Study: Economic Significance of Regional Automotive Networks in Germany

This means that internal comubstion engines will have a difficult time in the EU - and probably beyond - even in the short term. If the current tank-to-wheel convention is continued, the proposed reduction target would correspond to a de facto ban on the registration of new passenger cars and light commercial vehicles with internal combustion engines in the EU starting in 2035.

At the same time, the trend toward automated driving is placing new demands on the automotive industry. International companies with vast digital and technological expertise are now also rapidly advancing the transformation in the automotive sector, thus changing value networks and competitive positions that have been established for decades. On the one hand, this is increasing the pressure on traditional automotive manufacturers and suppliers to adapt; on the other, the transformation is opening up significant opportunities in the newly emerging value creation fields and markets.

Successfully shaping this transformation is key to securing Germany's prosperity and economic strength. The automotive industry plays a prominent role in many regions in Germany. With its highly professional global supply structures, it serves as a role model and secures Germany's integration into the world markets. Even within Germany, there is a pronounced division of labor among the approximately 44,000 companies involved in the production of a car. In addition to the automotive manufacturers (OEM -– Original Equipment Manufacturer) and their direct suppliers, these also include companies from sectors such as metalworking, mechanical engineering, and the electrical industry.

The Automotive Industry in Germany

• In Germany, around 3.26 million employees are associated with the automotive industry. These are spread out among manufactureres, suppliers, and service companies that are directly related to automobiles. The latter include car dealerships, repair shops, and gas stations.
• 1.2 million people are employed in production-related areas of the automotive industry. In other words, they deal with the actual production of cars or their components. These 1.2 million employees work in around 44,000 companies in Germany.
• First of all, the production-related areas of the automotive instury are distributed much more unevenly throughout Germany than the service-oriented activities for the automotive industry, and, seceondly, they are impacted to a particular extent bythe automotive transformation of electrification, automation, and networking. That is why this sutdy focuses on the production of vehicles and of the components and parts they require.

Companies in Germany are currently already positioning themselves in automotive opportunity areas

• Leaving aside the importance of the regional automotive industry, the study also identifies regions in which companies are focusing on the three opportunity fields of electrification, automation, and connectivity. Around 125,000 employees throughout Germany are already working in these promising fields, most of them in powertrain electrification (around 64,000).
• Many regions in Bavaria and Baden-Württemberg in particular have high shares of employment in opportunity areas. However, companies in Thuringia and Saxony have also already built up significant employment in these future-oriented fields. Ingolstadt, Wolfsburg, and the Lake Constance district have the highest shares of total employment.
• Around 46,000 people are employed in the three opportunity areas in the 40 regions particularly affected by the automotive transformation. Even though this figure is significantly lower than the number of employees working on conventional powertrains, it is clear that many companies are already addressing the automotive transformation at the present time.

Over the next few years, significant new investments will be made in opportunity areas

• Based on the latest information, a total of around 139 billion euros will be invested in automotive opportunity areas in Germany over the next few years, primarily by German automakers who are spending considerable sums to shape the transformation.
• In addition to German manufacturers, foreign companies are also building capacity in opportunity areas (such as battery cell production) in Germany. According to announcements, foreign companies will invest at least 10 billion euros over the next few years, with Tesla leading the way with a volume of around 5.8 billion euros.

Key factors for a successful transformation

Identifying and actively developing opportunity areas. In the coming years, significant market potentials will open up in the fields of electrification, automation, and networking. Companies can receive targeted support in a variety of ways to tap into these opportunities. Innovation networks and start-up initiatives will play an important role in this regard. Both increase innovation activity, in both an evolutionary and a radical sense. In this context, it would also be possible to further strengthen efforts in funding programs associated with the transformation – such as the National Hydrogen Strategy, the initiatives on artificial intelligence (AI) or quantum computing – and to highlight and interlink the automotive aspects. Intensifying cooperation and the transfer of knowledge between industry and science would open up further potential. 

