German automotive industry stumbles: What will Kocaeli and Bursa do now?

Germany's place in the nearly 140-year history of the automotive industry is indisputable. From the development of the internal combustion engine to mass production engineering, and from premium brands to global supply chains, Germany has not just been a country that produces cars; it has been one of the nations that determined how cars are produced and where their value is created.

However, the problem facing the German automotive industry today does not appear simple enough to be explained by a few poor quarterly balance sheets. The loss of market share in China, changing competitive conditions in electric vehicles, the export offensive of Chinese manufacturers, and the cost pressure experienced in Europe's own supply industry all point to the same thing: The value chain in automotive is being rebuilt.

This transformation is not a German industrial issue that can be watched from afar by Turkey. Because when production plans in German factories change, the impact does not stay in Stuttgart or Wolfsburg; it extends all the way to Kocaeli and Bursa.

China is no longer just a market

One of the biggest problems for German manufacturers is occurring in China, which was a significant factor in their growth for many years. Manufacturers like Volkswagen, BMW, Mercedes-Benz, and Porsche are facing increasing pressure from local competitors in the Chinese market. According to a July 2026 report by Reuters based on company sales data, the decline in Chinese sales for major German manufacturers exceeded 30 percent in the second quarter of 2026. The drop in Volkswagen's deliveries reached approximately 37 percent. The engine technology, engineering expertise, and brand power that provided German manufacturers with a competitive advantage for years have not yet disappeared. However, the value that Chinese consumers expect from a car is changing:

Battery technology, software, digital user experience, connected vehicle features, rapid product development, and price are now at the center of competition. Moreover, the problem in China is not limited to German brands losing market share. According to data from the China Passenger Car Association (CPCA) reported by Reuters on August 11, while car sales in China decreased by 21.1 percent year-on-year in July 2026, car exports increased by 88.2 percent. The increase in exports of electric and plug-in hybrid cars reached 147.8 percent. In other words, the fierce competition in China's own domestic market is driving manufacturers more strongly toward foreign markets. At the top of these markets is Europe.

In other words, the competition that German manufacturers face in China is no longer limited to the Chinese market; it is returning to Europe through production, exports, and supply chains.

China has entered Europe's gates

Until a while ago, the main debate for Europe was about electric cars imported from China. Today, the issue is bigger than that. Chinese companies are no longer just sending cars to Europe; they are producing in Europe, forming partnerships, and entering the European supply chain.

According to research by the Financial Times based on Rhodium Group data, Chinese companies have acquired more than 130 automotive supply companies in Europe since the mid-2000s. A significant portion of these acquisitions took place in Germany and France. Chinese suppliers, ranging from CATL to Yanfeng, have increasingly become part of the European production system.

The picture is even more interesting for European manufacturers. Some European companies, looking to fill unused production capacity, are seeking partnerships with Chinese manufacturers. Chinese manufacturers, on the other hand, aim to both get closer to the market and comply with increasingly important local content rules by producing locally in Europe. Thus, China's role in the automotive sector is transforming within a few years from being a "competitor selling cars to Europe" to a "player producing cars and parts in Europe."

Alarm in the German supply industry

One of the most severe consequences of this change is being seen in the German supply industry.

According to research conducted by Strategy&, the strategy consulting unit of PwC, the average interest expenses of major German automotive suppliers reached 102 percent of their operating profits in 2025. Companies like ZF, Continental, and Schaeffler are implementing restructuring and cost-reduction programs. Moreover, the cost gap between German and Chinese suppliers is widening. While Chinese companies are driving down their production and overhead costs, the costs of German companies cannot be reduced at the same speed.

The projection of the German Association of the Automotive Industry (VDA) reveals a longer-term risk. It is calculated that the German automotive industry could lose a net 225 thousand jobs by 2035 compared to 2019. A loss of approximately 100 thousand people has already occurred. If the current trend continues, another 125 thousand people could leave the sector by 2035. The VDA clearly states one of the reasons for this: An electric car consists of fewer parts than an internal combustion engine car and requires less labor to produce.

Because the pressure to downsize on the German main industry and its suppliers is forcing the external supply networks that work for them to reposition themselves as well.

At this exact point, the issue comes to Turkey.

What will Kocaeli and Bursa do now?

Turkey's automotive industry is not a structure independent of the European production system. In 2025, Turkey realized 41.5 billion dollars in automotive exports. Approximately 12.3 billion dollars of this came from Kocaeli and 9.2 billion dollars from Bursa. In other words, just two cities accounted for about half of Turkey's automotive exports.

More importantly, one of the areas where Turkey is strong is the automotive sub-industry. In the first seven months of 2026, automotive supply industry exports reached approximately 9.5 billion dollars. The data for the first six months clearly shows the direction of dependency: 1.85 billion dollars of the approximately 8.1 billion dollars in sub-industry exports were made to Germany. That is, approximately one out of every four dollars comes from Germany alone.

