Germany stands as the birthplace of contemporary automobiles and the global hub for the production of luxury cars. Among the 75 leading Original Equipment Manufacturers (OEMs) in the automotive industry worldwide, 15 hail from Germany. Remarkably, German OEMs are responsible for crafting 65% of luxury brand vehicles, contributing a substantial 24% to the nation’s overall industrial output.
Germany’s automotive sector is not only home to prominent OEMs but also a diverse array of component companies. These include large and medium-sized automobile manufacturers, system integrators, module suppliers, and thriving entities like Bosch, Continental, ZF Friedrichshafen, and Mahle, among others. Moreover, this region hosts numerous Tier 2 and Tier 3 suppliers, including the influential power semiconductor giant Infineon.
When compared to other European nations, Germany stands unrivaled in terms of concentration, encompassing research and development, design, supply, manufacturing, and assembly facilities within its automotive domain. As a result, an increasing number of international suppliers find themselves irresistibly drawn to Germany’s industry prowess. Even the world’s top ten non-German automotive suppliers have established their operations within the boundaries of this progressive nation.
In 2015, NIO, a Chinese electric vehicle startup, made a significant move by establishing its global design center in Munich, Germany. This strategic step involved an impressive investment of 80 million euros into their German subsidiary. Furthermore, an escalating number of Chinese automotive companies are venturing abroad, forging deeper collaborative ties with local component suppliers.
With an illustrious century-long history and considerable influence in the field, Germany’s automotive sector stands as a remarkable testament to the nation’s rich heritage. The dynamics and partnerships witnessed within this industry reflect its undeniable significance.
01
The automotive industry has faced its share of challenges over the past century
The evolution of the German automotive industry has been profoundly shaped by the Industrial Revolution and periods of conflict, transitioning from a time of intense competition to the emergence of three major automotive conglomerates. Currently, the industry is embarking on a journey towards alternative energy sources, signifying the passage of nearly a century with subtle acknowledgment.
Surrounding the German automobile factories, a multitude of component suppliers thrive, sharing in the rich legacy of the German automotive sector.
During the period from 1886 to 1910, which marked the era of automobile invention in Germany:
In 1886, Carl Benz secured a patent for the world’s first automobile equipped with a single-cylinder four-stroke engine, establishing the foundation for Mercedes-Benz. Simultaneously, Gottlieb Daimler and his associate Wilhelm Maybach integrated a vertical engine into a four-wheeled carriage, leading to the establishment of Daimler-Motoren-Gesellschaft.
1886 is widely recognized as the “Year of the Automobile.” It is also the year when Bosch, currently the foremost Tier 1 supplier globally, was founded. Engineer and inventor Robert Bosch inaugurated a workshop in a Stuttgart backyard, which would eventually become closely associated with automotive supplies.
From the onset of the 20th century until the prelude to World War I, the German automotive industry experienced a rapid proliferation akin to the sprouting of mushrooms. By the eve of the First World War, this industry had firmly established itself as an independent sector, employing over 50,000 workers engaged in automobile manufacturing and churning out approximately 20,000 vehicles annually. It was during this era that August Horch departed from Mercedes-Benz to establish the Horch company, only to part ways once again and establish Audi. Ferdinand Porsche made a significant mark by showcasing electric cars at the Paris World Industrial Exhibition, earning him the esteemed title of the “father of electric cars.” Notably, he is also widely recognized as the visionary founder of Volkswagen.
However, just as these “new” and “established” forces were poised for notable advancements, the eruption of World War I and the ensuing global economic crisis cast a profound shadow over the German automotive industry.
From 1911 to 1940, German automotive technology experienced continued advancement, despite the challenges presented by World War I.
Remarkably, within a decade of the war’s conclusion, Germany’s automotive industry rebounded and surpassed its pre-war prosperity.
During this period, in response to the influence of Ford’s Model T on the German market, Daimler and Benz joined forces to form Daimler-Benz. Ferdinand Porsche departed from Daimler-Benz and established Porsche Engineering, where he spearheaded the development of engines for automobiles, aircraft, and ships. Audi merged with Horch, leading to the birth of Volkswagen and the introduction of the iconic Volkswagen Beetle. Mahle emerged as a machining plant in Stuttgart, specializing in components and systems for internal combustion engines, encompassing all aspects related to engine environments. ZF Friedrichshafen, initially a gear factory producing gears for airships and other aircraft, ventured into the automotive market in 1919, offering transmission and chassis technology.
From 1941 to 1960, the German automotive industry witnessed a remarkable period of rapid development.
Following the aftermath of World War II, Germany faced substantial setbacks due to its defeat. Daimler-Benz, the leading company, was left devastated, with 80% of its factories reduced to rubble by bombing. Other automotive companies endured similar fates, and the progress achieved over the previous two decades was nearly lost.
