The German automotive industry is enduring a severe period of distress, driven by intensifying competition from Chinese vehicle manufacturers and an increasingly overheated domestic market in China.

For decades, China served as the primary engine that propelled German carmakers into global titans, yielding robust sales and billions in profits. Today, that historic reliance has transformed into their heaviest liability.

According to an analysis published by Politico, domestic Chinese manufacturers—having spent decades observing, learning, and investing—are now producing better-equipped electric vehicles at prices lower than those offered by Volkswagen, BMW, and Mercedes-Benz.

At the same time, China’s automotive market—the largest in the world—has become severely overheated and contracted by a fifth this year. The sharp downturn has forced both domestic and foreign automakers into a ruthless battle for survival.

The tangible impact of this pressure became clear this month as German carmakers reported their half-year financial results, disclosing billions of dollars in losses alongside announcements of widespread layoffs and plant closures across Europe.

“The environment has never been as challenging as the one we face today,” Oliver Blume, Chief Executive Officer of the Volkswagen Group, told investors. “Looking ahead, the risks before us are steadily mounting.”

The structural distress within the auto sector delivers another blow to Germany’s already struggling economy. It also presents a escalating political predicament for Chancellor Friedrich Merz’s fragile coalition ahead of critical state elections this autumn.

Dismantled dreams in the automotive sector

Since the 1980s, China had functioned as the primary engine of high profit margins for German automakers.

To gain access to a vast and rapidly expanding consumer market, carmakers were required by Beijing to establish joint ventures with local partners.

For decades, that arrangement proved highly lucrative, delivering massive returns to shareholders.

However, in the post-pandemic era, Chinese companies rapidly outpaced their German rivals in electric vehicle technology, which gained swift adoption across China.

While German brands long enjoyed high prestige among Chinese consumers, buyers have swiftly shifted toward domestic manufacturers offering superior technology at lower price points.

“They are suffering massive losses in China and may no longer be able to recover there,” said Pedro Pacheco, an automotive analyst at the consulting firm Gartner.

Chronic problems spread beyond China into Germany

The fallout is increasingly being felt inside manufacturing plants within Germany itself, rather than remaining confined to China.

BMW announced this week that it will eliminate 8,000 jobs across Germany by the end of 2027, with severance payments set to begin in October.

Mercedes-Benz is asking its workforce to extend weekly working hours from 35 to 40 hours for the same pay.

Meanwhile, industry flagship Volkswagen is locked in negotiations with labor unions over plans to lay off 100,000 workers and shut down domestic factories.

This severe downturn is providing political momentum to the Alternative for Germany (AfD) party, which is gaining traction in national polls.

The party is leveraging the auto sector’s decline and job losses to launch sharp attacks on the government.

“Even major industrial pillars like Volkswagen, Porsche, or Infineon are recording historic drops in profits and planning hundreds of thousands of layoffs in the coming years,” AfD co-leader Alice Weidel said this week. “This demonstrates how far the deindustrialization of our business hub has truly advanced.”

Merz and his governing coalition will get an initial indication of how these cutbacks resonate with voters during state elections this autumn in Saxony-Anhalt and Mecklenburg-Western Pomerania, both of which are strongholds for the AfD in eastern Germany.

Chinese vehicles begin to dominate European market

While automakers continue to perform well in North America and Europe, the collapse of sales in China is eroding overall profits.

Facing fierce domestic competition and systemic overcapacity at home, Chinese carmakers are exporting vehicles in record volumes.

Europe has emerged as their primary target market: China now sells more vehicles in Europe than Germany sells in China.

European consumers are enthusiastically embracing these imports. According to the latest data from the automotive industry association ACEA, sales of Chinese-made cars in the European Union surged by 63% in the first half of this year, rising from 338,000 units in 2025 to roughly 549,000 units in 2026.

That figure now represents nearly 10% of total European automobile sales.

Although German car companies carry an unparalleled exposure to China, even manufacturers with no operational footprint there, such as Renault, are feeling the severe impact of rising Chinese vehicle sales in Europe.

Automotive analyst Matthias Schmidt noted that the influx of inexpensive Chinese vehicles featuring advanced technology has put pressure on Renault and its budget brand, Dacia.

Renault disclosed on Thursday that sales of its Dacia brand fell by 8% year-on-year in the first half of 2026.

European firms forced into cooperation with Chinese rivals

The European Commission attempted to intervene by imposing tariffs on Chinese-made electric vehicles following an anti-subsidy investigation, but the added costs have done little to stem the inflow.

The tariffs do not apply to plug-in hybrid vehicles, leaving a lucrative loop-hole for Chinese manufacturers to exploit.

These shifting dynamics are driving several European automakers to forge direct partnerships with Chinese competitors.

Stellantis, the Franco-Italian-American conglomerate, established a joint venture with Chinese manufacturer Leapmotor. According to ACEA data, Leapmotor’s European sales surged from just 7,701 units in the first half of 2025 to 48,261 units during the same period this year.

Volkswagen CEO Blume hinted that his company could pursue a similar path, telling investors the carmaker might begin manufacturing certain models in Europe that were originally developed in China for European consumers.

