Germany's leading automakers endured a difficult 2025, one of the toughest years in their modern history, as tariffs imposed by US President Donald Trump coincided with the high costs of overhauling long-term strategies, resulting in a sharp decline in profitability.

Porsche takes the biggest hit

Porsche was among the hardest-hit manufacturers after abandoning its plan to transition entirely to electric vehicles due to weaker-than-expected demand. The company has since returned to developing new internal combustion engine models.

That strategic shift cost Porsche around €3.9 billion ($4.5 billion), and when combined with the impact of US tariffs, it wiped out most of the company's earnings last year.

Meanwhile, Volkswagen and Mercedes-Benz reported flat revenue growth alongside a steep decline in profits. BMW stood out as the strongest performer, with its net profit margin falling by only around 3%, compared with declines approaching 50% at its two German rivals.

Industry-wide profit slump

BMW, Mercedes-Benz, and the Volkswagen Group generated a combined €24.9 billion in operating profit before interest and taxes (EBIT) during 2025, the lowest level since 2020, according to Germany's Handelsblatt newspaper.

Overall, profits across Germany's automotive industry fell roughly 44% compared with 2024, weighing heavily on sector sentiment.

Despite the downturn, Frank Schwope, automotive consultant and lecturer at Cologne University of Applied Sciences, believes talk of the collapse of Germany's automotive industry is overstated.

He noted that the companies remain profitable and continue to pay dividends to shareholders, adding that the period between 2021 and 2023 was exceptional because automakers generated record earnings during the COVID-19 pandemic.

Pandemic years reshaped the industry

Volkswagen, BMW, and Daimler — now Mercedes-Benz Group — generated around €30 billion in combined net profit in 2018 before earnings dropped to €16.6 billion in 2020 as the pandemic forced factory shutdowns.

The picture changed dramatically in 2021, when combined profits exceeded €40 billion. Automakers benefited from supply chain disruptions, semiconductor shortages, and higher vehicle prices while prioritizing production of premium, higher-margin models.

Structural challenges and Chinese competition

According to automotive analyst Jürgen Pieper, the German industry is facing three major long-term challenges:

• The costly technological transition toward electric and software-defined vehicles.

• Structural issues, including slow corporate decision-making.

• Weakening performance in China due to increasingly competitive domestic manufacturers.

Volkswagen has been among the companies most affected by intensifying competition in China, the world's largest automotive market.

However, the start of 2026 brought encouraging signs. During the first two months of the year, Volkswagen regained the top position in the Chinese market with a 13.9% market share through its joint ventures with SAIC Motor and FAW Group, narrowly ahead of Geely at 13.8%, while Toyota ranked third with a 7.8% share.

The improvement was partly attributed to reduced Chinese government support for electric vehicles, which pressured manufacturers focused exclusively on EVs such as BYD, while demand for Volkswagen's and Toyota's internal combustion engine models remained resilient.

Restructuring remains essential

Schwope believes Germany's automakers will need to continue restructuring their businesses in response to geopolitical tensions, tariffs, growing Chinese competition, and the rapid approach of the autonomous driving era, which is expected to become widespread by around 2030.

BMW seen as best positioned

Pieper argues that BMW is currently the best positioned among Germany's premium automakers.

Unlike some competitors, BMW has not fully committed to an all-electric strategy, has already completed much of its investment cycle for next-generation models, and has expanded production at its Spartanburg plant in the United States, helping reduce its exposure to US tariffs.

Schwope is also optimistic about Porsche, arguing that luxury brands typically recover from downturns more quickly than mass-market manufacturers because premium customers tend to remain highly loyal to their preferred brands.

Has the era of German cars come to an end?

Despite increasingly pessimistic forecasts for Germany's automotive industry, analysts believe it is far too early to declare its decline.

Schwope pointed out that Tesla was once viewed as virtually untouchable before Chinese manufacturers caught up, adding that solid-state batteries could become the next major turning point for the electric vehicle industry.

German automakers are already investing heavily in the technology. Volkswagen plans to begin commercial production of solid-state battery vehicles by 2028, while BMW and Mercedes-Benz are targeting launches by 2030.

Pieper concluded that the industry's recovery is unlikely to come through a dramatic breakthrough, but rather through the gradual, steady progress that has long defined German engineering, adding that there are already clear signs of a slow but sustainable recovery.

Copper prices fell on Monday as the military confrontation between the United States and Iran intensified after Tehran once again announced the closure of the Strait of Hormuz, fueling concerns over global inflation and increasing expectations that interest rates will remain elevated for longer.

Benchmark three-month copper on the London Metal Exchange (LME) fell 0.64% to $13,398.5 per metric ton, while the most actively traded copper contract on the Shanghai Futures Exchange slipped 0.68% to 103,100 yuan ($15,199.54) per metric ton.

In India, the July copper contract on the Multi Commodity Exchange (MCX) edged up 0.06% to 1,294.35 rupees per kilogram after touching an intraday low of 1,283.80 rupees, down 0.75%.

War fuels risk aversion

Copper prices retreated as part of a broader sell-off across global commodity markets after military clashes between the United States and Iran intensified over the weekend, with both sides exchanging missile and drone attacks, prompting investors to reduce exposure to risk-sensitive assets.

Meanwhile, oil prices continued to climb, with Brent crude rising 2.79% to $78.13 a barrel amid concerns that tensions in the Strait of Hormuz could disrupt global energy supplies.

The rise in energy prices has revived fears of renewed inflationary pressures, strengthening expectations that central banks will keep interest rates higher for longer. That, in turn, could slow economic activity and weaken industrial demand for base metals, particularly copper.

Stronger dollar weighs on metals

Gold and silver also came under pressure as the US dollar posted modest gains. A stronger dollar makes dollar-denominated commodities more expensive for holders of other currencies, reducing demand and weighing on prices.

