Germany's Automotive Industry in 2035: The Transformation Battle from Manufacturer to Mobility Service Provider

When Cars Are No Longer the Core, Where Does Profit Come From?

The German automotive industry is standing at a historic crossroads. Deloitte's latest research report, "Future of Automotive Mobility 2035," paints an industry landscape vastly different from that of the past century: by 2035, the U.S. automotive mobility market is expected to nearly double in size, with Europe following closely behind. But what drives growth is no longer car sales themselves, but mobility services—from leasing and fleet management to data-based value-added services.

For the German automotive industry, which has built its global advantage on internal combustion engine technology, precision manufacturing, and brand premium, the signals released by this report deserve close attention: if the profit pool is shifting from car manufacturing to mobility services, can the core competitiveness of "Made in Germany" still endure?

Background: A Study on Profit Shift Over the Next Decade

Deloitte's study focuses on the United States and five major European markets (France, Germany, Italy, Spain, and the UK), which together account for the largest share of the global automotive market. Through executive interviews, international consumer surveys, and profit pool simulation tools, the study analyzes the trajectory of eleven profit pools along the mobility value chain over the next decade.

The report's core argument is that the overall automotive mobility market will continue to grow, but the distribution of value across the value chain will undergo significant changes. Profits traditionally concentrated in vehicle manufacturing and sales will gradually shift to services, data, and mobility solutions. For German OEMs (Original Equipment Manufacturers) at the top of the value chain, this means that the key to future growth may no longer lie in producing more cars, but in building sustainable business models around mobility scenarios.

Underlying Reasons: Why Is the Mobility Value Chain Being Reshaped?

Behind the profit pool shift is the combined effect of multiple forces.

First, consumer preferences are changing rapidly. In particular, the younger generation is increasingly indifferent to car ownership and more inclined toward on-demand usage, subscription services, or shared mobility. This preference shift directly undermines the growth foundation of the new car sales market.

Second, climate change pressures are pushing countries to tighten emissions regulations. The transition to electrification requires massive capital investment, yet it does not bring equivalent returns in profit margins. The profit buffer of traditional powertrains is disappearing, while competition in the electric vehicle market has become even more intense. Price wars and battery cost pressures further squeeze OEMs' profit margins.

Third, the era of software-defined vehicles has arrived. Cars are no longer just mechanical products, but mobile intelligent terminals. Software capability, data analytics, and user experience have become key to differentiated competition. However, the German automotive industry's accumulation in the software field is relatively weak, and its long-standing reliance on supply chain outsourcing makes it difficult to cope with the rapidly iterating demands of digitalization.Fourth, changes in the geopolitical order and the restructuring of global supply chains have increased uncertainty for industrial operations. The German automotive industry is highly dependent on exports, especially to China. Against a backdrop of intertwined trade frictions, technology controls, and regionalization trends, the traditional "Made in Germany—Sold Globally" model faces a severe test.

Impact on German Industry: A Transformation Challenging Core Strengths

For Germany, the implications of this study go far beyond the automotive industry itself. The automotive industry is the pillar of German manufacturing, contributing about 5% of GDP and directly or indirectly supporting millions of jobs. If the center of gravity of the value chain shifts from manufacturing to services, the entire structure of Germany's industrial system will face deep adjustment.

The "Asset" of Manufacturing Advantages May Become a "Liability"

The German automotive industry has long excelled in mechanical engineering, precision manufacturing, and integration capabilities. These capabilities constitute the brand credibility of "Made in Germany," but in the era of software-defined vehicles and mobility services, they do not automatically translate into competitiveness. German companies are good at building "perfect cars," but not necessarily at operating "mobility platforms."

If weaknesses in software, data, and algorithms are not addressed in time, German OEMs are likely to be reduced to contract manufacturers—producing hardware for platform companies that own user relationships, while their share of profits shrinks significantly. This risk is not theoretical speculation but a reality unfolding now: tech companies are encroaching on traditional automakers' turf from both ends—one being autonomous driving and in-vehicle systems, and the other being the user gateway to mobility services.

Chain Reaction in the Automotive Industry Chain

Germany has the world's densest automotive parts supply chain, but most suppliers depend on internal combustion engine-related businesses. Electrification has already put a large number of engine and transmission supply chains at risk of shutdown, and the trend toward servitization will further weaken the pulling effect on the entire supply chain. If the profit pool tilts toward the service side, much of the capital originally used for R&D and production capacity may shift to building software and service ecosystems, leaving traditional hardware suppliers with even less room.