Olaf Lies, Minister-President of Lower Saxony—a major shareholder in Volkswagen—said earlier this summer that it would be a strategic error for the automaker to isolate itself from China’s technological advancements.

“Our objective should not be to isolate technological developments from one another,” Lies stated.

However, Schmidt warned that such a strategy carries significant risks for the German brand’s equity.

He noted that these vehicles would effectively remain Chinese-engineered cars bearing a VW badge, a dynamic that could prompt consumers to buy the cheaper Chinese-branded versions directly.

Accelerating the search for new markets

European automakers are also attempting to offset losses by pursuing growth in emerging markets.

“North America, India, and the Global South represent our growth engines for tomorrow,” Blume told investors during a briefing.

Yet Chinese manufacturers have already established a commanding presence in those regions, dominating electric vehicle sales across Southeast Asia and Latin America.

Under heavy pressure, European automakers are also attempting to monetize their mass-production expertise by capturing a share of rising global defense spending.

Blume told investors that Volkswagen is engaged in “very advanced discussions” with a defense contractor, adding that he expects “a decision to be made within this year.”

However, portions of the workforce, particularly in Germany, remain hesitant about associating the company with the arms industry.

Furthermore, the move carries a serious risk of retaliation from Beijing. Earlier this month, China imposed export restrictions on 14 defense and technology firms, including German defense giant Rheinmetall.

While those measures were presented as retaliation against export curbs targeting Chinese entities, automotive companies entering the defense sector could find themselves exposed to similar actions.

“European carmakers must act very, very carefully because this is not just a quick gain,” Pacheco warned. “It may look like one, but once you step onto that chessboard, you need to know how to play chess.”

The first major event organized by the political circle of Mateusz Morawiecki, following his split from Law and Justice (PiS), is set to take place in Warsaw’s Praga district.

The gathering comes just days after the former prime minister and dozens of his allies severed ties with the national-conservative PiS.

The move also led to Morawiecki’s resignation from the presidency of the European Conservatives and Reformists (ECR) group in the European Parliament.

Organized by his Rozwój Plus (Development Plus) movement, the conference—dubbed “Morawiecki’s barbecue” due to the prominent inclusion of charcoal-grilled kiełbasa sausages—will mark a significant moment in Polish conservative politics.

The event will bring together key figures from the emerging movement alongside featured guests, including former world chess champion Garry Kasparov and General Rajmund Andrzejczak, the former chief of the General Staff of the Polish Armed Forces.

The gathering will offer Morawiecki’s camp an opportunity to present a political vision distinct from that of the current PiS leadership.

“Poles care about the fight for a strong Poland, their wallets, their jobs, housing, development, identity, culture, the Christian faith, and the defense of the cross hanging in the Sejm,” Morawiecki said this week. “These are our principles; this is our faith.”

Discussions will focus on demographics, security, and the politics of memory—topics that have grown increasingly sensitive amid recent tensions in Polish-Ukrainian relations.

While Morawiecki describes Rozwój Plus as an “expert group and think tank,” its political ambitions are becoming increasingly clear.

A new parliamentary group established on Wednesday brings together 40 deputies and one senator, providing his allies with an official platform in parliament and a base from which to challenge PiS.

“This is a threat to us,” Mateusz Kurzejewski, a PiS politician and spokesperson for Przemysław Czarnek’s prime ministerial campaign, told Euractiv. “After all, this is an initiative that reduces our chances of victory, though it does not eliminate them entirely. Therefore, we will continue to work hard.”

However, whether Morawiecki can successfully reshape the Polish right remains uncertain.

An SW Research poll commissioned by Onet revealed that 32.9% of respondents would consider voting for a party led by the former prime minister.

The strongest potential support comes from voters who already align with the right. Among respondents currently close to PiS, 14% said they would consider supporting Morawiecki, while 7.1% of those aligned with the further-right Confederation held the same view.

The initiative could also draw limited support from the ruling camp. Approximately 7.4% of voters currently supporting Prime Minister Donald Tusk’s pro-EU Civic Coalition, The Left, Poland 2050, or the Polish People’s Party indicated they would not rule out voting for a party led by Morawiecki.

Sources within Tusk’s government believe the split in PiS could benefit the ruling coalition in the short term.

“Particularly because this situation helps soften the impact of the hospital scandal,” one source told Euractiv. “Today, no one is talking about it anymore, and fortunately, no new statements have been made.”

The controversy revolves around allegations that a Warsaw hospital operated a preferential admission system for politicians belonging to the governing Civic Coalition, allowing them to enter a VIP lounge and receive medical treatment ahead of other patients.

Questions have also been raised regarding the salary of the doctor heading the hospital’s emergency department, who is reportedly linked to Tusk’s party.

Yet the same source warned that Morawiecki’s departure may have little long-term impact on the Civic Coalition.

They argued that PiS possesses a fiercely loyal electorate, whereas enthusiasm for Rozwój Plus could prove temporary.