For the German automotive industry, the entire 1940s served as a period of rebirth, and it wasn’t until the 1950s that it embarked on a phase of swift advancement. During this time, Mercedes-Benz acquired Audi, DKW, and Wanderer.
From 1961 until the conclusion of the 20th century, the German automotive industry entered a new phase characterized by restructuring.
Post-war, Berlin was divided into East and West, and in 1961, the Berlin Wall was erected, separating Germany for 28 years. The economic disparity between West Germany, which experienced rapid development, and East Germany became evident.
The rapid economic progress of West Germany, coupled with free-market competition within the automotive industry, showcased the principle of survival of the fittest. By the 1960s, the number of automotive companies in West Germany gradually dwindled from over 100 to around a dozen, yet the production output soared to 2 million vehicles, positioning the country as the largest automobile producer and exporter in Europe.
The fall of the Berlin Wall in the late 1980s and the subsequent reunification of East and West Germany brought about ongoing adjustments and restructuring in the German automotive industry. Notable events included the merger of Mercedes-Benz and Chrysler, as well as Volkswagen and BMW’s acquisitions of Rolls-Royce, Bentley, and other prestigious brands. The German automotive market came to be dominated by five major companies: Mercedes-Benz, Volkswagen, BMW, Opel, and Ford’s subsidiary in Germany.
As the process of European integration gained momentum, the German automotive industry entered a fresh phase of development. In the 1990s, the global automotive landscape transformed into a competitive arena among ten major automotive groups: General Motors, Ford, Toyota, Volkswagen, Renault, Nissan Mitsubishi, Hyundai Kia, Daimler-Benz, Fiat Chrysler, Honda, and BMW.
With its three major automotive conglomerates, Germany solidified its position as a significant player in the global automotive industry.
However, the outbreak of World War II in September 1939 compelled German industry, including the automotive sector, to pivot towards military production.
Since the early 21st century, the German automotive industry has navigated a landscape of profound transformations and shifts.
As the new century dawned, the global automotive industry experienced an acceleration of restructuring characterized by cross-border reorganizations and alliances. Platform strategies became widely adopted, and technological innovation emerged as a crucial competitive factor. The German automotive industry found itself facing both new competition and promising development opportunities.
In recent years, the industry has been significantly influenced by the global pandemic and the transition toward new energy sources. In response, German car manufacturers have increasingly delved into producing their components, aiming to enhance workload stability, secure the supply chain, and bolster resilience. This trend of “insourcing” has had an impact on automotive suppliers, as larger suppliers seek to improve their product profit margins by shifting production to lower-cost countries.
Presently, Germany boasts around 1,000 automotive suppliers, many of which are small enterprises heavily dependent on the production of internal combustion engines. Moreover, there are numerous companies, including casting manufacturers, with limited product portfolios. These entities face potential challenges if the demand for specific products, such as cylinder heads or engine blocks, diminishes, potentially resulting in significant profit losses.
Looking ahead, maintaining Germany’s leading position in the automotive industry poses a complex challenge for both the German government and the industry as a whole. Adaptation to evolving trends and the pursuit of technological advancements will be vital to sustain competitiveness and ensure future success.
02
The Three Major Automotive Industry Clusters in Germany
The automotive industry has become a vital pillar of the German economy, with 1/7 of employment and 1/4 of tax revenue derived from the automotive sector. In Germany alone, in the year 2018, the automotive industry employed 486,000 people, while the employment in the supply industry was 311,000.
The automotive industry is characterized by its long value chain, extensive interrelated industries, high value-added, wide-ranging impact, and significant socio-economic benefits. Therefore, it is prone to becoming a leading industry for a country or region. However, the automotive industry requires substantial investment, has long construction cycles, and involves high technological content. It is a technology-intensive sector that aligns well with the development model of industrial clusters.
The traditional commercial R&D model in Germany’s automotive industry is typically decentralized. For instance, Mercedes-Benz’s R&D department is usually responsible for the overall vehicle design and technical development, while specific component design and manufacturing tasks are outsourced to Tier 1 suppliers such as Bosch and Continental. Therefore, the development of German automakers is closely linked to the support of component companies throughout the entire supply chain.
According to the 2022 edition of the Automotive News Global Top 100 Suppliers list, 18 German companies made the list. Four out of the top ten spots were occupied by German giants: Bosch (1st), ZF Friedrichshafen (3rd), Continental (8th), and BASF (9th), with Mahle ranking 19th.
The aforementioned report from the Federal Foreign Trade Agency (GTAI) of Germany highlights the distribution of German automotive OEMs and supply chain manufacturers, focusing on three key regions: North Rhine-Westphalia, Baden-Württemberg, and Bavaria.
