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Germany set to scrap plans to build its biggest warship since second world war

Berlin wants to ditch F126 frigate programme after cost overruns and delays

Berlin plans to scrap a multibillion-euro project to build the biggest warship commissioned by the German navy since the second world war, in what has become one of the biggest procurement fiascos in the country’s recent history.

Defence minister Boris Pistorius and other senior officials on Tuesday informed industry figures and senior MPs of their intention to abandon plans to build six F126 frigates, according to two people familiar with the matter.

Berlin instead intends to buy eight smaller Meko A-200 frigates, the people said. 

The plans, first reported by Der Spiegel, are a blow for defence giant Rheinmetall, which had been expecting to become lead contractor on the F126 frigate programme in a €12.8bn deal.

It is also a painful decision for the German government at a time when Berlin is seeking to take a leading role in European defence and security and planning to spend €780bn on overhauling the country’s military between now and the end of 2030. About €2bn in costs on the F126 programme are expected to be written off.

The 166-metre-long F126 frigate, weighing 10,000 tonnes, was intended to be a multipurpose warship that could remain at sea for long periods of time and perform a variety of roles.

A key capability was meant to be anti-submarine warfare: a task that became ever more important after Vladimir Putin’s full-scale invasion of Ukraine in 2022, and Nato countries stepped up efforts to deter Russia in the Baltic and the north Atlantic.

Dutch shipyard Damen Naval won a contract with the German government to build four F126 frigates in 2020, and the deal was later expanded to include two additional vessels.

But the project suffered cost overruns and delays, caused partly by software problems as well as communication difficulties between Germany’s procurement agency and Damen.

Growing tensions between Damen and German officials led the two sides to agree to begin a process to relieve the Dutch group of its role as lead contractor and instead hand it to Rheinmetall.

The Düsseldorf-based defence giant this year closed a €1.5bn deal to buy Naval Yards Lürssen, as part of an ambitious expansion beyond its traditional realm of armoured vehicles, artillery and ammunition into shipbuilding.

Taking over the F126 programme was a key part of Rheinmetall’s plans to integrate its technologies across different weapons systems spanning the domains of land, sea, air and space. 

In March, the government announced plans to buy four Meko A-200 frigates from German shipbuilder TKMS at a cost of about €1bn each, while also retaining the option to build the six F126 vessels.

Rheinmetall meanwhile proposed a price tag of €12.8bn to take over the F126 programme.

The contract was finalised and had been due to be submitted to the Bundestag’s budget committee for approval before the summer recess.

But MPs had grown increasingly uneasy about the cost of the F126 frigates and the time it would take to deliver them.

One person familiar with the project, who insisted that Rheinmetall and Damen had been making good progress, asked what would now happen to the first F126 hull that had been taking shape at the Wolgast shipyard in north-east Germany.

He said: “Will it now all be sent to scrap?”

Rheinmetall declined to comment. The German defence ministry did not immediately respond to a request for comment.

The administration is seeking to rebuild conventional weapons stockpiles while regearing for modern warfare

US defence contractors are struggling to meet Pentagon demands to boost munitions production, amid a rush to replenish missile stockpiles depleted in the Iran war.

The backlog in US weapons manufacturing is expected to dominate a White House meeting on Wednesday between Donald Trump and the top American defence companies.

The president has excoriated the companies for putting money into dividends and share buybacks rather than expanding production, but on Monday said “they can’t do that anymore”.

At issue is the administration’s effort to rebuild conventional weapons stockpiles at the same time it regears munitions production for modern warfare, seeding a new generation of defence companies to produce drones and other simple, lower-cost systems.

Lockheed Martin broke ground last month on a new facility in Alabama, while fellow primary contractors Northrop Grumman, Raytheon and L3Harris are also investing billions of dollars in expanding their manufacturing footprints.

But the companies and their suppliers face obstacles ranging from procurement regulations and uneven government spending to chronic shortages of vital components and qualified labour.