• Intensify training and continuing education. New skills are needed not only for the three opportunity areas, but also for other technologies associated with the automotive transition, such as lightweight construction. In close cooperation with companies, educational institutions, and universities, new training and continuing education programs could be developed and supported that address these skills and thus contribute to securing the future of the automotive industry in Germany. This approach would make it possible to develop prospects for skilled workers who are currently still active in the conventional powertrain sector. 

• Strengthen networking and cooperation to learn from and with each other. The forty regions that are particularly affected could network with each other in a targeted manner and jointly initiate projects that promise synergies. These could include specific cooperation networks on connecting innovation topics, best practice projects that are scaled up, or a virtual research platform involving research institutes. In any case, the current findings make it possible to match regions and companies with similar challenges, allowing experiences to be shared and resources to be deployed in a bundled manner. 

• Develop specific measures in the regions. The forty regions particularly affected are at different stages in the process of automotive transformation. Regions that are home to manufacturers, for example, face different challenges than regions that are primarily characterized by small and medium-sized enterprises (SMEs). The current analysis makes it possible to identify specific potentials in the individual types of regions, which can build on different strengths. This makes it possible to create and implement targeted measures for the successful further development of the regions. One possible way to increase regional resilience would be to establish a network excellence initiative based on the successful idea of an excellence strategy for universities. The problem with knowledge transfer is often the short funding period, which leads to broken knowledge chains. Instead, networks of excellence could be funded on a longer-term basis, with their success evaluated every seven years. This could ensure a continuation of knowledge generation and transfer. To better exploit this potential, interlinked coaching formats (such as transformation pilots) could be expanded or newly developed in which the better development of foreign markets and the identification of new business fields and models could be addressed.

• Improve location factors. Improving the general location factors can also benefit the automotive companies based there by supporting their transformation. 

At the same time, efficient location factors are an essential prerequisite when it comes to attracting new companies to settle in Germany. Important factors in this respect include the availability of suitable land, the supply of skilled workers, universities, an efficient digital infrastructure, adequate transport links, and connections to innovation networks. These location factors are comparatively unfavorable, especially in rural regions. The current revival of greenfield investments would also actively support targeted settlement strategies by improving the location conditions. 

The Prerequisites for a Successful Transformation are in Place

Overall, the initial conditions are good for a successful transformation of the automotive industry in Germany. Although around 260,000 people are still employed in the area of internal combustion engine powertrains, around 125,000 people are already working in the three opportunity areas. 

The momentum of the transformation is very high, and companies are investing heavily, especially in the training of their employees. This is yielding results, as illustrated by the study's evaluations of opportunity areas and new investments. German OEMs and major automotive suppliers in particular are playing an active role in shaping the transformation and are investing large sums in the automotive transformation. Positive effects in new registrations of electric vehicles are the result. German OEMs such as Volkswagen and Daimler already rank high in the German registration statistics for electric vehicles. In Norway, where more electric vehicles are already sold than combustion engines, Audi and Volkswagen led the registration statistics in 2020.

Nevertheless, there are further challenges for companies and regions with regard to the declining importance of conventional drives, especially from three perspectives. SMEs, companies in the conventional drive sector, and companies in rural areas generally have to deal with lower levels of freedom and greater pressure to adapt. However, with the help of targeted measures – ideas are discussed in this study – it seems possible to successfully shape automotive change here as well.

Effects on Foundries

As a result of their path dependencies and specializations, some of which have lasted for decades, companies have built up considerable expertise that is in danger of being devalued by the automotive transformation in the field of combustion technology. This experiential knowledge (often technologically adept) can be secured, utilized, and further developed through targeted further training. This specifically involves skills such as casting complex structures – of components for internal combustion engines, for example. Foundries can transform this knowledge by interweaving new skills with their deep process knowledge with a view to casting parts and components for e-motors or other parts and components that are experiencing increasing importance as a result of the automotive transition.

The complete study by Antonio Ardillo, Hanno Kempermann, Johannes Ewald, Manuel Fritsch, Oliver Koppel, Benedikt Müller, Thomas Potinecke and Benita Zink, 2021, Economic significance of regional automotive networks in Germany, study for the Federal Ministry for Economic Affairs and Energy (BMWi), Cologne can be downloaded in German below.