- North Rhine-Westphalia has long been a significant hub for automotive manufacturers and suppliers. Companies such as Ford and Mercedes-Benz have production facilities in this region, and although Opel’s plant in Bochum has closed in recent years, the area still boasts around 800 automotive industry companies employing approximately 200,000 individuals. Notably, nearly one-third of German automotive suppliers have their headquarters in North Rhine-Westphalia.
- Considered the birthplace of the automobile, Baden-Württemberg stands as one of Europe’s most prosperous regions. This is partly attributed to the presence of major multinational company headquarters. Daimler and Porsche, key players in the automotive industry, are based in this region, along with Bosch in the electronics and engineering sector, Carl Zeiss in the optical industry, and SAP SE in the software, information, and communication technology sector. The state has also fostered numerous successful small and medium-sized enterprises, primarily in manufacturing, forming the backbone of the local economy.
- Bavaria, known for its wealth, is another core region for the automotive manufacturing industry. Approximately 500,000 individuals are employed in automotive manufacturing or supply industries in Bavaria. Renowned automotive brands such as BMW and Audi call this region home. Additionally, notable automotive suppliers are situated between the Main, Danube, and Isar rivers.
In addition to the aforementioned regions, other significant automotive industry clusters in Germany include the Stuttgart automotive industry cluster (Daimler-Benz), the Wolfsburg automotive industry cluster (Volkswagen), and the Rüsselsheim automotive industry cluster (Opel).
Stuttgart, often referred to as the “Cradle of German Automobiles,”
Stuttgart is situated in the central Neckar River valley in the state of Baden-Württemberg, southwestern Germany, near the Black Forest. Not only is it the capital of the state, but it also serves as the administrative center of the region and stands as the largest city in Baden-Württemberg, renowned for its high concentration of automotive manufacturers and suppliers.
Stuttgart has long been at the heart of German automotive production, hosting the factories of Daimler in Untertürkheim and Sindelfingen, as well as Porsche’s production site in Zuffenhausen. These two globally acclaimed automobile manufacturers have established their production facilities in this region.
With over 2,000 automotive-related companies calling it home, Stuttgart boasts an impressive automotive ecosystem. In addition to the presence of industry leaders like Daimler, Porsche, and EvoBus, the region is also home to world-class Tier 1 suppliers such as Bosch, ZF Friedrichshafen, and Mahle. Furthermore, the area houses more than 20 universities, research institutions, and development organizations focused on the automotive industry. The automotive sector in the region employs approximately one-seventh of the total population and contributes to 5% of the global automotive output. Additionally, there is a significant presence of Tier 2 and Tier 3 suppliers in the area.
The majority of companies in the Stuttgart region, accounting for 96%, are small and medium-sized enterprises (SMEs). Across the entire automotive manufacturing chain in Germany, around 70% of participants are SMEs serving as Tier 3 suppliers.
Both major automotive component manufacturers and SMEs in the Stuttgart region excel in specific industries or domains, driving excellence in every aspect of the automotive industry chain.
For instance, ZF Friedrichshafen Group stands as a global leader in mechanical transmissions, hydraulic automatic transmissions, and various types of gearboxes. Behr Group is a prominent manufacturer of automotive air conditioning and engine cooling systems. Moreover, the region is home to more than 1,000 electronics and information technology companies, including ABB, Siemens, and IBM, contributing to the ongoing advancement of the automotive industry toward intelligence and electronics.
Wolfsburg – Belongs to Volkswagen
Wolfsburg is situated on the banks of the Aller River in central Germany, located to the north of Brunswick. It stands as the fifth-largest city in Lower Saxony and serves as a thriving commercial hub. Notably, it is also the headquarters of Volkswagen AG, a key player that holds significant importance in the city.
In late 1937, the Gesellschaft zur Vorbereitung des Deutschen Volkswagens (Association for the Preparation of the German Volkswagen) selected a site near Wolfsburg Castle to establish an automotive factory and a residential city for its workers. A significant milestone for Wolfsburg arrived on May 26, 1938, when Adolf Hitler himself attended the groundbreaking ceremony at the Volkswagen factory located on the northern side of the Mittelland Canal.
In 1999, the Volkswagen Group and the Wolfsburg government jointly established Wolfsburg AG. Since its inception, Wolfsburg AG has successfully attracted 185 Volkswagen-related companies to the region, fostering the formation of over 600 new businesses and generating around 17,000 job opportunities.
Rüsselsheim – The Shining Pearl of the Rhine Valley
Rüsselsheim is a city situated on the banks of the Main River in southern Hesse, Germany. It forms part of the Frankfurt-Rhine-Main metropolitan region and has gained recognition for its association with the production of Opel automobiles.
In the mid-19th century, Adam Opel established the Opel company in Rüsselsheim, Germany. Initially, the company focused on the production of sewing machines, bicycles, and other goods, which gained popularity in markets across Europe, the United States, India, and other regions. After more than two decades of manufacturing expertise, Opel made a transition into motorcycle and automobile production. The name “Opel” was selected as the automotive brand and has remained in use ever since.