According to PwC research the five largest so-called US defence primes had a combined backlog of undelivered orders of $1.36tn through 2025, up 24 per cent on the year before.

Jen Stewart, executive vice-president at the National Defense Industrial Association, which represents US defence companies, said there was a “bipartisan consensus” in Washington over the necessity for “speed and reducing barriers to letting the companies go faster”.

But she added that the shrivelling of the US defence industrial base, which had 51 prime contractors in the early 1990s but just five today, “took 30 years to accumulate, and it’s not going to be solved in one year”.

The Pentagon did not respond to a request for comment on the White House meeting, which will also be attended by the UK’s BAE Systems, but the Trump administration has described its mission as putting the US defence industry back on a “wartime footing”.

That will require a transformation of what Stacie Pettyjohn, director of the defence programme at the Center for a New American Security think-tank in Washington, describes as an “invisible industrial base” of small suppliers for critical materials and components.

These companies struggle to raise capital for investments in new equipment, tooling or capacity, especially when “one year the US government wants to buy 50 Tomahawks, and the next year they want to buy a thousand”.

“The US domestic manufacturing base that underpins the primes is really in a pretty poor state,” Pettyjohn said. “You cannot just surge production of one or two components — you have to fix the entire system.”

The Trump administration has awarded longer seven-year “framework agreements” for munitions purchases in order to give defence primes and their suppliers confidence to expand production.

Under defence secretary Pete Hegseth’s “acquisition transformation strategy”, the Pentagon has also moved to simplify the procurement process, encourage “second source” suppliers and prioritise commercially available solutions over bespoke defence products.

But companies note that even if all the right incentives were in place, they would still struggle to overcome acute material constraints.

Stewart of the NDIA identified shortages in areas ranging from rare earths and critical minerals to explosives and specialist processing of chemicals, as well as shortages of skilled workers with the necessary security clearances.

A NDIA survey this year suggested industry concerns over the burden of complying with government requirements were growing more acute, with 50 per cent of companies citing it as a pressing issue compared with 23 per cent last year.

“There are more bespoke requirements, you have unstable budgets and then you have protracted timelines between when an award is announced and when there’s an actual contract,” she said.

Jim Will, a director at Minnesota chip manufacturer SkyWater Technology, said defence primes were also struggling to find domestic sources of microelectronics for their missiles.

“The electronics in Tomahawk missiles aren’t two years old, they’re 10 years old, 15 years old,” he said. “But because of offshoring or other reasons, the US [fabrication plant] that built that chip 10 years ago isn’t around anymore.”

As part of its production push, the Pentagon is turning to a new generation of defence groups that rely more on commercial technologies and practices.

The government announced framework agreements last month with four companies — Anduril, CoAspire, Leidos and Zone 5 — to produce more than 10,000 low-cost cruise missiles over three years from 2027.

William Greenwalt, a former Lockheed executive and Pentagon official, said the goal was to make the US defence industry “more like Silicon Valley”, focused more on speed, risk-taking and continuing to develop products after they are deployed rather than waiting for the “perfect solution”.

“This is how the defence industry used to work in the 1950s, when it produced Silicon Valley in the first place,” he said. “Right now we have a traditional side and a non-traditional side of the industry, and we need to bring the two together.”

Jerry McGinn, a former Pentagon acquisition official who is now director of the centre for the industrial base at the Center for Strategic and International Studies think-tank in Washington, said the amount of money going to new entrants had “increased dramatically” over the past decade.

But he warned that without deeper procurement reform, these new companies would run up against many of the same challenges as their more established peers.

Pettyjohn said another way for the US to boost defence production would be to increase foreign production partnerships to overcome domestic bottlenecks and increase overall demand, spurring investment.

But she added the Trump administration’s “preference for America first, America only for production makes that politically unpalatable for a lot of other nations.

“I suspect a lot of countries are going to be turning to alternative suppliers because they’re going to be number 22 in the queue for a Patriot missile,” she added.

