The Strategist

The US and Germany are grabbing the biggest piece of investment in the global automotive industry

03/20/2018 - 07:18

Investments of the world's leading automakers, which are preparing for the boom of electric vehicles, are now flowing not to the emerging markets, such as China or India, but to the US and the European Union, in particular, Germany. This is reported by the international consulting company Ernst & Young (EY).

Albert Bridge
Albert Bridge
Nowadays, German companies are the most active investors in the production of electric vehicles, while they are betting on enterprises within the country, according to a study by the German branch of EY.

Experts analyzed the investment decisions taken in 2010-2017 by the 16 largest automakers in Germany, Japan, the USA, South Korea, France and Italy, including Volkswagen, Toyota, General Motors, Renault, Fiat Chrysler and Kia. Capital investments of companies from China and other countries were not taken into account, primarily due to the lack of sufficient data.

In the first half of this decade, the leaders of the world auto industry sent the bulk of their investments to three countries. In 2010-2016, the United States invested € 29.5 billion in modernizing the existing facilities and creating new automobile production. The corresponding number in the PRC was € 25.2 billion, in the FRG - € 23.1 billion. Next come Mexico, Spain and Brazil.

Meanwhile, in 2017, investments in the car industry of China amounted to € 2 billion, the US - € 8.6 billion, Germany - € 12.3 billion.

Thus, the three leaders have not changed, which is not surprising, since these are the largest auto markets on their continents. However, there were rearrangements inside the rating: foreign investment in the automotive industry of China fell sharply, but the German carmakers are celebrating an investment boom, which catapulted Germany from the third to the first place.

Since the data for one year may not be indicative, EY gives the following estimates. The BRIC countries (Brazil, Russia, India and China) in 2010-2012 accounted for an average of 42% of all investment in the world auto industry. In 2014-2017, the group's share averaged only 19%, and if only last year 9%.

The period when investments were actively moving from industrialized countries to emerging markets, where the capacity for the production of cars was rapidly created and increased, seems to have ended. Money are flowing back to America and Europe. First of all, to Germany, although in 2017 investments in the Czech auto industry amounted to € 1.1 billion, Spain - € 0.8 billion, France and Britain - € 0.3 billion.

Member of the Board of the German branch of EY Mathieu Meyer believes that the world car industry is going through a turning point as it is preparing for the forthcoming boom of electric vehicles. Therefore, the largest automotive companies "invest in new design and production facilities in the most important markets, and also increase the level of automation and flexibility of existing enterprises, including in order to meet the expected strong growth in sales of electric vehicles."

Over the past two years, the 16 largest car companies have launched 25 specific investment projects in the field of electric mobility with a total value of € 5.2 billion. Three German companies accounted for 15 projects worth € 4.7 billion, of which € 3.2 billion were invested in 11 projects in Germany. For instance, VW allocated € 1 billion for refocusing of the plant in Zwickau exclusively for the production of electric vehicles, as well as 750 million euros for the deployment of electric motors production in Kassel. Daimler has invested 500 million euros in the construction of the second battery factory in  Kamenci.

"The current "electric" activity of German automakers is suggesting that Germany will continue to keep a large piece in the pie of the world auto industry in the future," Mr. Meyer said.