automotive industry in germany

8/20/2019 Automotive Industry in Germany

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INDUSTRY OVERVIEWThe Automotive Industry in Germany

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THE AUTOMOTIVE INDUSTRY IN GERMANY

qualified workforce create an in-ternationally peerless automotiveenvironment. It enables compa-nies to develop cutting-edge tech-nologies which perfectly addresstomorrow’s mobility needs. In thefuture, Germany will continue tostrive to provide top-class tech-nological performance throughits outstanding infrastructure,prestigious international researchfacilities and dynamic investmentclimate.

Take a look at our impressive num-bers and find out why, more than 125years after inventing the automo-bile, Germany remains the world’sautomotive innovation hub.

THE WORLD’SAUTOMOTIVEINNOVATION HUB

Germany is recognized the worldover for its outstanding automotiveindustry and excellence in engi-neering. From Asia to the Americas,German cars embody highly cher-

ished values of innovation, reliabil-ity, safety, and design. Germany isby some distance Europe’s leadingproduction and sales market. Thecountry’s world-class R&D infra-structure, complete industry valuechain integration, and highly


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Industry Over view 2014/15 www.gtai.com

Around 77 percent of cars producedin Germany in 2013 were ultimatelydestined for foreign shores – a newrecord. Worldwide, every fifth carthat rolls off the production line ismade by a German OEM.

R&D LEADERSHIP

German OEMs are responsible foraround one third of internationalautomotive R&D expenditure, withR&D spend passing the EUR 18 bil-lion mark in 2013 (equivalent to anannual increase of five percent).Germany’s automotive sector is thecountry’s most innovative industrysector, accounting for 33 percentof total German industry R&D ex-penditure of EUR 55 billion in 2013.German automotive companies areresponsible for more than 60 per-cent of R&D growth in Europe. R&Dpersonnel within the German auto-

mobile industry reached a level of just over 95,000 (three percent an-nual increase) in 2013.

automotive suppliers are Germancompanies. Germany is the Euro-pean car production leader: some5.4 million passenger cars - andmore than 305,000 trucks and bus-es - were manufactured in Germanplants in 2013.

GERMANY’S LARGEST INDUSTRY

The automotive industry is the larg-est industry sector in Germany.In 2013, the auto sector recordedturnover of EUR 361 billion – around20 percent of total German industryrevenue. The automobile industry isone of the largest employers in Ger-many, with a workforce of around756,000 in 2013.

EXPORT SUCCESS

German passenger car and lightcommercial vehicle manufacturersrecorded foreign market generated

revenue of more than EUR 200 bil-lion in 2013 - a three percent plusincrease on 2012 results. The do-mestic market generated revenueof EUR 80 billion (annual 0.4 percentincrease) during the same period.

THE INDUSTRYIN NUMBERS

EUROPE’S BIGGEST MARKET

Germany is Europe’s number oneautomotive market in production andsales terms; accounting for over 30percent of all passenger cars man-ufactured and almost 20 percentof all new registrations. Germanyalso boasts the largest concentra-tion of OEM plants in Europe. Thereare currently 43 OEM sites locatedin Germany. German OEM marketshare in Western Europe was morethan 51 percent in 2013. Germany isconveniently located next to Poland,the biggest Eastern European mar-ket with passenger car unit salesof 290,000 (six percent annual in-crease) in 2013.

MANUFACTURING LEADERGerman automobile manufacturersproduced almost 13 million vehiclesin 2013 – equivalent to more than 17percent of total global production.Twenty-one of the world’s 100 top

3

European Passenger Car Production and Registration 2013

Source: VDA 2014.

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5,000

4,000

3,000

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1,000

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GLOBAL MARKETPERSPECTIVE

INCREASING WORLDWIDE

DEMAND

Global demand for vehicles “Madein Germany” remains strong, withexports accounting for three quar-ters of all domestic vehicle produc-tion (equivalent to almost 4.2 mil-lion vehicles and an annual increaseof 1.6 percent). Germany was themost significant exporter of pas-senger cars in 2013, ahead of Japanand South Korea.

Most German vehicles are exportedto other European countries, withneighbor states accounting for al-most 60 percent of total export lev-els. Beyond Europe, the USA is thelargest importer of German-made

vehicles followed by Asia. A break-down of German car exports revealsthat a quarter of exports are in thepremium vehicle segment. Germanyoccupies almost three quarters ofthe global premium vehicle mar-ket, with a similar ratio of premiumsegment vehicles manufacturedfor export purposes. Demand forpremium vehicles is particularlyhigh in China and the USA. Thelargest and most exclusive vehicles

have a major pull in the Chinesemarket, so much so that China is themost important market for a num-ber of German vehicle series.

PREMIUM MARKET HUB

Germany is the world’s premiumcar production hub thanks to itsworld-class R&D, labor force, in-frastructure, and automotive man-ufacturing heritage. Of all premiumbranded vehicles produced globally,approaching 80 percent are GermanOEM-manufactured. Of all vehiclesproduced globally, around twothirds of vehicles were produced in

Europe (46 percent were made inGermany). Within Europe, morethan 70 percent of these vehicles aremade in Germany (of which, more

than 80 percent are German-OEMbadged vehicles). The western Euro-pean light vehicle production sectoris predominantly premium sectorfocused. As a result, the scale andrange of production is expandingsignificantly. German production ofpremium segment cars reached atotal share of 37 percent of westernEuropean light vehicle productionand will continue to grow.