The scandalous Modigliani that’s still making waves

Does a Sotheby’s sale of works amassed by billionaire Joe Lewis and his daughter Vivienne signal the top of the market?

In 1917, the daring Paris gallerist Berthe Weill opened the only solo exhibition dedicated to Amedeo Modigliani during the artist’s lifetime. Its display of unapologetic female nudes, in some cases including pubic hair, was not to everyone’s taste. A police commissaire, whose precinct happened to be opposite the Montmartre gallery, had the show closed, on grounds of indecency.

The scandal did the artist no harm, representing “a fleeting moment of recognition during his lifetime”, writes Valentina Castellani, author of Trading Beauty: Art Market Histories from the Altar to the Gallery (2026).

The shock value endures and tonight, a work from the same series as those in the shutdown show comes to auction with an estimated price tag of £45mn. “The mix of creating an uproar and then becoming institutionalised is rare,” says Oliver Barker, chair at Sotheby’s Europe, who will conduct the sale in London this evening.

“Nu assis au collier” (1917-18) is a relatively demure portrait, though Barker notes that the placement of the unknown sitter’s right hand between her legs begs the question “is she touching or protecting herself?”

Either way, the painting is the top-priced of 48 works coming from the Lewis Collection, accumulated in earnest since the 1990s by the billionaire trader Joe Lewis and his daughter Vivienne. Their family trust is best known as the majority owner of Tottenham Hotspur Football Club. 

The works on the block, which have a total estimate of £195mn-£280mn, are set to become the most valuable single-owner collection ever to sell publicly in the UK, far ahead of the current record of £101mn, made at the Pauline Karpidas sale last year. 

Predominantly portraits, the Lewis Collection is replete with psychologically charged imagery, sitters with back stories and striking ownership histories.

“We’ve probably always been drawn to works that set the cat among the pigeons,” says Vivienne Lewis, “to artists who dared to go where others hadn’t gone. They were often questioned by their contemporaries, but look at them now. Maybe it’s the sense of the underdog ultimately winning . . . I do think we identify with the idea that life isn’t always easy.”

Gustav Klimt’s ghostly and delicate 1902 painting of the 19-year-old Gertrud Loew tells the too-familiar tale of a sitter of Jewish descent, forced to leave Vienna in 1939. The Lewis family bought the work for £25mn in 2015 following a settlement between the sitter’s heirs and the Klimt Foundation and it now comes back for sale at around the same price level.

Francis Bacon’s intense 1976 study of the head of Henrietta Moraes, a model who had a brief affair with Lucian Freud and was later the lover of Maggi Hambling, conjures up the postwar London art scene. Moraes, who died in 1999, was “notoriously mercurial”, the Sotheby’s catalogue notes. “A combination of her youthful hedonism and an unsuccessful attempt as a burglar led her to spend a short sentence inside Holloway Prison.” The painting comes with a £3mn to £4mn estimate. 

Other works spotlight the unsung, whether that is Freud’s government benefits supervisor (“Sleeping by the Lion Carpet”, 1995-96, £25mn-£35mn), a peasant by the Russian avant-garde painter Kazimir Malevich (1911, £1.5mn-£2mn) or Chaïm Soutine’s household service worker (“Portrait du garçon en bleu”, c1928, £1.8mn-£2.5mn), bought by Lewis in the same 1995 auction as the Modigliani nude.

The Lewis family has colourful stories of its own. The east London-born Joe Lewis, whose net worth was put at $6.9bn by Forbes this year, started out in his father’s catering business, then became a currency trader with successful bets including against the British pound during the 1992 financial crisis. He founded Tavistock Group, a private investment vehicle, in the 1970s, and this now has holdings in more than 200 companies across sectors including property, hospitality, retail and sport.

In 2024, Lewis pleaded guilty in Manhattan to three criminal counts in an insider trading case, for which he paid a $5mn fine and was put on three years’ probation. Last year, he was pardoned by President Trump, on medical grounds, the White House said.

