The German automotive industry has a long-standing track record of sales and global recognition. Germany is praised for its world-class research and engineering, infrastructure, complete industry value chain integration, and a highly qualified and experienced workforce. One in every five cars sold worldwide is from a German car brand.
The industry consists of a small number of globally active manufacturers and a large number of successful family-owned small and medium-sized suppliers. This article takes a closer look at the sector, its structure, foreign investment, the emergence of e-mobility, as well as the effect of the Covid-19 pandemic.
The industry at a glance
The automotive industry has a great reputation. Cars “Made in Germany” are synonymous of quality and sophisticated engineering processes worldwide. Furthermore, the industry is an important driver of prosperity and innovation in Europe. In 2019, companies from the automotive sector generated record sales of €435.3 billion which amounts to 20% of the total German industry revenue. This means that automotives represent the largest industry sector in Germany. Industry experts claim that the driving force for this development was the strong growth of the Chinese market in the past years.
The industry has always been an attractive employer. The German automotive sector consists of almost 900 companies that have employed over 833,000 people in 2019.
As a result, the automotive industry is the most popular career path for engineering students in Germany. The Technical University of Munich, RWTH Aachen University and the Karlsruhe Institute of Technology offer prestigious courses in engineering, accredited research facilities and collaborations with major players of the industry.
One could argue that the center of the automotive sector in Germany is the southern state of Baden-Württemberg. Many well-known German car manufacturer brands such as Mercedes and Porsche as well as global suppliers Bosch, Mahle, Eberspächer and Recaro are located in this state.
Whereas German car companies produce around 4.7 million cars domestically, the production outside of Germany amounts to 11.4 million passenger cars. In 2019, China remained the most important foreign location with 5 million passenger cars produced in that year.
In terms of automotive parts suppliers, in 2019, three German companies were among the five largest players worldwide. The international industry leader is Bosch, followed by Continental and ZF Friedrichshafen in fifth place.
The competitive advantage of the German automotive industry, as a leading force in exports, is its focus on the higher-priced vehicle segments. German companies dominate around 70% of the market for premium automobiles. This approach is evident in the production part of the industry as well. In 2019, the German car manufacturers produced only 16% of their compact cars in Germany, but 96% of their luxury-class models. Nevertheless, industry experts predict that in the future the manufacturing quality of foreign factories will increase and companies will expand their production overseas.
In 2019, the industry has set a new record by exporting 75% of all cars produced in Germany to international markets.
In general, the greatest growth rates are to be expected in the SUV and electric vehicle segments in the future. This will boost factories abroad as manufacturers typically try to locate its production where the most important market for the respective models is, for SUV this means the US and for electric cars China is the prominent location.
In general, the automotive industry is known for its innovative approach not only in terms of electric driving. This explains why 40% of all patents in Germany are registered by the automotive industry. According to the European Commission, expenditure in the area of research and development (R&D) in this industry rose to €44.6 billion in 2019.
As the US-company Tesla started building its factory in Berlin-Brandenburg in 2020, foreign investment in the German market as well as the topic of E-mobility shaped the public conversation among the automotive industry.
E-Mobility and Connectivity
The automobile industry is challenged by the emergence of advancing technology which is shifting toward electric powertrains. Therefore, the sector is in the process of adaptation wherein manufacturers and suppliers are forced to invest massively in E-mobility. In 2019, alternative drives have gained great significance in the German automotive market. Purely electrically powered passenger cars (BEVs), plug-in hybrids (PHEVs) and vehicles with fuel cells (FCs) showed 60% increase. Nevertheless, their market share in 2019 remained relatively low at 3% of all new car registrations.
As a result, the German government is allocating €2.5 billion for improved infrastructure and promoting innovative car batteries. Further grants incentivise consumers to purchase electric vehicles and attract foreign investment. This aims to reach the carbon emission reduction targets of Germany.
The Management Consulting Group PwC predicts that in 2030, more than 50% of all car sales will be electric cars. As combating climate change will dominate global politics, in the future, the electricity for vehicles will mainly come from renewable sources to guarantee carbon dioxide-neutral mobility. As a result, investment in the charging infrastructure and in improving battery and powertrain performance will shape the automotive industry in the future.
Furthermore, technological advances will increase the connectivity and interaction between different cars and their owner as well as with the overall infrastructure such as traffic lights. PwC predicts that in 2030, 40% of Europeans will use autonomous driving and 35% show an interest in different ways of sharing vehicles to minimize the cost of mobility, especially in urban areas. In China, the numbers are forecasted to be even higher.
The COVID-19 Pandemic
The outbreak of the COVID-19 pandemic has severely affected the automotive industry as global supply chains were disrupted and sales decreased immensely. In spring, most of the manufacturing was low and 60% of the workforce was on short-time working. In China, the US, and Europe 28% fewer passenger cars were sold in 2020.
However, in 2021, sales are predicted to increase again as companies are adapting to the new normal.
Are you interested in investing in the automotive industry or establishing your company in Germany? Next to a stable and growing economy, qualified workforce, excellent location in the heart of Europe; the German automotive industry attracts investors with its standing as a market leader and role mole in terms of R&D. There is also profound infrastructure between suppliers and car manufactures as well as existing cooperation networks.
Are you considering investing in the German automotive sector or do you have legal questions regarding E-mobility and the respective government grants?
Do you work for an international automotive company or supplier and need support for your legal department? Are you a qualified candidate from abroad searching for job opportunities in the automotive industry and need advice concerning immigration issues?
Contact Centurion Plus Germany today for an initial consultation to find out about our legal solutions for the automotive industry.