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MARKET OPPORTUNITIES

Source: GTAI 2014 (analysis based on data derived from MarkLines database).

Premium Car Production Numbers 2013

Japan

UK

China

USA

Germany

Rest of the World

6% 6%

11%

12%

46%

18%

*Totals include rounding differences

Source: RolandBerger 2013.

Premium

Segment Mid

Segment

Entry Segment

Western European Light Vehicle Production Structure

2000* 2005 2012* 2019

55%

24%

20%

50%

24%

26%

38%

24%

37%

38%

25%

37%


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PREMIUM MARKET GROWTH

A broad consensus exists amongreputable industry analysts that,globally, the premium market seg-ment will grow at a much faster ratethan the total passenger car seg-ment in the next decades. Growthwithin this segment can be mainlyattributed to growing internationaldemand for high-value, premiumsmall and compact-sized cars aswell as premium SUVs. The Ger-man automotive industry is theleading producer of premium carsworldwide and continues to set thebenchmark in this segment. TheGerman market is ideally positionedto meet growing international pre-mium demand: Almost all Germanand German-based manufacturershave already launched or intend tolaunch new products meeting pre-mium segment demand. Excellent

production standards, sustainableinnovation and know-how basedon the country’s automotive man-ufacturing tradition will furtherstrengthen the leading position ofGermany as a leading internationalautomotive manufacturing location.

WORLDWIDE REPUTATION

German products and the „Made inGermany“ label are associated withpositive attributes such as quality,

reliability, durability, efficiency andsafety. A GTAI study conducted in 15major world cities finds this to bethe case in all regions of the world;be it Asia, Africa, Australia, Europeor the Americas. The study alsonotes that regional and sectoral dif-ferences in terms of importance at-tached occur in all but one area: theautomotive sector.

RISING R&D BUDGETS

German automotive company in-vestment in research and devel-opment remains strong as manu-facturers seek to maintain thecompetitiveness of vehicles “Madein Germany.” In 2012, German au-tomotive companies spent aroundEUR 17.4 billion on internal re-search and development projects;more than any other manufacturingsector in Germany.

Almost one third of Germany’s to-tal manufacturing industry R&Dexpenditure is spent by automotivecompanies, with R&D budgets ex-pected to rise. Germany’s automo-tive companies employ the largestnumber of research personnel inthe manufacturing sector. With al-most 94,000 researchers (full-timeequivalent), automotive companiesemploy one quarter of the total R&Dworkforce in Germany’s privateeconomy.

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Source: Ernst & Young 2013.

Assessment of Innovation Power Germany 2013

0 10 20 30 40 50 60 70 80 90

Germany

Japan

South Korea

China

USA

Brazil

India

Sweden

France

Russia

44%44% 37%

24% 41%

20% 41%

18% 42%

13% 43%

10% 39%

10% 35%

13% 30%

6% 28%

7% 24%

How competitive are the following automotive

hubs with respect to innovation power?

Very competitive Fairly competitive

MOST INNOVATIVE

PRODUCTION LOCATIONGerman cars continue to enjoy aglobally positive image and are inhigh demand across the world. Arecent Ernst & Young study of 300companies (15 percent OEMs and85 percent suppliers) active in theEuropean automotive sector findsGermany to be the most innova-tive automotive hub in internationalcomparison. Eighty-one percent ofthose companies surveyed consider

Germany to be the most competitivehub in terms of innovative power(ahead of Japan and South Koreawho polled 65 percent and 61 per-cent respectively).


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TECHNOLOGICALTRENDS

ALTERNATIVE DRIVE

SYSTEMS & EFFICIENCY

Automotive engineers in Germanyare hard at work improving inter-nal combustion engine energy effi-ciency, developing alternative drivetechnologies (including electric, hy-brid, and fuel cell cars), and adapt-ing lightweight materials and elec-tronics. Carbon emission reductiontargets, smart traffic management,and the government’s electric mo-bility initiative are major drivers forfuture mobility growth.

According to McKinsey, the overallmarket value for new vehicles withoptimized combustion engines isset to reach between EUR 280 and

EUR 330 billion by 2020. Impressivedevelopments have already beenmade in developing smaller, highlycharged-up “homogeneous com-bustion” engines and dual clutchtransmissions (DCTs). Demand foralternative drive systems is theresult of increased environmentalawareness, rising gas prices, andmore rigorous CO

2 regulations for

new vehicles. Overall market po-tential for efficient drive systems

is worth between EUR 325 and EUR500 billion through to 2020.

E-MOBILITY

Domestic and international mar-ket potential for energy-efficientpassenger cars is huge. The globalmarket is expected to grow by 29percent annually by 2020. Support-ed by the country’s ambitious e-mo-bility plans, the automotive sectorhas set itself the goal of becoming alead provider and market of electro-

mobility solutions by 2020.

This objective is conceived as thefirst part of a three-stage process:

1. Market preparation phase to2014 - R&D and showcase projectfocus; 2. Market ramp-up phase to2017 - Energy-efficient vehicle andinfrastructure market developmentfocus; 3. Mass market phase to2020 - Sustainable business modelfocus.

The country also has ambitious e-mobility plans outside Germany,with German OEMs keen to meet

rising export demand for vehiclesin the USA and BRIC countries.Economic growth, the changingmobility requirements of a youngand aspirational population and therelatively low density of passengercars are driving demand in the BRICnations. This will allow German-based manufacturers to success-fully follow their proven strategy ofincreased imports and increasingon-site production.

