German Auto Industry Shifts Investment Focus Overseas
Data from the German Association of the Automotive Industry (VDA) reveals that the German automotive industry has been investing more heavily outside its home country since 2022. In that year, out of a total of approximately €89 billion in investments, 51% went to foreign destinations, while 49% remained in Germany. A year later, the share of overseas investments increased to 53%, with total industry spending reaching €99 billion in 2023.
"Until 2021, a slight majority of total investments still flowed into Germany, but since then, the trend has reversed in favor of foreign countries," explained Manuel Kallweit, VDA’s chief economist, to the Frankfurter Allgemeine Zeitung (FAZ). "This is due, among other things, to the lackluster conditions here in Germany, such as high energy costs and excessive bureaucracy." In 2012, the German investment share stood at 55%, and in 2021, it was 52%. The automotive sector has long been critical of the conditions in Germany and has warned of a potential exodus of the industry.
The shift in investment trends is particularly evident in capital investments, such as those made in factories. In 2012, the ratio was still relatively balanced at 51% overseas and 49% domestic. By 2023, the share of foreign capital investments had climbed to 62%, leaving only 38% for Germany.
A similar trend is observable in research and development (R&D) investments. In 2008, German automakers invested 70% of their R&D budgets domestically, but by 2023, this figure had dropped to 53%. The data used in this analysis is drawn from company annual reports, statistics from the Federal Statistical Office, the European Commission, and the Stifterverband für die Deutsche Wissenschaft (Donors’ Association for the Promotion of Humanities and Sciences in Germany).
"It is imperative to address the issues affecting Germany as a business location to ensure that auto production, and thus growth and jobs, remain in our country," emphasized Kallweit. "There is a temptation to relocate operations, especially due to rising costs. However, it should be noted that development work is easier and more effective when conducted at the site of production."
The shift in investment focus raises concerns about the future of the German automotive industry. With increasing investment abroad, there is a risk that Germany could lose its competitive edge in the global auto market. The industry has repeatedly called on the government to take action to improve business conditions and retain the auto sector’s presence within the country.
Key Factors Driving the Investment Shift:
- High energy costs: Germany’s energy prices are among the highest in Europe, making it more expensive for automakers to operate and produce vehicles in the country.
- Excessive bureaucracy: German businesses face a complex and time-consuming regulatory environment, which can hinder investment and slow down innovation.
- Lack of infrastructure: Germany’s infrastructure needs significant investment to support the growth of the auto industry, particularly in areas such as charging stations for electric vehicles and automated driving technologies.
- Skilled labor shortage: Germany faces a shortage of skilled workers in the automotive sector, which can limit production capacity and drive up labor costs.
Potential Consequences of the Investment Shift:
- Loss of jobs: As automakers invest more overseas, production facilities and jobs may be relocated to other countries, leading to job losses in Germany.
- Reduced competitiveness: The shift in investment could weaken Germany’s automotive industry and reduce its ability to compete in the global market.
- Damage to the supply chain: The automotive industry is heavily reliant on a complex supply chain, and the relocation of production facilities could disrupt this network and increase costs.
- Loss of innovation: Germany is a leading center for automotive innovation, and the shift in investment could lead to a slowdown in the development of new technologies in the country.
