The International Motor Show (IAA) took place in Munich from September 9 to 14, 2025. For the first time, it was not dominated by German manufacturers and suppliers. Instead, it became clear how much pressure the pan-European automotive industry is under with its German flagships VW, BMW and Mercedes. 116 Chinese vehicle manufacturers and suppliers alone presented their products in the Bavarian capital, compared to 75 in 2024. The good news is that Europe is still a sales stronghold for German car manufacturers. 45 percent market share (40 percent for electric vehicles) compared to 4.7 percent (2.8 in 2023) for Chinese companies. Internationally, however, things look very different. The German automotive heavyweights, which once dominated the global market, only have a meagre 12.8 percent market share here. Profits at BMW (down 26%), Mercedes (60%) and VW (39%) slumped drastically in the first half of 2025 globally. Porsche was hit particularly hard with a 90% drop in profits
For Europe’s automotive industry, it’s transformation or demise
In the run-up to the IAA, the voices declaring the Munich Motor Show to be the crossroads for Europe’s vehicle manufacturers were correspondingly loud. If the new models and technologies fail to ignite here and subsequently on the international markets, difficult times await – not only for German manufacturers, but for the entire European automotive industry. If the second generation of European e-cars were to fail in the same way as the first generation, job losses in the six-figure range would be imminent. Massive job cuts are already being made in Germany and some are being relocated to other European and international countries. VW alone is currently cutting 35,000 jobs. However, things could get even worse, as analysts (including McKinsey) warn. 440 billion euros in added value could be lost in Europe by 2035 if the automotive transformation fails. The German automotive industry in particular, as the driving force of the German economy, must therefore take the last turn before the impending abyss.
VW, BMW and Mercedes have recognized the call of the hour
What VW, BMW and Mercedes in particular presented in Munich, however, was encouraging. The billions invested in recent years – which also explains the drop in profits – seem to have paid off. New, fresh models and new, long-needed technologies were presented. Across the board, Europe and above all Germany showed that they still dominate car manufacturing and technological innovation. Suppliers such as Bosch proved with their solutions for autonomous driving that they are capable of leaving Chinese and American companies behind. New assistance systems, new charging systems (800-volt architecture), a stronger focus on competitive software and state-of-the-art electronics showed that they do not want to be overrun by China and its automotive flood. The signs of the times have been recognized and, driven by the Chinese breath on its own neck, it is getting back on its feet.
The question is: Has Europe’s automotive industry also recognized the importance of microelectronics for its future success?
Microelectronics as the key to the future success of the automotive industry
Today, between 1,000 and 8,000 power semiconductors, memory chips, sensors and microcontrollers control the most important functions of a vehicle. From airbags and assistance systems to charging and engine control, almost all the functions of a modern vehicle are controlled by semiconductors. Every innovation in automotive engineering is closely linked to the sometimes tiny electronic components. The coronavirus pandemic has shown what can happen in the event of supply bottlenecks, disrupted supply chains and underproduction. Entire plants came to a standstill. Billions were lost as a result. While the focus at the time of the coronavirus was mainly on combustion engines and the first generation of e-mobility, and thus a much lower demand for semiconductor products, the demand for semiconductors in the latest generations of vehicles has increased rapidly and massively since then. Reason enough for the management consultancy Yole Group to publish a white paper with the evocative title “Changing gear: Semiconductors at the heart of the automotive industry’s next chapter – how electrification, ADAS and digitalization are reshaping leadership in automotive semiconductors “. On 19 pages, Yole outlines the current challenges for modern vehicle construction and also the European and international semiconductor industry
A new chip boom is closely linked to new developments in vehicle construction
While semiconductor nodes in the size 180-90nm dominated the automotive sector in recent years, the demand for smaller (90 to 26nm) and smallest (26 to 5nm) semiconductor products is now growing. Products below 5nm have already been announced by TSMC and Samsung, among others. The latter should be available for the first time from 2026. And this is where the problem begins for Europe. European semiconductor companies (e.g. Infineon, NXP and STMicroelectronics) still have an international market share of 35% in the automotive sector and are therefore only one percentage point behind the current leading American semiconductor companies (e.g. Nvidia, AMD and Qualcomm). Japan follows in third place with a market share of 19 percent. In this environment, Europe is focusing primarily on power electronics in the 40 to 90nm sizes. Until now, these components have been among the most important and most frequently used in the automotive sector. However, with the change in vehicle construction, the demand for semiconductor products is also increasingly changing. The car as a driving entertainment center, with increasingly autonomous driving functions, also increasingly requires smaller, more powerful and more energy-efficient components.