CONNECTIVITY - DRIVE SMART

The demand for connected cars is

set to increase significantly, no-where more so than in the pre-mium segment. Facilitating a raftof innovative safety, comfort andinformation services, smart tech-nologies are revolutionizing thedriving experience. According to atrend study conducted by McKin-sey, the number of smart cars willincrease by 30 percent annuallyover the next years.

By 2020, one in five cars will be con-nected to the internet - 50 percentof these vehicles will belong to thepremium segment. Germany’s in-dustry strength in electronic tech-nologies and software solutionsis crucial - both today and in the fu-ture - for technological advancementin this sector.

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R o l l i n g r e s i s t a n c e

L i g h t w e i g h t c o n s t r u c

t i o n

D r i v e t r a i n o p t i m i z a t i

o n

I m p r o v e m o t o r e f f i c i e

n c i e s

H y b r i d d r i v e

F l e x i b l e f u e l v e h i c l e s

G a s

B i o f u e l s ( f i r s t g e n e r a

t i o n )

G a s - t o - l i q u i d

B i o m a s s - t o - l i q u i d

H y d r o g e n

F u e l c e l l s

B a t t e r y - e l e c t r i c d r i v e

Source: VDA 2013.

German Automotive Industry Diversified Strategy –

Technological Trends

CAR-2-X COMMUNICATION NEW MOBILITY CONCEPTS

Complement ReplaceReduce


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SUPPLY CHAINTRANSFORMATION

The automotive industry is conspicu-ously changing in terms of its struc-ture, especially in supply chain part-nerships. The working relationshipsbetween OEMs and suppliers havebeen transformed by a number of fac-tors including increased model andvariety diversity and shorter productlife cycles, modularization and as-sembly strategies, high dynamics bythe implementation of new technolo-gies, new e-mobility developmentactivity focus and cost pressures andhigh capital intensity levels.

NEW OEM BUSINESS MODELS

Conventional notions of the role ofthe traditional OEM within the au-tomotive industry value chain are

slowly but surely being consignedto the past. The classic OEM busi-ness model – with its dependenceon turnover generated from newvehicle sales – is undergoing a major paradigm shift as value creationreturns continue to fall. Not only isthe modern driver more discern-ing in his or her auto-purchasingbehavior, but heightened buyer ex-pectations have created a marketin which there is a car for every

consumer. As a result, OEMs havefound themselves caught up in a“crowding-out” cycle where evermore and better technological fea-tures are required to stay ahead ofa congested international market.Moreover, technological advances,historically the sole preserve of theauto manufacturer, are increas-ingly taking place on the side of thesupplier. OEMs are accordingly dif-ferentiating themselves in terms ofbrand reputation and service.

INCREASING SUPPLIER’S ROLE

According to the German Associationof the Automotive Industry (VDA),the role of suppliers is noticeablyincreasing; particularly in the pro-duction area of drive trains, internalcombustion engines (ICEs) and ag-gregates, bodywork, and exteriors.

The VDA also forecasts that a vis-ible extension of supplier activityareas for drive trains, ICEs, electricmotors, bodywork and exteriorswill take place through to 2025. Ac-cording to McKinsey, OEMs will alsohave to deal with rising productionvolumes. Building a local supplierbase, creating an enhanced supplychain, and bolstering capacities arethe result of this development. Thisis necessary in light of the furtherdevelopment of alternative drives.

Suppliers will accordingly becomeeven more important in terms of howmuch value they add to the product.

INCREASING SUPPLIER’S

KNOWLEDGE

Electronics and software will play adominant role in vehicle innovation.Approximately 90 percent of auto-motive innovations in 2012 featuredelectronics and software, more spe-cifically in active safety and infotain-

ment features. This confirms the no-tion that supply chain partnershipsare becoming increasingly impor-tant within the automotive industryvalue chain. Eighty-four percent ofautomotive industry CEOs ques-tioned in the PWC 16th Annual GlobalCEO Survey stress the importanceof strengthening their supply chainpartnerships as a top priority behindmeeting customer and client needs(89 percent of those surveyed).

7

Source: VDA 2013 (based on Oliver Wyman research).

Changing Industry Structures: Development of Share of Added

Value between OEMs and Suppliers

Chassis

Drive Train

Internal CombustionEngine and Aggregates

Electric Gear

Carriage

Exterior

Interior

Electronics

2002 2012 2025

OEMs Changes Suppliers

no relevantvolumes


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R&D INFRASTRUCTURE

WORLD’S LEADING AUTO

R&D NATION

No other industry invests as muchin R&D – more than EUR 24 billion in2013 alone. As such, the auto indus-try in Germany accounts for morethan one third of the country’s totalR&D expenditure. Germany has the

highest concentration of all Euro-pean automotive OEM and tier 0.5supplier R&D centers. This makesthe country the most important au-tomotive development activity loca-tion in Europe. Suppliers and ser-vice providers located in Germanyprofit from close client interactionstarting from the pre-developmentstage. They can take advantage of joint research activities with someof the world’s leading automotivetechnology research institutes anduniversities.

INCREASING R&D INVESTMENTS

Around 95,000 people were en-gaged in R&D activity in 2013 (athree percent increase on 2012 R&Dworkforce levels). As well as mak-ing provision for significant inter-nal R&D expenditure, the Germanautomotive sector spends a furtherEUR 6.1 billion in external R&D -this is equivalent to almost half of

the country’s external R&D invest-ments. Despite record R&D expen-diture levels, German companiesintend to boost their R&D activitiesfurther still. According to the Ernst &Young European Automotive Survey,more than 40 percent of German au-tomotive companies want to increasetheir R&D investments in the future,while 58 percent will maintain cur-rent R&D spending levels.

