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Why did he loose the first vote? I don't know enough German politics to answer it myself.
It's a shot before the bow. His behaviour in the past had been quite autocratic, trying to pressure parliament etc so this is people telling him that he may be in charge, but he's not in charge.
And he seems to have understood, judging by his face when he was told so in no uncertain terms by one of the speakers. That shot stung.
Slim majority of 18 votes, and a lot of people don't like him.
Merkel actively kept him from power until she was done with politics, privately saying he's dangerous.
He's a ruthless, but not very good, power player with little empathy or ability to reach across the aisle.
The Social Democrats were basically forced into the coalition as the only option to get a majority without the Nazis.
Cause nobody likes him
As others have already answered he lost because he didn't get the required votes, despite his coalition having a majority. Which is why this was expected to be a formailty and no one in a similar situation had ever lost this vote.
However i would add that unlike some other votes of parliament this one was a secret one, so we will never know who voted which way. Since everyone was present we can deduce that people of his coalition broke rank in the first round and voted against him. But we likely will never know who and why, since i doubt anyone would reveal it (which would be political suicide).
Since they changed their votes for the second round that immediately followed, i assume they wanted to voice their disapproval of Merz, which they succeded in. But (again as already mentioned) Merz is not really well liked.
He left politics for a while during most of Merkels reign and only crawled back out of his hole after she left. And even then he wasn't the first choice (he failed to become the CDU candidate in 2021). So there might be quite a few people that just dislike him enough in general to do this.
Other more recent reasons might be his 180° turn on the debt brake (ran his campaign on not changing it, just to immediately do so after the election) or his attempt for harsher migration rules just before the recent election, where he won a vote in pariament with the help of the far right AfD (ofc he distanced himself from them, but you only bring stuff to a vote if you plan to win, and the only way to win that one was with the far right).
Technically because of not having enought votes, but it came as a surprise because the two coalition parties have a big enough majrority - the vote was secret and nobody knows who voted against party lines. So nobody knows why, bubasically comes down to that there are people in the coalition parties that don't like him and just voted against him.
The smallest majority a government of the federal republic ever had though.