“Look at the IBRiS poll for Rzeczpospolita,” another source said. “70% of PiS voters say they are voting for their ideal party. This core electorate accounts for about 70% of PiS’s current voters.”

A similar perspective prevails within PiS, where politicians contend that Morawiecki is chasing a voter base that may be too small to sustain a new party.

Speaking to Euractiv, Kurzejewski said:

“People do not want to vote for politicians who have been excluded from PiS. As for Law and Justice voters, they do not want to vote for those who betrayed them. That is why this project means Rozwój Plus will fail to clear the electoral threshold.”

Today’s event will therefore serve as an early test of whether Morawiecki can translate curiosity and institutional support into lasting political clout—or whether his departure will become merely another short-lived fracture on Poland’s crowded right wing.

An influx of thousands of migrants entering Spain from neighboring Morocco has plunged the autonomous enclave of Ceuta into chaos since Wednesday, prompting fresh backlash against Prime Minister Pedro Sánchez’s immigration policies.

Local authorities warned on Wednesday that an increasing number of migrants were reaching Ceuta by sea.

Juan Jesús Vivas, the president of Ceuta, told reporters that the situation constituted “an absolute humanitarian and social emergency” and demanded that the central government take action.

The situation escalated further on Thursday as thousands of people entered Ceuta by land and sea, overwhelming reception centers.

Videos shared online showed individuals using wetsuits and life jackets to swim to shore.

In a statement posted Thursday on X, Sánchez announced that he was working with Moroccan authorities to restore order as quickly as possible and promised an immediate response.

The border chaos erupted just weeks after the Spanish Supreme Court issued a ruling preventing the direct deportation of migrants arriving by sea.

Sánchez’s political rivals laid the blame for the crisis directly on the prime minister. Santiago Abascal, leader of the right-wing Vox party, characterized the events as an “invasion,” while Alberto Núñez Feijóo, leader of the center-right People’s Party (PP), was also among those condemning the prime minister.

The developments drew additional criticism from anti-immigration figures across Europe, including Alice Weidel, co-leader of Alternative for Germany (AfD), and Manfred Weber, chairman of the European People’s Party (EPP), the largest group in the European Parliament.

“This proves one thing: the Migration Pact and return regulations must be put into force today, not tomorrow. Furthermore, Frontex must be strengthened,” Weber wrote.

Tensions have remained high in Spain since the Sánchez administration launched a program enabling undocumented migrants to apply for legal status and remain in the country. More than one million people have applied under the scheme.

This represents the most severe border crisis to hit Ceuta since 2021, when at least 8,000 people entered the territory from Morocco.

The autonomous Spanish cities of Ceuta and Melilla are the only EU territories sharing a land border with Africa.

Italian leaders demand Spain’s expulsion from Schengen

Meanwhile, the fiercest reaction to the migration crisis in Spain emerged from Italy. Top Italian politicians demanded that Spain be expelled from the Schengen Area as tensions continued to escalate.

Italian Prime Minister Giorgia Meloni said in a statement on X: “The images coming from Ceuta are shocking and demonstrate once again that uncontrolled illegal migration poses a real threat to the security of Europe’s borders.”

Meloni added that Italy was prepared to act, “including through extraordinary measures,” to protect its borders and guarantee the safety of its citizens.

Together with Deputy Prime Minister Matteo Salvini and Foreign Minister Antonio Tajani—the most senior ministers representing parties in the Italian right-wing coalition—Meloni demanded the suspension of the Schengen Agreement or the exclusion of Spain from the border-free zone.

Under the accord, individuals can travel freely between 29 signatory European countries.

However, several member states have reinstated checks at certain borders, as permitted under the agreement, citing migration risks.

Italy had previously temporarily reintroduced controls on its border with Slovenia to prevent smuggling and terrorism.

Tajani went beyond calling for Spain’s exclusion from Schengen, attributing responsibility for the events in Ceuta to the immigration policies of Spanish Prime Minister Pedro Sánchez, who had promised to legalize hundreds of thousands of undocumented migrants.

The minister characterized the policy as “profoundly wrong” and claimed it provided “an incentive for human trafficking.”

The remarks provoked a sharp reaction from Spanish Foreign Minister José Manuel Albares, who summoned the Italian ambassador to account for Tajani’s statements.

Replying to Tajani on X, the Spanish minister wrote: “This message is unbefitting the foreign minister of a partner and friendly country from whom we expect European solidarity, not partisan demagogy.”

Separately, European Commissioner for Migration Magnus Brunner, who is also an EPP member, stated that the European Commission supports Spain in protecting the integrity of its borders, including Ceuta, and is in contact with Spanish Interior Minister Fernando Grande-Marlaska regarding the matter.

A spokesperson stated that the Commission welcomed “the close cooperation established between Morocco and Spain to combat these migratory flows and to ensure the swift return of individuals who entered Ceuta illegally, in accordance with applicable rules.”

“When it comes to our cooperation with partner countries, Morocco is a key and reliable partner for the EU. In recent years, we have intensified our cooperation in the areas of migration and border management, as well as the fight against smuggling. We are currently working to turn our relations into a comprehensive and strategic partnership,” the spokesperson added.