WORLD INNOVATION LEADER Auto manufacturers and supplierslocated in Germany are among theworld’s leading patent applicants.Nine out of the country’s top tenpatent filing companies are pre-dominately active in the automo-tive industry – proof positive of thecountry’s importance within theworld’s automotive market and itsenormous innovation power.

Germany’s automotive industry re-mains the country’s leading indus-try innovator with a significant share(51 percent in 2012) of turnover be-ing generated from new product

innovations. Sixty-eight percent ofcompanies active in the sector in-troduced new products or processesin 2012. Investment in innovationis constantly increasing, and is ex-pected to reach EUR 47.1 billion bythe end of 2014. Complete industryvalue chain presence ensures thatnew and innovative products aremade to the highest possible tech-nological standards. The biggestGerman automotive supplier alone

files on average around 19 patentsper working day.

R&D INCENTIVES – GERMANY’S

HIGH-TECH STRATEGY

As R&D is considered to be amongthe most important areas for the de-velopment of the German economy,industry and the public sector havemade a commitment to spend aroundthree percent of national GDP peryear on R&D activities. This amountsto approximately EUR 80 billion R&Dspending each year. In addition, anunprecedented campaign to fosterthe advancement of new technolo-gies has been launched by the Ger-man government.

The High-Tech Strategy represents

the first national concept to bringkey-innovation and technologystakeholders together in a commonpurpose of advancing new tech-nologies. The initiative combinesthe resources of all governmentministries, setting billions of eurosaside annually for the developmentof cutting-edge technologies (R&Dprojects can also count on gener-ous financial support in the form ofR&D grants).

10

Source: ZEW 2014.

Innovation Intensity – Share of Innovation

Expenditures of Turnover 2013

0% 2% 4% 6% 8% 10% 12%

Automotive Industry

Electronics Industry

Chemical Industry

Information &

Telecommunication Industry

Mechanical Engineeering Industry

10.2%

8.7%

6.9%

6.6%

5.6%


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60%

51%

New Product Turnover by Industry 2012

Source: DPMA 2013.

0% 20% 40%

Automotive Industry

Glass & Ceramics Industry

Mechanical Engineeering Industry 23%

Information &Telecommunication Industry

24%

Electronics Industry 31%

Chemical Industry 15%

Textil Industry 19%

10%

Automotive Industry R&D

Cluster Examples: Lightweight

Construction

Carbon Composites eV (CCeV)

Association of companies and research

institutions covering the entire value

chain of high-performance, fiber-rein-

forced composites in Germany (head-

quarters and four centers), Austria

and Switzerland

Organizes targeted networking and

information exchange with leading

CFRP experts from R&D and produc-

tion; provides access to established

R&D and manufacturing services;

offers cooperation possibilities at all

stages within the entire value chain

KITe hyLITE

Fraunhofer-Gesel lschaf t led cluster

that brings together more than 30

partners from industry and R&D fo-cusing on the development of new

technologies for hybrid lightweight

construction

Cluster for Lightweight Design

(Leichtbau-Cluster, LC) Landshut

Network of companies (40 percent),

R&D institutes (30 percent) and ser-

vice providers (30 percent) to assist

and promote cross-industrial cooper-

ation in the field of lightweight design

Key topics within the Cluster for Light- weight Design are materials for light-

weight design, design of lightweight

structures, and advanced manufactur-

ing technology for lightweight design

applications

AUTOMOTIVE INDUSTRY

CLUSTERS

The decentralized nature of the au-tomotive industry has spurred thedevelopment of strong R&D busi-ness networks. Non-university re-search institutes, universities andcompanies work together in numer-ous federal and regional industryand research clusters to improve orinvent new products, solutions, ser-vices, and processes. By connectingindividual competencies, major R&Dclusters in the automotive industry

can be identified. These clustershave gained international recogni-tion through integrating industry,science and education in automo-tive-related areas including mecha-tronics, microelectronics, mecha-nical engineering, manufacturingprocesses, and material sciences.This has helped the industry to se-cure an internationally leading posi-tion in a number of technology fieldsand secured their status as the in-ternational benchmark.

INTERNATIONAL RESEARCH

COMPETENCIES

Industrial R&D activities in Germanybenefit from a broad innovation land-scape which is home to a diverse ar-ray of potential research cooperationpartners. According to the FederalStatistical Office, institutes of highereducation invested around EUR 13.5billion in R&D in 2011. Germany alsooffers research cooperation oppor-tunities with the 240 institutes ofthe four large research organiza-tions: Fraunhofer-Gesellschaft, Max

Planck Society, Helmholtz Associa-tion, and Leibniz Association. Their60,000 researchers are globally ac-knowledged experts in applied andbasic sciences and economicallysuccessful. The Fraunhofer Institutefor Communication Systems ESK inparticular is developing state-of-the-art vehicle information and com-munication technologies (ICT). Maincompetencies lie in the fields of au-tomotive networks, infotainment anddriver assistance, and model-driven

software.


