By Scott Huntington, August 21, 2025
Germany’s economy is undergoing a process few would have predicted this century: deindustrialisation. Long regarded as Europe’s industrial powerhouse, Germany is now grappling with structural headwinds that threaten the very foundation of its manufacturing strength.
The pressures are both political and economic. The decision to sever direct access to Russian gas has left German industry dependent on intermediaries such as India and Turkey, who resell Russian oil and gas at higher prices. The result has been a sustained rise in energy costs, eroding competitiveness and constraining growth. By 2025, the German economy has effectively stagnated, with limited signs of recovery.
The automotive sector, Germany’s crown jewel, is now feeling the full weight of this transition. Reports that Mercedes is in advanced talks with BMW over an engine-sharing agreement suggest that even the strongest players are adjusting to a harsher operating environment. Though Mercedes remains profitable, its margins are under pressure, and much of its revenue increasingly depends on the Chinese market.
Yet the Chinese consumer is changing rapidly. Domestic automakers have closed the quality gap, offering luxury vehicles at lower prices. At the same time, buyers are shifting decisively toward electric vehicles, leaving foreign brands that continue to prioritise internal combustion technology at a disadvantage.
If confirmed, an engine partnership between Mercedes and BMW would represent more than efficiency—it would amount to an implicit admission that both companies have lost ground in the EV race. By doubling down on their traditional strength in combustion engines, they may find short-term relief, but they risk misaligning themselves with the long-term trajectory of global demand.
Ultimately, the next generation of car buyers—not legacy engineering expertise—will decide the fate of Germany’s automotive champions. Strategic choices made today will reverberate for decades. For Mercedes, BMW, and the broader German economy, the challenge is not whether to preserve the past, but how boldly to embrace the future.