Europe produces 40 to 90nm products, but increasingly requires semiconductors below 10nm
And this is precisely where China, for example, is taking a different path than Europe. As a lesson from the coronavirus years, the Chinese government has committed its companies to sourcing at least 25% of the semiconductors used in its own automotive products from its own production. While this is currently achieved primarily through the use of mature semiconductor products in sizes up to 40nm, China is increasingly following suit in the more advanced (up to 28nm) and latest (up to 5nm) semiconductor generations. For example, the Chinese company Horizon Robotics is already supplying 7nm products to its customers such as BYD. And it is precisely these products that are driving state-of-the-art driving and entertainment functions. Especially in the field of autonomous driving, components of less than 10nm are increasingly required for vehicle construction. In other words, parts that cannot currently be produced by European semiconductor manufacturers or on European soil. Here, Europe and therefore also Germany’s car manufacturers are dependent on American, Taiwanese, Japanese and Chinese producers. A dependency that is not currently creating any problems, but could do so in the future if the global political situation changes or in the context of possible trade wars. And here too, China and Chinese automotive manufacturers such as BYD and Nio are showing what is possible. Due to US trade restrictions in the area of semiconductors below 10 nm and the EUV lithography devices required for the production of these semiconductors, China has become creative in recent years. With the help of DUV lithography, semiconductor products below 7nm can now be produced. By 2026, products of less than 5nm are even expected to follow – at least according to rumors. Chinese car manufacturers see this production as crucial and are driving it forward independently with national partners. A step that Germany and Europe have so far avoided. Possibly a mistake.
Europe’s car manufacturers are internationally dependent. A semiconductor strategy is needed.
Because modern driving functions and technological innovations are closely linked to the smallest microelectronic products under 10 nm. Advanced Driver Assistance Systems (ADAS) already make the difference between an automotive bestseller and a slow seller. German car manufacturers should have already gained this experience with their first generation of electric and semi-autonomous vehicles. It wasn’t just the design that prevented VW, BMW and Mercedes from achieving major international success. Rather, it was price, performance and the now so important aspects of software, entertainment electronics and driver assistance systems. If Europe’s automotive industry wants to achieve long-term and independent success in these areas, new paths must be taken, especially in the area of semiconductor production. Promoting locations such as Saxony, and Dresden in particular, is an important first step. With the expansion of the local Infineon plant to include a new module and the establishment of the European Semiconductor Manufacturing Company (ESMC), important players for the automotive sector have been strengthened or acquired. Both EU Chips Act projects with a total funding volume of 15 billion euros are on schedule. But this can only be the beginning.
The aim is to create production capacities for the smallest and most modern semiconductor products below 10 nm. A strategy is also needed to keep up with players such as the USA and China in the long term. Germany is currently working on its own semiconductor strategy. The German government’s recently published high-tech agenda includes good approaches for the interaction between the automotive sector and the semiconductor industry. Europe has also had the topic on its radar since the Draghi Report at the latest. However, not much time should be wasted on implementation. The fresh impetus shown by German and European automotive companies at the IAA in Munich must not be thwarted in the long term by the smallest components of a modern car. Once again, the focus is on the buzzword “technological sovereignty”. And we need to work on this now.
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Further links
👉 AUTOMOTIVE WHITE PAPER – SHIFTING GEARS: SEMICONDUCTORS AT THE HEART OF AUTOMOTIVE’S NEXT CHAPTER (Vol.2)
Photo: pixabay