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EUROPEAN MARKETPERSPECTIVE

GROWTH MARKETS

The European automotive industrywill perform best in the developingworld in the years ahead. At home,the sector will consolidate its lead-ing market position by around 2.8percent annually, largely as a re-sult of development and growth inthe premium market segment. TheEuropean share of value added inthe premium vehicle segment willbe more pronounced than in otherregions, where the segment is com-paratively small or negligible. Chinawill remain a strong performer inthe volume segment, with India alsorecording a significant increase indemand in the small vehicle seg-ment. In global comparison, Europe

remains the most promising auto-motive investment location in value-added terms.

COMPETITIVE AND STABLE HUB

The recent PWC 16th Annual GlobalCEO Survey (automotive sector in 32countries) finds that more than 80percent of automotive industry CEOsare most concerned by volatile anduncertain growth, with 70 percent ofCEOs questioned concerned by cur-

rency fluctuations. The Eurozone’ssingle, stable currency provides afurther considerable investmentadvantage to prospective investors,thanks to the absence of exchangerate volatility.

A recent Ernst & Young study con-

cludes that German-based automo-tive hubs record the highest productquality levels – 88 percent of thosesurveyed consider Germany to bethe most competitive hub with thebest quality worldwide. Seventy-four percent of respondents alsoidentified Germany as the world’smost product automotive hub.

MANUFACTURING LOCATION

German companies represent 10

percent of European manufacturingcompanies and generate 27 percentof total EU turnover in this sector.In fact, the manufacturing sectorrepresents more than one fifth ofGermany`s “value added” – one ofthe highest shares in Europe. In-creasingly more foreign companiesare placing their faith in Germany asa vital production site location, andare benefiting from superior pro-ductivity rates and the country’sexcellent business framework of

stable labor costs, excellent produc-tion standards and a highly skilledworkforce.

CARS 2020 ACTION PLAN

In order to maintain European au-tomotive industry competitivenessand sustainability, the EuropeanCommission set up the CARS 2020Action Plan in 2012. Consisting ofconcrete policy initiative proposals,CARS 2020 directly addresses theopportunities opening up in emerg-ing economies. Central to the initia-tive’s objectives are four areas ofactivity: 1. The promotion of invest-ment in advanced technologies and

innovation for clean vehicles, 2. Im-prove market conditions, 3. Supportindustry in accessing the globalmarket, 4. Promote investment inskills and training. Research andinnovation activities will be stream-lined under the European GreenVehicle Initiative, with European In-vestment Bank cooperation provid-ing small and medium-sized enter-prises with access to credit.

12


European Automotive Hubs Product Quality Assessment 2013

0

Germany

Sweden

UK

France

Italy

Czech Rep.

Spain

Slovak Rep.

Poland

Hungary

10 20 30 40 50 60 70 80 90

How competitive are the following automotive

hubs with respect to product quality?

Very competitive Fairly competitive

100

51% 37%

19% 43%

13% 35%

10% 34%

6% 34%

4% 31%

6% 28%

27%

23%

20%


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13

EUROPE’S MOSTATTRACTIVE AUTO-MOTIVE LOCATION

AUTOMOTIVE FDI MAGNET

According to Ernst & Young’s Euro-pean Attractiveness Survey 2014,Germany continues to be seen asthe most attractive FDI destination

in Europe. Ernst & Young’s StandortDeutschland (“Location Germany”)report sees Germany placed asthe world’s fourth most attractiveinvestment location behind China,USA and Russia. Germany has beenable to further exploit its strongindustrial base and highly skilledlabor force to attract FDI projects,nowhere more so than in the auto-motive sector where it ranked as thenumber one destination in Europewith 49 projects. Companies withinGermany also assess the currentbusiness situation in Germany morepositively than in the rest of Europe,with around two thirds of OEMs as-sessing the business climate as be-ing “good” or “fairly good.” This isalso confirmed by the Ifo BusinessClimate Index 2014, which con-cludes that business climate, busi-ness situation, and business expec-tations are all increasing positively.

WORLD CLASS PEOPLEGermany’s world-class educationsystem ensures that the higheststandards are always met. Eighty-four percent of the German popu-lation have been trained to uni-versity entrance level or possessa recognized vocational qualifica-tion – above the OECD average of 67percent. Over 30 percent of Germanuniversity graduates have a natu-ral sciences or engineering degree

background. The mechatronics andautomotive engineering disciplineshave recorded remarkable growthlevels, witnessing a 121 percent leap

in student numbers in the pastdecade alone. The comparativelynew mechatronics interdisciplin-ary program can also boast morethan 11,000 students. The auto in-dustry is the most popular careerpath among engineers, with manu-facturers and component suppliersamong the preferred employers.The steady flow of mechanical en-gineers graduating from approxi-mately 100 universities and colleg-es helps to ensure the continuity ofGerman engineering excellence – a

guarantor for the sector’s enduringsuccess.

HIGH PRODUCTIVITY

Measured in unit labor costs, Ger-many experienced a major increasein productivity the past decade. Inmarked contrast to other Europeancountries which have experiencedan overall increase in unit laborcosts, Germany’s unit labor costsdecreased by a yearly average of 0.4

percent for the period 2004 to 2011.This made the economy more com-petitive - particularly manufacturing.

DUAL EDUCATION SYSTEM

Germany provides direct access toa highly qualified and flexible laborpool. The country’s dual educationsystem – unique in combining thebenefits of classroom-based andon-the-job training over a period oftwo to three years – is specificallygeared to meet industry needs. Inclose cooperation with industry andthe government, the German Cham-bers of Industry and Commerce(IHKs) and the German Confedera-tion of Skilled Crafts (ZDH) ensure

that exacting standards are adheredto, guaranteeing the quality of train-ing provided across Germany.


