The Kriegsmarine had a big problem: they were too weak. The expansion of the Kriegsmarine that was intended to give them a fighting chance had only just started in 1939. The Scharnhorst-class, still armed with their interim 11" guns instead of their final planned bigger (but fewer) guns, was in service, but the Bismarck-class were still in progress, to be completed in 1940 and 1941. The first two (of a planned 6) of their successors, the super-Bismarck H-class, had been laid down, but work had barely commenced when the war began, and there was no realistic prospect of their completion before the end of the war. Work on the was suspended.
The commander of Germany's submarine force, Karl Dönitz, believed that he could defeat Britain if he had 300 submarines. He began the war with 57, of which only 27 had the range to operate in the Atlantic from German bases.
This was too little to do much. The goals of the Kriegsmarine were:
Protect the German coast and German coastal waters. The navy, with torpedo boats and minelayers in addition to the larger ships, with help from the Luftwaffe, could manage this.
Protect German shipping. Outside German waters and the Baltic, this wasn't possible.
"To attack with all forces at their disposal the enemy shipping and lines of communication of the Western Allies, to damage them and if possible to paralyze them."
Protecting German shipping during the invasion of Norway cost the Kriegsmarine 3 cruisers and 10 destroyers (and showed that the Kriegsmarine was not going to be able to protect an invasion of Britain).
The third task was a job for the larger ships, which could function as long-range commerce raiders, and U-boats. U-boats were too few, and as they grew in number, Allied anti-submarine capability grew, and shipbuilding grew too, and the Kriegsmarine lost the battle of attrition in the Atlantic. The large ships tried, but after the lost of Admiral Graf Spee and Bismarck, they were kept closer to home, for safety. Tirpitz was sunk in Norway, positioned there to threaten Arctic convoys. Scharnhorst, also threatening convoys, was sunk at sea. The only remaining German battleship, Gneisenau, was trapped in a perpetual cycle of damage from bombing and repair.
The Kriegsmarine strategy was reasonable enough, but they didn't have the resources. U-boat numbers did reach Dönitz's magic 300 (reaching 393 at the end of 1942, with 212 of them operational). However, losses rose, and from early 1943, the number of U-boats in the Atlantic fell:
With U-boat production not able to sustain numbers with such high losses, and Allied merchant shipping tonnage growing due to new construction beating sinkings, the only German hope was new technology. Acoustic torpedoes were not enough. The Schnorchel was not enough. Newer designs of U-boats were not enough. Adding another rotor to Enigma wasn't enough. 1,162 U-boats were built, 785 were lost, and about 75% of U-boat crewmen died. They tried, and it wasn't enough.
