Fewer diesel and petrol cars sold: China is becoming a billion-dollar risk for German car manufacturers

2026-06-20

The Chinese automotive market is undergoing a dramatic transformation that is creating major risks for German carmakers such as Volkswagen, BMW, and Mercedes-Benz. While overall demand is weakening, the real collapse is happening in the combustion engine segment.

Recent figures show that China’s passenger car market fell sharply, with petrol and diesel vehicles experiencing the steepest decline. In contrast, electric and hybrid vehicles are now dominating sales, accounting for the vast majority of new registrations and reshaping the industry’s structure.

This shift has placed German manufacturers in a difficult position. They still generate much of their profit in China from traditional combustion engine vehicles, but that segment is shrinking rapidly. Meanwhile, in the fast-growing electric vehicle market, Chinese brands hold overwhelming dominance, leaving German companies with only a limited presence.

At the same time, Chinese automakers are expanding aggressively beyond their domestic market. Exports have surged, allowing brands such as BYD to gain strong positions in countries like Mexico and Brazil, where Chinese vehicles are rapidly increasing their market share. In Europe as well, their presence is growing steadily, with Chinese brands reportedly doubling their share in just one year.

The expansion is no longer just about exports. Several Chinese companies are also investing in local production facilities within Europe, including planned plants in Hungary and Spain. This move reduces the effectiveness of EU tariffs and strengthens long-term competition against European manufacturers on their home turf.

Industry forecasts suggest the pressure is not temporary. Some analysts expect continued declines in China’s traditional car sales, while even Volkswagen has not predicted a near-term recovery. Although German companies are launching new electric models for the Chinese market, they often rely on local partners for software and digital systems—areas that are increasingly seen as the key battleground in the global auto industry.