As Xi Jinping draws the Bamboo Curtain to gradually isolate China from the world at large, it is but natural that foreign investment which would have once gone to China now migrates elsewhere. Whilst some of these investments will go to the other Emerging Markets, so singular was China’s rise in high tech manufacturing that the only way the West can gradually replace China in advanced manufacturing is by pumping those investment dollars back into Western economies. In this context, the rapid rise of East German as the clean tech and EV hub of Europe is interesting. This long read from the FT begins in the small east German town of Guben which has received so much investment that it has now run out of space:
“The turning point came last year when a Canadian clean tech company selected the town to build Europe’s first lithium converter that makes a key component for electric car batteries. Guben won out over 60 other potential sites across the continent.
Rock Tech Lithium’s €500mn investment will make Guben an important link in the battery supply chain and breathe new life into the town…The arrival of the Canadians is emblematic of a massive influx of investment into the former communist east, which has become the home of Europe’s rapidly expanding electric car sector. A region that was once a byword for economic decline is turning into one of the continent’s hottest pieces of industrial real estate.
In the past couple of years, it has been deluged with new projects and investments. Most eye-catching of all was chipmaker Intel’s announcement in March that it would build at least two semiconductor factories worth €17bn in the eastern city of Magdeburg — the largest-ever foreign direct investment in Germany. It came in the same month that Tesla started production at its first European electric car factory in the eastern town of Grünheide. That comes on top of the two electric vehicle plants converted by Volkswagen in the cities of Zwickau and Dresden…
Volkswagen opened its first dedicated EV production line in 2019, converting a plant in Zwickau, Saxony…The company’s aim is to manufacture 300,000 electric cars a year at the site, and a few thousand more in nearby Dresden, adding roughly 1,000 jobs in the process. The Zwickau region now has almost full employment, thanks in part to companies such as cablemaker Leoni investing about €130mn in the area to supply the VW plants.
BMW is adding hundreds of roles to its plant in Leipzig, which will build battery modules.
Jörg Steinbach, economy minister of Brandenburg, the state surrounding Berlin that is Tesla’s new European home, says it has seen investments of €7bn since…The regional authorities in eastern Germany are currently dealing with 28 expressions of interest representing €11.5bn in potential new investment.”
So why has eastern Germany become the EV hub of the world’s second largest auto market? Three factors seem to be responsible for this renaissance.
Firstly, eastern Germany has plenty of cheap land, a rare thing in Europe. “Take a trip to the Brandenburg countryside and it’s immediately obvious what makes it attractive to investors — the space. It has a lot more freely available land than other parts of Germany, especially the densely populated, highly industrialised south-west. Tesla’s Grünheide factory sits on 300 hectares of land and Intel’s in Magdeburg will take up 450 — the equivalent of 620 football pitches.”
The second fact is cheap, clean renewable energy: “The east has another key competitive advantage — a plentiful supply of renewable energy. Brandenburg generates more electricity from wind, solar and biomass per head of population than any other German state. Renewables cover 94 per cent of the state’s electricity demand, compared to Germany’s national average of 46 per cent.”
The third factor is Europe’s desire to build greater self-sufficiency in the industries which will provide essential product for modern living. And the Europeans are happy to use subsidies to ensure that these industries are bulked up in Europe rather than in China: “Eastern Germany is also benefiting massively from the move to greater European “sovereignty” — the EU’s strategy to boost its self-reliance in critical sectors such as batteries and semiconductors, the data cloud and pharmaceuticals.
Shocked by the disruptions to global trade seen during the Covid-19 pandemic and the war in Ukraine, countries are increasingly focused on ramping up domestic production of crucial components and shortening supply chains to make them less vulnerable to external shocks.
Those trends are particularly marked in the region around Berlin. “The [EV] industry will have everything it needs here, from our lithium processing to battery and cell production to the manufacturing of electric cars,” says Markus Brügmann, Rock Tech Lithium’s chief executive. “And our company is sitting right at the heart of this new value chain.”
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