0 10 20

By origin country

By destination country

44

Japan

USA

Germany

France

India

Czech Rep.

UK

Germany

Poland

Russia

30 40 50 60

40

28

16

15

50

41

19

16

14

FDI Projects in the Automotive Sector 2014


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FIRST CHOICEBUSINESS LOCATION

RELIABLE LOGISTICS

INFRASTRUCTURE

Germany’s infrastructure excel-lence is confirmed by a numberof recent studies including theSwiss IMD’s World Competitive-ness Yearbook and various UNCTADinvestor surveys. The 2013–2014Global Competitiveness Report ofthe World Economic Forum (WEF)ranked Germany an excellent thirdplace for infrastructure; singlingout Germany’s extensive and ef-ficient infrastructure for highly ef-ficient transportation of goods andpassengers for special praise. Ac-cumulated in this score for Ger-many are high marks for the qualityof roads and air transport, excellent

railroads and port infrastructure,as well as its communications andenergy infrastructure.

STABLE ECONOMY

The German economy is on the up-swing, with the sound cyclical dy-namism experienced in the econ-omy indicative of broad-based andsustained upward development. In2013, GDP recorded an annual av-erage increase of 0.4 percent. Ger-

many’s Federal Statistical Officeexpects 1.8 percent annual averagegrowth of GDP in 2014. This is a fur-ther indicator of the positive feelingamong consumers and businessesalike. As such, economic growth inGermany is expected to be signifi-cantly higher than in the wider Eu-rozone.

SOUND AND SECURE LEGAL

FRAMEWORK

According to the WEF, Germany isone of the world’s best locationsin terms of planning and operatingsecurity. Germany is also one of theworld’s leading nations in terms ofintellectual property protection andprotection from organized crime.German regulatory authorities are

highly professional in their opera-tions. The German legal systemalso counts as one of the world’smost efficient and independent. So-cial, economic, and political stabilityprovides a solid base for corporateinvestment projects. Contractualagreements are secure and intel-lectual property is strictly protectedin Germany.

COMPETITIVE TAX SYSTEM

Germany offers a competitive taxsystem providing attractive taxrates for companies. In recent years,the German government has imple-mented root and branch reforms ofthe tax system to make the countrya more attractive business location.The German tax system allows fordiffering tax rates in German mu-

nicipalities. On average, corporatecompanies face an overall tax bur-den of less than 30 percent. Signifi-cantly lower tax rates are availablein certain German municipalities –up to eight percent less. The overalltax burden can therefore be as lowas 22.83 percent. This makes Ger-many’s corporate tax system one ofthe most competitive tax systemsamong the major industrializedcountries.

14

Average Corporate Tax Burden of Selected C ountries 2012

Note: 1 National German average; lower overall tax rates in certain areas are possible,

e.g. 22.83% in certain municipalities.

2 Top corporate income taxation rate; lower star ting rates or other special tax rates available.

Example USA: progressive central state rate from 15% to 35%.

3 Local corporate income tax added.

4 As of April 2013 (according to OECD)

Source: German Federal Ministry of Finance, 2013 (data as of December 2012)

19.00%

19.00%

20.62%2

23.00% 2, 4

25.00%2

29.83%1

30.00%2

31.40%

33.99%2

36.10%2

37.36%2

39.62%2, 3

Czech. Rep.

Poland

Hungary

UK

Netherlands

Germany

Spain

Italy

Belgium

France

Japan

USA (NY)

0% 5% 10% 15% 20% 25% 30% 35% 40%


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15

FINANCING &INCENTIVES INGERMANY

In Germany, investment projects canreceive financial assistance througha number of different instruments.Besides private sources, these in-struments may come from different

public incentives programs with thepossibility of program combinationavailable to all companies - regardlessof country of provenance. They fit theneeds of diverse economic activitiesat different stages of the investmentprocess.

INVESTMENT PROJECT FINANCING

BY PRIVATE EUQITY

Technologically innovative start-ups in particular have to rely sole-ly on financing through equity suchas venture capital (VC). In Germa-ny, appropriate VC partners can befound through the BundesverbandDeutscher Kapitalbeteiligungsge-sellschaften e.V (BVK – “GermanPrivate Equity and Venture CapitalAssociation”). Special conferencesand events like the Deutsches Ei-genkapitalforum (“German EquityForum”) provide another opportu-nity for young enterprises to comeinto direct contact with potential VC

partners. Public institutions such asdevelopment banks (publicly ownedand organized banks which existat the national and state level) andpublic VC companies may also offerpartnership programs at this deve-lopment stage.

INVESTMENT PROJECT

FINANCING BY BANK LOANS

Debt financing is a central financ-ing resource and the classic supple-ment to equity financing in Germany.It is available to companies with acontinuous cash flow. Loans can beprovided to finance long-term invest-

ments, working capital and opera-tional costs (R&D, personnel) and forbridging temporary financial gaps.Besides offers from commercialbanks, investors can access publiclysubsidized loan programs in Ger-many. These programs usually of-fer loans at attractive interest ratesin combination with repayment-freestart-up years, in particular for smalland medium-sized companies. Theseloans are provided by the state-

owned KfW development bank andalso by regional development banks.