The Goals of Technological Innovation Need to Be Redefined

As a pioneer in mechanical engineering and Industry 4.0, Germany has always regarded the "smart factory" as a core advantage. But the trend toward mobility servitization requires technological innovation to extend not only to the production side but also to the user side. This means Germany needs to shift from "digitalization of manufacturing" to the digitalization of "product-as-a-service." Connected vehicle data, autonomous driving systems, charging infrastructure, and energy management—these are the core of the future profit pool. Whether Germany can turn its industrial digitalization capabilities into competitiveness in mobility services is the key to the success or failure of its transformation.

Impact on Europe and the World: A Touchstone for EU Industrial PolicyGermany's weight in the EU automotive industry means that its transformation path will profoundly shape the entire European industrial landscape. Research shows that Europe's mobility market will not lag behind the United States, but Europe clearly trails both China and the US in digital services and the platform economy. If the European automotive industry cannot build its own platforms and ecosystems in mobility services, then over the next decade Europe is likely to be reduced to a "low-tier hardware supplier" for American tech giants and Asian battery manufacturers.

The EU is strengthening its domestic manufacturing capacity through industrial policies such as the Critical Raw Materials Act and the Net-Zero Industry Act, but the focus of these policies still lies on the hardware manufacturing side, and support for mobility services, data sovereignty, and digital infrastructure remains unclear. If Germany can push the automotive industry's shift toward servitization at the federal level, it will drive the upgrading of the entire European supply chain; conversely, if Germany is slow to transform, the European automotive industry may become further marginalized in global value chains.

Long-Term Trend Assessment: Five Observation Points for the Next 3–10 Years

Based on Deloitte's research and combined with industry logic, the German automotive industry will face the following trends over the next 3 to 10 years:

1. The Share of Revenue from Mobility Services Will Rise Significantly

Automakers will gradually shift from one-time vehicle sales to recurring revenue models—subscription leasing, insurance, charging services, pay-per-use autonomous driving, and so on. By 2035, mobility service revenue at top OEMs is expected to account for more than 20% of total revenue (currently less than 5%). German companies must reshape their financial models and capital allocation logic accordingly.

2. Software Capability Will Determine Corporate Boundaries

German automakers are working hard to develop their own in-vehicle operating systems, but the more critical question is whether they can build a developer ecosystem and a closed loop of user data. If no substantial breakthrough is achieved in the next three years, German automakers will continue to lag behind Tesla and Chinese brands in smart experience.

3. The Supply Chain Shifts from a "Pyramid" to a "Network"

The position of traditional Tier 1 suppliers will be weakened, and semiconductor manufacturers, software companies, and battery firms will enter the core of the supply chain that was once dominated by OEMs. Germany's vast Tier 2/Tier 3 SME community must find new room to survive; otherwise, it will face accelerated elimination.

4. Emerging Mobility Markets Will Shape a New Competitive Landscape

Regional leaders in mobility services have already emerged in the United States and China. If German companies do not deploy their own mobility platforms in European and American markets, future user relationships and mobility data will fall entirely into the hands of others. This is not only an economic issue, but also a matter of industrial sovereignty.

5. The Role of German Industrial Policy Will Change

Traditional industrial policy focuses on protecting manufacturing jobs and supporting domestic enterprises, but in the context of servitization, policy needs to provide more support for digital infrastructure construction, connected-vehicle standard setting, data privacy rules, and cross-border data flows. Germany and the EU need to engage in institutional competition with China and the United States in these areas, rather than merely protecting existing industries through tariffs and subsidies.## Conclusion: German Manufacturing Needs a Paradigm Shift

Deloitte's research reveals a core fact: growth in the automotive industry will never stop, but the definition of growth has changed. For German industry, the greatest risk is not shrinking market demand, but that existing advantages no longer apply to the new value space.

The German automotive industry must complete a paradigm shift from "manufacturer" to "mobility service provider." This shift requires not only technological upgrades, but also deep changes in corporate culture, organizational structures, and talent composition. If successful, Germany can still hope to play a key role in the global automotive mobility market in 2035; if it fails, German manufacturing will lose its leadership in the automotive sector, and this process may be far faster than people expect.

In the next 10 years, what we will witness is not just a competition of product generational change, but a historic question of how the entire German industrial system re-anchors itself in the restructuring of global value chains. This is a battle that cannot be lost, and now is the moment to play our cards.

*This article is based on the research report "The future of automotive mobility to 2035" published by Deloitte, with independent analysis from the perspective of German industry. The data and viewpoints in the report are all derived from that research; please refer to the original report for specific content.*