Merkel Leads "Automotive Group" on Visit to China: German Carmakers' Path to Breakthrough Lies in China's Innovation

Recently, German Chancellor Friedrich Merz’s first official visit to China has been imbued with significance far beyond routine diplomacy. His delegation includes the global CEOs of automotive giants such as Volkswagen, BMW, and Mercedes-Benz, forming an exceptionally rare "industrial dream team." The purpose of this trip is clear and urgent: at a time when Germany’s auto industry faces its deepest crisis in decades, they are turning to China—their largest yet most challenging market—in search of solutions and survival strategies.

Source: Auto Commune

The positioning of the China-Germany automotive industry has undergone a dramatic transformation.

The foundation of Germany's automotive industry is undergoing unprecedented upheaval. As of the third quarter of 2025, employment across the sector has fallen to its lowest level in over a decade, with the most severe layoffs occurring in manufacturing. A deeper challenge lies in the fact that its renowned engineering prowess and luxury brand barriers are rapidly eroding in the face of electrification and intelligent technologies.

According to a survey report released by the Institute of the German Economy (IW) in Cologne, Germany’s exports of automobiles and auto parts to China in 2025 will fall to less than €14 billion—down more than half (approximately 53%) from the peak of nearly €30 billion in 2022—reflecting the stark reality of declining competitiveness of German automobiles in the Chinese market. Meanwhile, Chinese electric vehicles (EVs), with faster iteration cycles, smarter user experiences, and lower costs, are rapidly gaining favor in European markets. Supply-chain vulnerabilities have further exacerbated this predicament: during its transition to electrification, Germany remains highly dependent on China for critical resources such as battery materials and rare earth elements, while its high energy costs place domestic production at a competitive disadvantage globally.

The warning from the German Association of the Automotive Industry (VDA) is deafening: investments and jobs are accelerating their move overseas, and the central position of Germany's automotive industry is at risk of being "hollowed out." This is not a cyclical fluctuation, but a fundamental structural crisis.

In stark contrast, China's domestic market share of new energy vehicles has exceeded 50% in 2025, completing the transition from policy-driven to market-driven growth. More importantly, the core driving force of the industry is shifting from "scale" to "value" and "ecosystem."

China has built a globally competitive, complete industrial chain in fields such as power batteries, intelligent driving, and automotive software. German automakers are shifting their strategy from “selling to China” to “learning from China.” Volkswagen Group has established its first overseas full-cycle R&D center in Hefei, while Mercedes-Benz and BMW have formed deep partnerships with Chinese tech companies to jointly develop core technologies for next-generation intelligent vehicles. The head of Volkswagen Group China candidly stated that China has become an “innovation hub” and a “key technological partner.” At its core, this shift reflects the necessity for German automakers to integrate into China’s innovation ecosystem to maintain global competitiveness.

II. Pragmatic Choices Under Political Postures: Seeking Balance and Stability

Merkel's visit takes place against the backdrop of uncertainties in transatlantic relations and the shadow of American trade protectionism. Its core strategic goal is clear: amid a turbulent global environment, to stabilize relations with its largest trading partner and to find new sources of certainty for the German economy.

Photo source: Xinhua News Agency

In 2025, Sino-German trade volume saw a counter-cyclical growth, and China once again became Germany's largest trading partner, providing Mertz with a solid negotiation basis. The arrangement of the visit is intriguing, as Mertz also specifically visited the Chinese humanoid robot company Unitree Technology, indicating that Germany hopes to find future footholds for cooperation with China in emerging technology fields.

Corporations are taking more direct actions than government statements. In 2025, Germany's direct investment in China reached a four-year high, with over 90% of Chinese-based German companies planning to increase their investments, showing their confidence with real money. Christoph von Heer, chairman of the BMW Group, represents the general consensus of the German industrial sector: ignoring the Chinese market and its innovation potential would mean missing out on global success opportunities. This situation, where "politics talk about competition while businesses pursue cooperation," exemplifies the typical characteristics of Germany's new pragmatism toward China.

Rebuilding Partnerships: The Cooperation Model Undergoes a Paradigm Shift

The specific cooperation reached during Mertz's visit to China clearly outlines a new paradigm for the automotive industry relationship between China and Germany.

On February 25, 2026, BMW and CATL signed a cooperation memorandum of understanding, focusing on cross-border data pilot for battery passports and collaborative carbon footprint reduction in the supply chain.

Image source: BMW Group

On February 26, 2026, Mercedes-Benz and Momenta signed a Memorandum of Understanding (MoU) to upgrade their strategic partnership, deepening collaboration in intelligent driving.

Earlier, in August 2025, Volkswagen and XPeng signed the "Expanded Electronic Electrical Architecture Technology Strategic Cooperation Agreement," under which they will jointly develop the CEA architecture for electric vehicles.Expand to include fuel-powered and plug-in hybrid models.(Covering CMP/MEB platforms)...

The common characteristic of these actions is that the cooperation focus has shifted from traditional manufacturing and sales to data governance, software algorithms, low-carbon supply chains, and joint research and development.

The past "era of joint ventures" was essentially a combination of German technology and the Chinese market. Today, this collaboration is evolving into a more complex and more equal form.Technology flowShift from one-way input to two-way or even reverse flow;The Role of the Chinese Marketevolve from a single sales terminal to a complex integrating R&D center, innovation testing ground, and export baseCompetitive DimensionsExpanding from a single product to a systematic competition encompassing chips, algorithms, data, and ecosystem.Cooperation BondIt has also expanded from joint venture factories to various forms such as equity investment, technology licensing, and platform sharing.

This shift even affected Germany's domestic policies. In early 2026, Germany restarted its electric vehicle subsidy program and unprecedentedly announced no restrictions on vehicle origin, allowing Chinese-made models to also qualify for subsidies. This is similar to China's strategy when introducing Tesla, aiming to invigorate the innovation vitality of the domestic industry by introducing "sharks."

IV. Future Potential Scenarios: Integration Rather Than Division

Mertz's visit has ushered in a new era of cooperation in the automotive industry between China and Germany, and several paths of deep integration may emerge in the future:

“German brand, Chinese coreIn the future, German luxury cars may increasingly derive their core competitiveness from China-sourced "three-electric" systems, intelligent cockpits, and autonomous driving software.

“Dual-core drive, global division of laborGermany retains high-end design and brand operations while shifting the R&D focus for electric vehicle platforms and intelligent solutions to China, establishing dual R&D and supply chain centers spanning Europe and Asia.

“Ecological Synergy, Standard Co-constructionBoth parties will engage in deep cooperation in key areas that determine future industrial rules—such as carbon footprint accounting, battery passports, and autonomous driving regulations—to jointly shape global standards.

No matter which path, the core logic lies in the fact that China has shifted from being a "profit cow" for German automobiles to an indispensable "strategic cornerstone" and "source of innovation." The successful transformation of German automakers is closely related to the depth of their integration with China's innovation ecosystem. At the same time, Chinese automakers have also accelerated their globalization process through cooperation with Germany and Europe, achieving a comprehensive upgrade from exporting products to establishing a presence overseas and building brands.

Editor: Lily