The West’s once-dominant car manufacturers are losing ground at an alarming rate to the new generation of fast-rising competitors from Asia, especially China. According to a study by the consulting firm EY, the profit gap is expected to continue growing.
A new quarterly report by consultancy EY reveals a strong divide between Western and Asian automakers. While German and US carmakers saw both revenue and profit shrink in the first three months of 2025, Asian firms, led by Chinese giants BYD and Geely, recorded impressive gains.
Sobering picture
The figures paint a sobering picture: Chinese automakers increased their combined revenue by nearly 15%, while profits soared by 66%. In contrast, Germany’s top three carmakers—Volkswagen, BMW, and Mercedes—saw joint revenues dip by 2.3%, and profits fell by roughly one-third.
Commenting on the study, Constantin Gall, EY’s automotive expert, did not mince words. “Some legacy manufacturers may soon be forced to question their very survival. The competition in the industry is relentless, and there is no sign of a turnaround,” he warned. “The entire business model of some Western manufacturers is under threat.”
Structural crisis
Gall argues that the crisis is structural, not just cyclical. Weak demand amid economic uncertainty, high costs, and sluggish progress on the electric vehicle transition are squeezing margins. Western firms are also steadily losing market share in China, a key growth market where domestic brands have rapidly improved in quality and market dominance.
Making matters worse are new trade barriers. The 25% import tariffs introduced by President Donald Trump in April are expected to result in billions of dollars in losses for both European and American carmakers. Chinese firms, largely absent from the US market, are shielded from the fallout and stand to benefit from their rivals’ woes.
VW battling Toyota
Among Western manufacturers, Volkswagen managed a symbolic win by narrowly overtaking Toyota in global revenue for the quarter. Yet even that milestone is bittersweet: the Japanese firm still leads in sales volume and operating profit, maintaining its top global spot.
BMW, despite its revenue drop, resisted best among premium brands, maintaining a 9.3% revenue margin. With this performance, it sits among the five top-performing Chinese players: BYD, Geely, SAIC, Li Auto, and Leapmotor.
In response to the mounting crisis, Western manufacturers have launched aggressive cost-cutting programmes, and VW alone plans to slash one in four jobs in Germany by 2030. But Gall insists that austerity alone is insufficient. “Western automakers must completely reinvent themselves,” he said, urging a faster pace of digitalisation, quicker product cycles, and more focused investment.
“Chinese firms have proven that success lies not in spending more, but in moving faster and smarter,” Gall concluded. As the industry hurtles into the EV era, the West’s industrial heavyweights may find themselves playing catch-up for years to come.