Barker says that Lewis “has not sought the limelight, though the limelight has sometimes found him.” He senses an “alter-ego” in René Magritte’s anonymised and invisible businessman, “La belle promenade” (1965), the second lot in tonight’s auction (est £3mn-£4mn).

Barker resists the idea that the decision to sell now is a sign that Lewis is calling the top of the art market, though he concedes that “he is a market maker” and that “money is chasing the best of the best” at auction just now. Certainly, punchy, figurative 20th-century paintings are having their moment, while many of the Lewis works have gained in value in the decades since they were bought. The £45mn Modigliani was purchased for the equivalent of £8mn in 1995; Malevich’s peasant painting, once owned by Roald Dahl, was bought for the collection for £210,500 in 1993 and now has a £1.5mn to £2mn estimate.

Vivienne says that “it feels like a good moment, particularly for this type of material. So it’s partly about timing, and partly about looking ahead to the next phase.” 

There are plenty more works still in the collection, notably by Freud, and Vivienne is still buying, continuing a figurative focus through a younger generation of artists, including Elizabeth Peyton, Tracey Emin and Hurvin Anderson, she says. Other projects include supporting residencies at OOF, a commercial gallery in the Tottenham Hotspur stadium dedicated to football-based work.

Unusually, for a collection of such value, the Lewis family has not secured any pre-arranged financial guarantees. “We trust the auction process, and we believe in the works themselves . . . we’re comfortable letting the market respond naturally,” Vivienne says. Plus, she notes, they are protected by a reserve. “If a work doesn’t reach the level we feel is appropriate, then we’re equally happy to keep it.” 

Allowing the market to decide opens the door for possible surprises and shocks that heavily orchestrated, high-wattage auctions have lacked in recent years. Such theatricality suits the collection, which also has its fair share of masks, costumes and backstage drama. “I grew up around theatre,” says Vivienne. “We ran cabaret restaurants, places where people could come and eat and be entertained.” Even without a scandalised shutdown, they will serve up another colourful performance in London tonight.

The red flags at HSBC over funds linked to Lebanese central bank scandal

The lender’s Swiss unit is under formal investigation over whether it helped Riad Salame embezzle funds

In February 2013 a compliance officer at HSBC raised concerns with the bank’s financial crimes investigation team about funds flowing through an account held within its private bank in Switzerland. 

The account was Forry Associates, a company controlled by Raja Salameh, the brother of Lebanon’s central bank governor at the time, Riad Salameh. More than a hundred million dollars had passed through the account with little information about the nature of the transactions. The compliance officer found the activity suspicious. 

After an initial review by HSBC’s investigations team, the issue was escalated to senior managers who oversee assessments of politically exposed persons, according to people familiar with a French judicial probe. They decided to keep the relationship with Forry Associates going. 

That decision could prove costly for HSBC. It has helped put Europe’s largest lender at the centre of a huge money-laundering scandal that involves the alleged embezzlement of hundreds of millions of dollars from Lebanon’s central bank by its former governor and his associates.

French prosecutors this month confirmed they had brought preliminary charges against HSBC’s Swiss Private Bank over allegations it helped Riad Salameh embezzle funds. A judge will later decide whether to take the matter to trial or dismiss the charges.

Investigators allege that $330mn was transferred from the central bank — Banque du Liban — to Forry Associates between 2002 and 2015. They also traced 174 transactions from Forry Associates to Raja Salameh’s personal HSBC account in the period between 2009 and 2016, totalling $204mn, according to court documents and people familiar with the investigation. 

Riad Salameh has long claimed he had “nothing to do” with Forry but Lebanese and European investigators allege the company was central to the alleged scheme to siphon off public funds that ultimately benefited Riad Salameh and his relatives.