A significant distinction must be made here. The dependency of the Turkish automotive industry is not only on Germany, but on the European production system. Indeed, 74 percent of automotive exports in the first seven months of 2026 were made to EU countries. However, within this system, Germany is by far the largest single market for the Turkish supply industry. Moreover, the figures do not look bad yet today. Turkey's sub-industry exports to Germany increased in the first half of 2026 instead of declining.

And that is where the danger lies.

The transformation in the German automotive industry may not yet be reflected to the same extent in the order books of Kocaeli and Bursa. But as production and employment decrease in Germany, as the number of parts specific to internal combustion engines falls, and as Chinese suppliers enter the European value chain, assuming that today's order volume will continue in the future is becoming increasingly risky.

So the question is: What must be done so that the factories in Kocaeli and Bursa do not have to lock their doors?

The first issue: Looking at what you produce

The transition to electric cars does not threaten every automotive supplier to the same extent. The risk is concentrated especially in companies dependent on products specific only to internal combustion engines. For exhaust systems, fuel systems, and some engine and powertrain components, the transition to electric means a direct market contraction.

In contrast, a new value chain is forming in areas such as battery housings, lightweight body components, thermal management systems, electric motor components, power electronics, cable and connector systems, sensors, and software.

Therefore, the transformation is not just a matter of "let's produce electric vehicles." Every supplier needs to look at their own product portfolio and ask this question: Will the part I produce today still be needed 10 years from now? If the answer is no, the time for transformation is not 10 years from now, but today.

The second issue: Looking at who you sell to

Turkey's second risk is customer dependency. Having produced parts for German and other European manufacturers for decades has provided Turkey with significant industrial competence. However, the same relationship could turn into dependency in the new era. The solution is not to give up on German customers; it is to diversify the customer portfolio. Here, Chinese manufacturers should not be seen only as competitors for Turkey.

Although uncertainty remains regarding the timeline of BYD's investment in Turkey, the fact that it is looking for European suppliers for its production plans in Turkey and Hungary is one of the important examples of this. As Chinese manufacturers increase their production in Europe, the need for local supply will also grow.

Kocaeli and Bursa possess an asset that would take Chinese manufacturers years to build from scratch in Europe: a strong supplier ecosystem that can produce at European automotive standards, knows quality systems, has export experience, and is accustomed to working with the main industry. One of Turkey's goals should be to integrate this capacity into the European supply chain of new Chinese manufacturers. However, attracting Chinese investment to the country is not enough on its own. If the incoming manufacturer brings its parts from China and only performs assembly in Turkey, it does not solve the problem of the local supply industry. The real issue is being able to link the investment to the local supply chain.

The third issue: Not being left outside of Europe

Another risk is of a nature that companies cannot solve alone. The "Made in EU" approach developed by the European Union makes local content and European production increasingly important.

Turkey has been in the Customs Union for 30 years and is effectively an important part of the European automotive production system. Despite this, Turkey remaining outside the definition of "European production" in new European industrial policies could create a serious competitive disadvantage for Turkish automotive suppliers.

In the meetings held in July between the Ministry of Trade and the European Automobile Manufacturers' Association (ACEA), the full and unconditional inclusion of Turkey in the "Made in EU" approach was brought to the agenda. According to the Ministry's statement, European automotive manufacturers also support Turkey's inclusion.

This issue should not be seen as a technical trade negotiation. It directly concerns the future of the factories in Kocaeli and Bursa. Because if the use of a certain percentage of European-origin components in tomorrow's European car becomes one of the conditions for incentives or public support, which category Turkey is placed in could become even more important than the price of a Turkish supplier.

Protecting the old chain or entering the new chain?

The Turkish automotive industry gained its current strength by successfully integrating into the production model established by Europe and especially the German automotive industry. But that model is now changing: German manufacturers are losing market share in China while trying to reduce their costs, Chinese manufacturers are turning to exports and production in Europe, supply chains are being reshaped, and automotive employment in Germany is expected to decrease.

The tip of this transformation extends directly to Bursa and Kocaeli. However, the outcome is not inevitable. Turkey has two paths ahead: defending the shrinking space by trying to maintain its place in the old value chain, or carrying its existing production capability into the new automotive value chain.

The way to do this passes through three changes: Changing the product, diversifying the customer, and not leaving Turkey outside of the new European industrial policy.

The real threat for Kocaeli and Bursa is not Chinese cars coming to Europe; it is Turkey being content with producing parts for the old chain while China and Europe build the new automotive value chain. There is no luxury of waiting to turn today's export success into tomorrow's industrial power: The product will change, the customer will change, and Turkey's place in the European production system will be redefined.