What does the future hold for Germany’s auto industry?

Germany’s strength for the past half-century has been its automotive industry. The big question now is whether that also will become its biggest vulnerability. Carmakers built just 4.7 million cars in Germany in 2019, industry data showed, squeezing production to its lowest level since 1997.

The powerful VDA carmakers’ club said output had tumbled nine per cent year-on-year, blaming weaker international demand for the fall. The lower appetite from abroad comes on top of demanding technological change and tighter emissions restrictions complicating life for carmakers – long a pillar of Europe’s largest economy.

Challenged on all fronts by fundamental shifts in automotive technology, the German auto industry is struggling to transform itself from precision metal bending to advanced electronics, and so far its future in the face of competitors such as Tesla, Waymo, NIO, and a number of very nimble startups remains uncertain.

Tesla’s announcement in November 2019 that it plans to build a ‘giga-factory’ in Grünheide, 35 kilometres southeast of the German capital, is evidence of just how contested this market has become. Tesla will make batteries, powertrains, and vehicles at the factory, starting with the Model Y compact crossover and the Model 3 sedan.

“There is a lot of ongoing change,” said Manfred Horstmann, vice president of technology and integration at GlobalFoundries. “The German car industry, the automotive industry, is in a transformation from combustion engines to electrical engines. In California, there are fast movers. Tesla is a fast mover. The German car industry is catching up quickly. Smaller car companies can work with Volkswagen, Audi and BMW, from the low end to premium trucks and buses.”

However, whether German automakers can move quickly enough to be competitive remains to be seen because Tesla, Waymo and NIO and many others aren’t standing still.

“Germany’s automotive is still seen as the leading industry in the world if it comes to high-quality premium cars,” said Martin Reuter, Europe-Middle East-Africa technical director for Mentor, a Siemens Business.

“Companies like VW, BMW, Daimler, Audi, and Porsche are seen as the leaders. This is also valid for the German Tier 1 suppliers, Bosch and Continental. They remained steady in the two top positions of a worldwide ranking. With the diesel crisis they started to report declines in revenue and earnings. Investments are made into future technologies that will enable them to recover from the decline.”

A key factor in the speed of that recovery, and how pervasive it becomes, depends on just how willing German automakers are to make some fundamental shifts.