The case against HSBC is largely mounted on evidence gathered by Swiss authorities, which are also investigating the company’s Swiss unit over alleged aggravated money laundering, as part of a broader multiyear investigation into the Salameh brothers.

The Swiss regulator Finma had previously found that HSBC’s Swiss unit seriously breached anti-money laundering requirements in its handling of Lebanon-linked clients. In its 2024 decision, it also criticised the bank for taking too long to report its suspicions to the authorities despite mounting red flags. 

“The bank failed to recognise the indications of money laundering presented by these transactions,” Finma wrote in its finding. “It likewise failed to satisfy requirements for the initiation and continuation of customer relationships with politically exposed persons, and was thus in serious breach of its due diligence obligations,” it added. 

The period under scrutiny — 2001 to 2016 — is particularly bruising for HSBC. The bank paid a then record $1.9bn fine in 2012 to settle allegations in the US that it had allowed itself to be used by Mexican drug cartels and terrorist financiers for money laundering. US investigators also found that the bank had ignored internal warnings about the flow of funds. 

Last year, HSBC warned that the investigations could have a “significant” impact on the group. It has already terminated relationships with more than 1,000 wealthy Middle Eastern clients from countries including Saudi Arabia and Lebanon. The banking group declined to comment on this story.

HSBC’s relationship with the Salameh brothers started just before the turn of the millennium when it bought Republic National Bank of New York.

As part of the transaction it inherited banker Sobhi Tabbara, a longtime acquaintance of Riad and Raja Salameh, who had spent more than a decade at the bank. 

Tabbara described Raja Salameh as someone “very well known to me for over 20 years” in internal communications. The two men had met when Raja Salameh was heading the Beirut office of Republic National Bank of New York, people familiar with the investigation told the FT in 2023. 

HSBC opened an account for Forry Associates, a shell company registered in the British Virgin Islands, shortly after it was established in 2001. Mossack Fonseca, the law firm that would go on to be at the centre of the Panama Papers scandal, acted as its administrator and its beneficial owner was Raja Salameh.

The account was set up to receive funds from the Banque du Liban under a 2002 contract signed with Forry Associates. The company would receive commission payments made to Raja Salameh for his role as a broker for the central bank.

HSBC did not have a copy of the contract when the account was opened, according to legal documents and people familiar with the investigation.

Internal HSBC records show that Tabbara vouched for the account linked to Raja Salameh, saying Forry Associates was a legitimate business.

But European investigators who later looked into the company, in one of multiple ongoing investigations into the Salamehs, could not verify that Forry Associates had employees, clients or any activities beyond receiving money from the central bank.

HSBC’s own compliance monitoring programme raised multiple alerts regarding Forry Associates beginning in 2006, a decade before the bank cut ties with the Salameh brothers. 

In 2007, HSBC sought evidence to justify the Banque du Liban payments flowing into the Forry Associates account and Tabbara was scheduled to travel to Beirut.

HSBC wanted so-called resolutions approved by Banque du Liban’s Central Council that would purportedly corroborate the transfers of fees and commissions into the Forry Associates account.

It is unclear if Tabbara made the trip or whether HSBC then received any documents. But in 2009 the bank received a Swift message from the Banque du Liban, which stated that the reference numbers cited on commission payments to Forry Associates matched resolutions adopted by its central council.

Tabbara said he followed up with a Banque du Liban compliance officer, who confirmed that Forry was one of their brokers and the central bank’s board was aware of the contract and related transactions. The latter claim was later disputed by investigators.

The communication made through the secure global messaging network Swift, used by thousands of financial institutions, was heavily relied on by HSBC as a reason for maintaining the relationship with Raja Salameh. 

“This body [the board] is obviously in full knowledge of the commission levied by Forry,” Tabbara told HSBC compliance officers in 2009, according to an internal memo. “I think it would be inappropriate to ask for more details, as they were kind enough to already send us this authenticated Swift.” 

“I am fully comfortable with their explanation,” he added. By 2011 more than $100mn had passed through the Forry Associates account according to Swiss regulators.