CASH INCENTIVES FOR

INVESTMENTS AND R&D

When it comes to setting up produc-tion or service facilities, investors cancount on a number of different publicfunding programs. These programscomplement the financing of an in-vestment project. Most important arecash incentives provided in the formof non-repayable grants applicable

to co-finance investment-related ex-penditures such as new buildings,equipment or machinery.

R&D project funding is made availablethrough a number of different incen-tives programs targeted at reducingthe operating costs of R&D projects.Programs operate at the regional,national, and European level and arewholly independent from investmentincentives. At the national level, all

R&D project funding has been con-centrated in the so-called High-Tech-Strategy to push the development ofcutting-edge technologies. Substan-tial annual funding budgets are avail-able for diverse R&D projects.

LABOR-RELATED INCENTIVES

After the location-based investmenthas been initiated or realized, com-panies can receive further subsidiesfor building up a workforce or the

implementation of R&D projects. La-bor-related incentives play a signifi-cant role in reducing the operationalcosts incurred by new businesses.The range of programs offered canbe classified into three main groups:programs focusing on recruitmentsupport, training support, and wagesubsidies respectively.

Incentives in Germany

Funding purposes

Investments Working

Capital

Research &

Development

Specific

Purposes

Personnel

Financing supported by any of the following public funding instruments

(combinations of instruments usually possible)

Public funding instruments

Grants Loans Guarantees EquityCapital

MezzanineCapital


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BEST PRACTICEEXAMPLE: HANG-SHENG ELECTRONICSCORPORATION

COMPANY INFORMATION

Hangsheng Automotive ElectronicsCorporation is a leading provider ofelectronics products to the automo-tive industry. Founded in 1993 andbased in Shenzhen, the company de-velops and produces a broad arrayof automotive electronics productsranging from in-car entertainmentsystems to navigation systems,body ECU products to smart trafficand theft prevention systems.

Particularly strong in the domes-tic Chinese market with 95 percentmarket coverage and 30 percent

market share in China (the com-pany counts 19 of the country’s top20 manufacturers as clients), Hang-sheng Automotive Electronics hassuccessfully established itself as aforce in international markets - in-cluding North America, South Asia,the Middle East and Russia - and isnow on the list of six of the world’stop ten car manufacturers to be aTier1 Supplier and continuing toexpand its global export business

rapidly.

PROJECT INFORMATION

As part of the company’s rapid ex-port roll-out strategy on the way toachieving its objective of becoming abillion dollar operation, HangshengElectronics has expanded its globalfootprint beyond China in recentyears, establishing internationaloperations in the USA, Japan, Rus-sia, and Germany. For its Europeanactivities, the company was looking

for a suitable research and develop-ment location.

GERMANY TRADE & INVEST

SUPPORT

After initial contact was establishedin January 2013, preliminary dis-

cussions (which formed the basisfor further investment project sup-port) between Hangsheng Auto-motive Electronics and GTAI tookplace. GTAI was able to provide theChinese company with comprehen-sive consultancy services pertain-ing to company law in Germany, taxand legal considerations, as well aspersonnel and recruitment issues.Follow-up meetings were arrangedto provide information specific to

the German automotive sector.

PROJECT START

On successful conclusion of theseactivities, Hangsheng AutomotiveElectronics indicated a desire to

establish a research and develop-ment facility in Berlin. The Ger-man R&D offshoot was founded inMay 2013: Hangsheng TechnologyGmbH, Berlin. The successful ac-quisition of Hangsheng Electronicsis not a one-off. An increased num-ber of Chinese automotive tech-nology providers have invested inGermany in recent years, with Chi-nese automotive industry suppliersmaking significant investment in re-

search and development operationsin Germany.

16

SUCCESS STORY

Success Story – Automotive Electronics

Company Hangsheng Automotive Electronics Ltd.

Country of Origin China

Industry Automotive Electronics/Connected Car & Infotainment

Company Objective Establishment of a European R&D Center

GTAI Support Company formation information Site preselection, site visit organization Final site decision support

Initial Contact January 2013

Company Formed May 2013, GmbH formation in Berlin

When HSAE entered Germany for the first time trying to set up business, we

didn’t have any idea how to do it - until we met the experts from Germany

Trade & Invest. Since then, we have been receiving professional advice and

practical support in almost every aspect, from laws and regulations, off ice

location settlement to recruitment questions. This help is crucial for foreign

companies in Germany. If I have any questions now I feel relieved because I

know they will support me.

Michael Bao, Managing Director, Hangsheng Technology GmbH, Berlin(part of Shenzhen Hangsheng Electronics Corporation, China)


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17

GERMANY TRADE &INVEST HELPS YOU

Germany Trade & Invest’s teams ofindustry experts will assist you insetting up your operations in Ger-many. We support your projectmanagement activities from theearliest stages of your expansionstrategy.

We provide you with all of the indus-try information you need – coveringeverything from key markets andrelated supply and application sec-tors to the R&D landscape. Foreigncompanies profit from our rich

experience in identifying the busi-ness locations which best meettheir specific investment criteria.We help turn your requirements intoconcrete investment site propos-als; providing consulting services toensure you make the right locationdecision. We coordinate site visits,meetings with potential partners,universities, and other institutes ac-tive in the industry.

Our team of consultants is at handto provide you with the relevantbackground information on Germa-ny’s tax and legal system, industryregulations, and the domestic labormarket. Germany Trade & Invest’s

experts help you create the appro-priate financial package for your in-vestment and put you in contact withsuitable financial partners. Incen-tives specialists provide you withdetailed information about availableincentives, support you with the ap-plication process, and arrange con-tacts with local economic develop-ment corporations.