In the 1930s, Opel was acquired by General Motors, which saw the opportunity to establish a presence in the European market through the acquisition of Opel.
03
The Insignificant German Semiconductor Industry
Meyer Industry Research, a specialized research institute focusing on the German automotive industry, has recently published the “Top 100 Automotive Suppliers” ranking, which specifically highlights the domestic German market. The study provides insights into the composition of the list, shedding light on the primary product categories of the companies featured.
According to the research, the majority of companies listed in the ranking are primarily engaged in the production of drive components, electronic and electrical components, electrification-related products, automotive interior parts, automotive exterior parts, and C-class components. Drive components account for 41 companies, electronic and electrical components for 37 companies, electrification-related products for 35 companies, automotive interior parts for 23 companies, automotive exterior parts for 18 companies, and C-class components for 23 companies.
It is important to note that C-class components encompass a diverse range of items, including cables, hoses, seals, connectors, filters, stabilizers, tensioning systems, rope technology, fastening systems, and other similar parts. The inclusion of C-class components in the ranking highlights their significance within the German automotive industry’s supply chain.
The significance of electronic and electrical components in the German automotive supply chain is undeniable. Germany has long been recognized as a key hub for the semiconductor industry in Europe and showcases one of the highest growth rates in automotive microelectronics usage among European countries. Compared to other traditional automotive regions, Germany demonstrates a notably higher growth forecast for automotive electronic products.
According to the German Federal Trade and Investment Agency (GTAI), the usage of automotive electronic products in Germany is projected to grow at an annual rate of 5.6%, reaching a value of $9.6 billion by 2021. Automotive electronics contribute to approximately 80% to 90% of automotive innovation.
Over the years, the German semiconductor industry has flourished, establishing a robust presence with comprehensive coverage. Lusha’s data indicates that Germany is home to around 142 semiconductor companies, including major Integrated Device Manufacturers (IDMs) such as Infineon and Bosch, as well as wafer foundries like X-fab and GlobalFoundries. Other notable enterprises encompass Siemens EDA as an EDA IP provider, Aixtron as a deposition equipment manufacturer, Siltronic as a silicon wafer manufacturer, OSRAM as an optoelectronics company, Linde Gas as an electronic gases supplier, Carl Zeiss as an optical components giant, SiCrystal as a silicon carbide substrate manufacturer, and BASF as a semiconductor chemicals manufacturer, among others renowned globally.
The trajectory of the German semiconductor industry’s development aligns with the strength of the domestic manufacturing sector. For instance, Infineon, a global leader in power semiconductors, reported revenues of 14.22 billion euros in 2022, with the automotive business contributing 6.52 billion euros, accounting for 45% of the total. Bosch, the world’s largest automotive technology supplier, also holds a dominant position in the global MEMS sensor market, boasting a market share of approximately 22.1%.
04
Conclusion
The prosperity of the German automotive industry can be traced back to the rapid development of Germany’s industrialization journey. In 1871, under the leadership of Bismarck, Germany achieved unification, marking a significant turning point. During the Franco-Prussian War, Germany not only acquired the regions of Alsace and Lorraine from France but also obtained a substantial war indemnity of 5 billion gold francs. This windfall, coupled with the ongoing second industrial revolution in the Western world, presented Germany with a remarkable opportunity for transformation.
Germany seized this moment and underwent a tremendous industrialization process over the next three decades. In this relatively short period, Germany managed to catch up with the industrialization path that had taken Britain a century to accomplish. The country harnessed the advancements and innovations of the Second Industrial Revolution, embracing new technologies and manufacturing methods to fuel its rapid industrial growth.
This industrial surge laid a strong foundation for the German automotive industry, setting the stage for the birth of renowned automobile manufacturers and the subsequent growth of the sector. Germany’s ability to leverage the opportunities presented by the Second Industrial Revolution, combined with its economic and political developments, played a pivotal role in shaping the thriving automotive industry that exists today.
1. This article is compiled from online sources. If there is any infringement, please contact us for removal.
2. The published content represents the views of the author and not the position of DiskMFR.
3. Related Reading: The Chip Industry Turning Point: What You Need to Know
4. Related Reading: Unveiling Israeli Semiconductor Powerhouse: A Desert Miracle
5. Related Reading: Power Loss in Chip Industry: What’s the Impact?
6. Related Reading: Breaking: Intel Postpones Advanced Manufacturing in Europe
7. Related Reading: 2023 Top 10 Auto Semiconductor Giants: Who Earns the Most?
8. Related Reading: Ancient Tomb Halts Intel German Chip Factory Build
9. Related Reading: First Semiconductor Wafer Plant in Vietnam by 2030
10. Related Reading: TSMC Process Technologies: What You Need to Know