Tabbara was by then leading the lender’s private banking efforts in the Middle East and north Africa, a role he would stay in for over a decade until his departure in January 2024. He did not respond to requests for comment.

In summer 2015, almost fourteen years after HSBC first opened the Forry Associates account, it finally received a contract between the company and the Banque du Liban.

But there were discrepancies between the version provided by Raja Salameh and the original 2002 contract with the Banque du Liban, according to people familiar with the investigation.

The contract provided to the bank in 2015 was signed by Raja Salameh himself, while the original was signed by Riad Salameh and another individual.

The bank’s financial intelligence unit requested a new round of verifications. By then roughly $300mn had passed through the account.

In tracing the flow of transactions, it found the bulk of the funds had been sent from the Forry Associates account to Raja Salameh’s personal HSBC accounts before being routed onward to his bank accounts in Lebanon.

The FIU privately concluded that these personal accounts were “likely” being used as a “pass-through” and “most probably aiming to conceal” the source of the funds in question.

In early 2016, HSBC decided to close all relationships linked to Raja Salameh. It maintained the decision was unrelated to money laundering concerns and instead based on “risk appetite,” according to people familiar with the investigation. 

The net started to close around Riad Salameh in 2019. Years prior, the then central bank governor had turned to what he described as “financial engineering” to keep the country’s economy going. He offered commercial banks interest of up to 12 per cent to increase their dollar deposits at the Banque du Liban in an effort to shore up its large stock of foreign reserves.

Banks, in turn, offered high interest rates to their customers on multiyear deposits.

More than two-thirds of Lebanese bank deposits were invested with the state by 2019. Repayments on outstanding public debt made up more than a third of total government expenditure annually in what has been referred to as “a state-sponsored Ponzi scheme.”

Today, Riad Salameh is charged with embezzling $44mn by Lebanon and is under criminal investigation in several European countries for siphoning off hundreds of millions more from the central bank.

He has long denied all allegations of misconduct. His lawyers said: “The suspicions of embezzlement of funds by Riad Salameh correspond neither to [his] lifestyle nor to the financial reality of the case, since his wealth was built before he took office at the [Banque du Liban].” They did not comment on HSBC’s alleged role, since an international arrest warrant blocks access to the case file.

In 2020, four years after HSBC had cut off its ties with the Salamehs and Forry Associates, and as Lebanon’s economy was in freefall, the bank filed a report to Switzerland’s money laundering reporting office. To Swiss regulators, it was too late.

One of UK’s biggest private schemes wrote off stake in beleaguered utility in 2024

BT’s pension scheme lost £300mn after writing off its stake in Thames Water, in its first confirmation of losses sustained from its investment in the UK water company that is struggling under its £20bn debt pile. 

The size of the loss — which occurred following a decision to write off its 8.7 per cent stake in the UK’s largest water company in 2024 — was confirmed to analysts in a meeting on Monday, according to a video released by BT. The company said in the same meeting that the pension scheme had sold some of its debt in Thames Water, but did not give specifics. 

The disclosure comes as BT approaches the triennial valuation of the pension scheme, set for next week, which will fix payments the London-listed company must make for the next three years to help fund payouts made to an estimated 213,000 retired employees. 

The £33.2bn BT pension scheme, which was closed to new members in 2001 and to future accrual in 2018, pays out about £2.9bn in benefits each year. BTPS is currently managed by Brightwell Pensions and is one of the UK’s largest private-sector single-employer pension schemes.

BT said during its annual results in May that its pension deficit stood at £4.2bn, up from £4.1bn a year prior, partly due to returns being lower than expected. The company put about £800mn into the pension fund in deficit payments in the last financial year.

The writedown on Thames Water is unlikely to increase the annual amount paid when the deficit is assessed next week, according to a person familiar with the company. 

BT declined to specify when the £300mn loss on Thames Water had been booked. The pension scheme assets returned £569mn less than it had expected in the last financial year, according to BT’s annual report.