All of our investor-related servicesare treated with the utmost confiden-tiality and provided free of charge.

PROJECT MANAGEMENT ASSISTANCE

Coordination andsupport of nego-tiations with localauthorities

Joint projectmanagement withregional develop-ment agency

Project partneridentificationand contact

Market entrystrategy support

Business oppor-tunity analysis andmarket research

LOCATION CONSULTING /SITE EVALUATION

Final sitedecision support

Site visitorganization

Site preselectionCost factoranalysis

Identification ofproject-specificlocation factors

Accompanying in-centives applicationand establishmentformalities

Administrativeaffairs support

Organization ofmeetings withlegal advisors andfinancial partners

Project-relatedfinancing and incen-tives consultancy

Identification ofrelevant tax andlegal issues

SUPPORT SERVICES

DECISION & INVESTMENTSTRATEGY EVALUATION

OUR INVESTMENT PROJECT CONSULTANCY SERVICES


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Our Expertise Network

Germany Trade & Invest provides direct access to all ofthe relevant actors in the German economy. As the hubfor a far-reaching network at both home and abroad,Germany Trade & Invest maintains close relationswith a number of partners important to internationalinvestors setting up business in Germany. These in-clude all federal government ministries and the lead-ing associations of the German economy includingthe Federation of the German Industry (BDI) and theAssociation of the German Chambers of Industry andCommerce (DIHK).

As well as this, Germany Trade & Invest also main-tains close ties to important trade and industry asso-ciations including the Verband der Automobilindustrie

(VDA - “German Association of the Automotive Indus-try”). Our working partnership with the VDA allowsprospective investors to benefit from the association’sdetailed market analyses and industry structure in-sights. Together with Germany Trade & Invest’s busi-ness support services, companies who locate to Ger-many can do so knowing that the VDA is promoting theinterests of the automotive industry both domesticallyand internationally.

The German Association of the Automotive Industry(VDA) nationally and internationally promotes the in-terests of the entire German automotive industry inall fields of the motor transport sector, for examplein international trade and economic, transport andenvironmental policy, technical legislation, standard-izing and quality assurance. To an equal extent, VDApromotes services in standardization, research andquality. It organizes the world’s largest trade fair formobility, the IAA (International Motor Show), as well

as other congresses and it regularly publishes on allautomotive topics.

The members of the association are companies thatoperate a plant in the Federal Republic of Germany forthe industrial production of motor vehicles and theirengines, trailers, special bodies and containers aswell as vehicle parts and accessories.

The VDA consists of about 600 member companies, whohave come together to research and produce clean andsafe automobility for the future. In the country that isknown for its successful invention of both automobiles

and trucks, the VDA represents the automotive manu-factures and supply companies to ensure the continuedcompetitive utilization of their experience and skills.The cooperation between manufactures and suppliersin the VDA is unique in the world of motoring.

Since 1946, the VDA has lobbied nationally and inter-nationally for the creation of the best possible automo-bility. Our goals are safety, quality and sustainabilityat the highest technical level. As the representative ofthe key industry in the German economy, the VDA is re-sponsible for more than 750 thousand jobs in Germany

and leads a lively dialogue with the industry, the public,politicians, and customers.

The IAA (International Motor Show) is held every year. Ineven-numbered years it is the turn of the IAA Commer-cial Vehicles Show. The IAA Passenger Cars Show is heldin odd-numbered years.

The office of the association is situated in Berlin. TheVDA also has an office in Brussels as well as a locationof the VDA China (QMC) in Beijing.

Contact Verband der Automobilindustrie e. V. (VDA)Behrenstr. 3510117 BerlinGermany

T. +49 30 897842-0F. +49 30 [email protected]

18


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IMPRINT

PUBLISHER

Germany Trade and InvestGesellschaft für Außenwirtschaftund Standortmarketing mbHFriedrichstraße 6010117 BerlinGermany

T. +49 (0)30 200 099-555F. +49 (0)30 200 [email protected]

EXECUTIVE BOARD Dr. Benno Bunse, Chairman/CEODr. Jürgen Friedrich, CEO

AUTHOR

Stefan Di Bitonto, Mechanical & Electronic Technologies,Germany Trade & Invest, [email protected]

EDITOR

William MacDougall, Germany Trade & Invest

LAYOUT

Germany Trade & Invest

PRINT

Asmuth Druck & Crossmedia GmbH & Co. KG, Köln

NOTES

©Germany Trade & Invest, August 2014All market data provided is based on the most current market information available

at the time of publication. Germany Trade & Invest accepts no liability for the actuality,accuracy, or completeness of the information provided.

ORDER NUMBER

13688


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About Us

Germany Trade & Invest is the foreign trade and inward in-

vestment agency of the Federal Republic of Germany. The

organization advises and supports foreign companies seeking

to expand into the German market, and assists companiesestablished in Germany looking to enter foreign markets.

All inquiries relating to Germany as a business location are trea-

ted confidentially. All investment services and related publi-

cations are free of charge.

Supported by the Federal Ministry for Economic Affairs and

Energy on the basis of a decision by the German Bundestag.

www.gtai.com

P h o t o : © Z F F r i e d r i c h s h a f e n A G

Germany Trade & Invest

Friedrichstraße 6010117 BerlinGermany

T. +49 (0)30 200 099-555F. +49 (0)30 200 [email protected]/automotive

automotive industry in germany

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