Losses spread across the broader industrial metals complex. Aluminum fell 0.33% on the LME and 0.65% on the Shanghai Futures Exchange, while zinc dropped 0.88%, lead lost 0.98%, nickel declined 1.29%, and tin slipped 0.23%.

Bitcoin traded near $63,800 on Monday as most traditional assets came under pressure following the fourth round of US strikes on Iran in a week.

The world's largest cryptocurrency slipped around 0.3% over the past 24 hours but remained about 2% higher on a weekly basis.

Traditional markets decline

Global markets recorded sharp moves as geopolitical tensions escalated.

• Spot gold fell as much as 1.6% to around $4,050 an ounce.

• Brent crude surged about 4% to above $79 a barrel amid conflicting reports over the status of the Strait of Hormuz and fears of supply disruptions.

• US Treasury prices declined, pushing the two-year yield to its highest level since February 2025.

• The MSCI Asia-Pacific Index fell 1.6%.

US Central Command said American forces had struck targets inside Iran in response to an attack on a container ship. Meanwhile, the status of the Strait of Hormuz remained unclear after Washington rejected Tehran's announcement that the waterway had been closed "until further notice."

Around 20% of global seaborne oil trade passes through the strait.

Markets bet on interest rates remaining higher

Investors believe a broader conflict could keep oil prices elevated, potentially forcing the Federal Reserve to maintain higher interest rates for longer.

Minutes from the Fed's June meeting also showed that some policymakers saw a case for raising interest rates before the committee ultimately decided to leave them unchanged.

Higher interest rate expectations weighed on non-yielding gold and also pressured bond prices.

Cryptocurrency market shows greater stability

In contrast, the cryptocurrency market remained relatively resilient.

• Ethereum traded near $1,800, up around 2% over the week.

• Solana fell to roughly $76, down 5% over seven days and ranking as the weakest performer among major cryptocurrencies.

• XRP held near $1.09.

• Dogecoin traded close to $0.07.

Impact of semiconductor stocks

The report noted that the clearest link between cryptocurrency and equity markets came through the semiconductor sector.

SK Hynix shares plunged 12% in Seoul following a strong rally in the company's Nasdaq-listed shares during their first trading session on Friday.

The decline contributed to a roughly 7% drop in South Korea's Kospi index, although the cryptocurrency market remained broadly stable despite the volatility.

Bitcoin shrugs off geopolitical developments

The report said Bitcoin's ability to remain within a narrow trading range despite military strikes, weakness across most risk-sensitive assets, and the repricing of US monetary policy expectations marked a notable change from previous years, when the cryptocurrency reacted sharply to any escalation in the Gulf region.

According to the report, Bitcoin's performance is now more closely tied to US dollar liquidity and the semiconductor cycle, while oil, gold, and bond markets are absorbing the more immediate impact of geopolitical developments.

Oil prices climbed more than 2% on Monday after renewed military strikes between the United States and Iran revived concerns over disruptions to energy shipments through the Strait of Hormuz, one of the world's most critical oil export routes.

Brent crude futures rose $1.67, or 2.2%, to $77.68 a barrel by 09:55 GMT, while US West Texas Intermediate (WTI) crude gained $1.59, or 2.23%, to $73.00 a barrel.

"The market's focus will remain on the number of oil tankers heading into the region because a decline could eventually affect production," said Giovanni Staunovo, commodity analyst at UBS. "That is why we continue to see a geopolitical risk premium supporting prices, alongside the risk of supply disruptions."

Fresh military escalation heightens supply concerns

Military exchanges between the United States and Iran over the weekend intensified fears of a broader escalation in the region.

Tehran announced that it had targeted US facilities across several Gulf states on Sunday and reaffirmed the closure of the Strait of Hormuz. On Monday, Iran's Revolutionary Guard said it had carried out attacks on US military bases in Kuwait and Bahrain.

Before the outbreak of the war in late February, around 20% of the world's daily oil and liquefied natural gas supplies passed through the Strait of Hormuz.

Shipping traffic slows

ANZ analysts said shipping companies are exercising greater caution in response to the deteriorating security situation, leading to slower traffic through the waterway.

Ship-tracking data showed that traffic through the Strait of Hormuz fell on Sunday to its lowest level in five weeks, with only six vessels passing through the strait, according to data from Kpler.

The latest escalation has also cast doubt over the future of the temporary agreement between the United States and Iran, signed last month to reopen the strait and end the conflict following an additional 60-day negotiation period.

Although Iran announced the closure of the strait after a vessel was reportedly targeted for sailing through an unauthorized route, US President Donald Trump insisted that the Strait of Hormuz remains open to commercial shipping.

Goldman Sachs: Pipeline expansion could reduce risks

Goldman Sachs estimates that the expansion of pipeline infrastructure across the Middle East could allow more than 60% of Gulf oil exports that previously relied on the Strait of Hormuz before the war to bypass the waterway by the end of 2028.

The bank expects alternative pipeline capacity to increase by 3.8 million barrels per day by the end of 2027, followed by an additional 7.3 million barrels per day by the end of 2028, lifting total bypass capacity to more than 14 million barrels per day.

Other market developments

• Floating storage of Iranian crude increased after Tehran boosted exports during the temporary ceasefire with the United States. However, sales have since slowed as independent Chinese refiners shifted toward cheaper crude supplies from Iraq, the UAE, and Qatar.

• Abu Dhabi National Oil Company (ADNOC) set the official selling price for August Murban crude at $80.01 a barrel, compared with $101.48 for the previous month.

• In a separate development, Ukraine's Security Service announced an attack on an oil storage facility in Russia's Stavropol region, as well as three oil storage tanks at the Port of Kavkaz in Russia's southern Krasnodar region.