The pension fund wrote off the value of its stake in Thames Water’s parent company, Kemble Water. BTPS was one of a number of investors to make a similar move after the financial crisis at the utility began to escalate in 2024.

Equity investors at the time included a Singapore-registered subsidiary of Thames Water’s then-biggest shareholder, Ontario Municipal Employees Retirement System, and the UK’s Universities Superannuation Scheme.

The equity write-off precipitated a chain of events that led to Thames Water falling into the hands of its lenders, including hedge fund Elliott Management and private capital group Apollo Global Management.

The senior creditors have been locked in negotiations with water regulator Ofwat for more than a year as they attempt to take formal ownership of the UK’s largest water provider. Those senior lenders own the majority of the utility’s £20bn debt pile.

Ofwat needs to decide on whether to sign off on the creditors’ deal soon as the utility is expected to run out of cash by October, and any deal would need to be put to a public consultation and approved by the courts.

The agreement with creditors would prevent the company from being brought under the government’s special administration regime — a form of temporary nationalisation. 

But the creditor deal has drawn scrutiny from politicians in recent weeks, with the UK’s environment secretary warning that the plan could place an “undue burden” on consumers.

An Andy Burnham-led government may also complicate the decision-making process as the former mayor of Greater Manchester, who is expected to replace Sir Keir Starmer as the UK’s prime minister, has previously said there is “a very strong case” for renationalising Thames Water.

Brightwell declined to comment.

Struggling European carmakers have options, none of them good

Forging alliances with China would help the struggling sector offload some of its bloated costs. It may be the pick of a bad bunch

Sometimes, a new competitor emerges that blows traditional rivals out of the water. TV makers like Philips and Grundig found they could not compete with South Korea’s LG and Samsung; European shipbuilders lost their dominance to Asian counterparts. Carmakers Volkswagen, Stellantis, BMW and peers urgently need to figure out how to avoid the same fate.

The key problem, for European automotive companies, is China. Its electric-vehicle manufacturers — companies such as BYD, Nio and Leapmotor — sell cars that are 20 to 50 per cent cheaper than western alternatives, according to McKinsey analysis. Having run rings around the Europeans in China, companies from the People’s Republic are now gaining ground abroad too.

With all but the very top end of the car market now commoditised, it is hard to imagine this trend reversing. The best that domestic carmakers can hope for is that the European Union, which is waking up to their howls of angst, will protect them from Chinese competitors for some time at least, giving them time to adapt.

But whichever way one cuts it, adapting will be painful. Most carmakers are, to varying extents, attempting to close manufacturing capacity and cut costs. When BMW issued its giant profit warning last week, for instance, it said it would wield the axe to counter the pressures on the auto industry. But, with their market share continuing to decline, this is a never-ending process. And planned cuts and closures tend to hit roadblocks from local politicians and trade unions.

A more appealing option is to use existing plants and skillsets for more profitable activities. Renault, Volkswagen and Mercedes-Benz are among those who have partnered with defence companies to build military vehicles, along with missiles and anti-drone defences, while suppliers such as Germany’s Bosch hope to sell components such as sensors to robotics firms. That’s helpful but, given the scale of the overcapacity, it is unlikely to be enough.

What about trying to turn enemies into friends? While it’s unlikely a European carmaker would want to merge with a Chinese peer, let alone be allowed to do so, there’s room to strike any number of deals. Chinese manufacturers are keen to secure capacity in European plants ahead of expected EU “local content” rules. And in return they can offer access to their technology and supply chain. Stellantis and Leapmotor have already gone down this route, while Volkswagen is thinking about it.

Offering China market access in exchange for its technology will, in the long run, only make its carmakers stronger. The risk is that at some point, European carmakers will get hemmed into a corner. Still, forging alliances would help the struggling sector offload some of its bloated costs, and learn something new in the process. It may be the pick of a bad bunch.