le Pen’s team prepared two alternative plans. The first scenario envisages amending Article 11 itself through the regular procedure in Article 89 to enable constitutional amendments via direct referendum.
The second and more radical scenario involves bypassing existing constitutional procedures entirely. In this case, the party would submit a revised new constitution to a referendum in line with its draft, and voters would cast their ballots as the “constituent people”, the direct source of the new constitutional order.
Although the European Union has significantly tightened its migration policy in recent years, the RN’s proposals go far beyond current European rules.
The draft conflicts with the EU acquis, particularly regarding the restriction of the right to asylum and the principle of national priority.
The national priority approach directly contradicts Article 7 of EU Regulation 492/2011, which guarantees equal treatment and non-discrimination for EU citizens working in another member state.
The new EU Pact on Migration and Asylum, which entered into force in June 2026, introduces a common procedural standard for international protection processes.
EU Regulation 2024/1348 also obliges member states to register and examine asylum applications made on their territory or at their borders.
Nicolas Hervieu, a professor of public and European law, stated that the RN’s attempt to place the French constitution above European norms could result in sanctions.
Hervieu indicated that the EU could freeze funds allocated to France, as seen in the cases of Poland and Hungary.
The Hungarian administration took harsh measures during the crisis triggered by the influx of refugees from North Africa, the Middle East, and South Asia in 2015.
In 2020, Budapest bypassed EU rules by deciding to grant permission for asylum applications solely to individuals who had received refugee status at its embassies in Kyiv or Belgrade, turning away all other applicants at the border.
Brussels determined that this practice undermined the foundations of the union, and the EU Court of Justice fined Hungary 200 million euros in June 2024 for not accepting asylum seekers.
The court also ruled that the country must pay an additional daily fine of 1 million euros until the legislation is brought into compliance with EU standards.
In Poland, the freezing of funds was grounded on violations of the rule of law and judicial independence during the previous government.
However, disputes over migration continued under the new government led by Prime Minister Donald Tusk.
In May 2024, the Tusk cabinet opposed the mandatory solidarity mechanism included in the new Pact on Migration and Asylum, which envisages assistance for countries under migration pressure; nevertheless, the text was adopted without amendment in the EU Council.
In response to the Polish government’s proposal to temporarily suspend the acceptance of asylum applications due to the situation on the Belarus border, the European Commission stated that Warsaw risked violating its international obligations.
Experts at the European Council on Foreign Relations (ECFR) emphasise that if Le Pen is elected, European partners must prepare for a “completely different” France.
According to expert assessments, it is considered possible not only that Paris would adopt a hostile stance towards EU institutions, but also that it would cease to be an ally on core foreign policy files of the union, including the war in Ukraine.
The ECFR report stated: “It is difficult to imagine Le Pen providing a decisive response to the security crisis on Europe’s eastern flank. Even under pressure from EU member states expecting a firmer stance against Russia, it is highly probable that Le Pen would lean towards concessions and negotiations rather than taking resolute steps.”
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