The Ifo’s indicator tracking the fullness of order books slipped from 17.1 points to 5.3 in September while demand dropped for the first time since May.
Oliver Falck, director of the Ifo, said the figures suggest car making is the industry “most seriously affected by supply bottlenecks for intermediate products”.
However, there were silver linings for the sector. Expectations for exports and production improved but the Ifo struck a note of caution on signs of a future uptick.
Mr Falck said: “This shouldn’t hide the fact that the uncertainty of many consumers in China, due to the crisis of the real estate developer Evergrande, is weighing on the mood of German carmakers, who now produce more cars in China than in Germany.”
The world’s biggest car makers fear that the shortage of computer chips could persist until 2023 after the pandemic worsened a number of other supply problems affecting production.
Car production in the UK was down 27pc year-on-year in August as the shortages and extended summer factory shutdowns hit the sector, according to the Society of Motor Manufacturers and Traders.