Why Is Germany becoming the biggest Cleantech Funder worldwide?

16 September 2018, By Sören Grothkopp

Germany represents one of the strongest automotive economies around the world, but it has been lagging in several cutting-edge technologies. For years, German automakers were overlooking electric vehicles (EV), promising and then removing them, downgrading them to simple hybrids. So now, it is not the Germans, theoretically the leading innovators in cars, but Renault-Nissan-Mitsubishi, their market rival, that produces the world’s best-selling EV.

However, German carmakers announced massive investments in EV model development and production. By 2025 they may surpass their rivals for global e-car market share.

But, what is actually driving Germany, the usually rather leisure innovator, to push the cleantech sector?

Mass movements are demanding a cleaner, faster, and more efficient transportation

A boom in consumer interest in electric cars characterized 2017. The market for electric cars, including hybrid ones, has grown six times between 2013 and the second quarter of 2017. The total number of sales is increasing day by day, thanks to a constantly expanding offer and greater institutional attention to low environmental impacting vehicles. According to the researchers Frost & Sullivan, EV sales growth potential could reach 25 million units by 2025 and account for 22.4% of total passenger vehicle sales.

In this context, in Germany, there has been a lot of public pressure on the automotive industry, especially, after the scandal of Volkswagen’s emissions, where a software was found installed on cars to trick emissions tests.

It is Time to Compete in the Mobility future

As mentioned before, for years, German automakers were often overlooking the importance of electric vehicles, downgrading them to simple hybrids. But by now, the automotive industry has had time to see that consumers´ demand for Electric Vehicles has been growing faster than ever before and that it is time to compete in the mobility future. Moreover, in our research, we identified three major reasons why Germany is pushing the cleantech sector:

  1. The influence of major car manufacturers: in the last two years alone, Volkswagen, Daimler, and BMW have spent around €4.7 billion on EV technology. BMW already established an E-model-Series, Audi has just recently revealed a new fully electric prototype and Daimler invested $600 million to produce the new Mercedes-Benz EQC all-electric SUV.
  1. Foreign Direct Investments: Chinese battery maker Contemporary Amperex Technology is going to set up a lithium cell factory in Thuringia, that will represent the first production plant built outside China. Plus, Tesla’s chief executive Elon Musk recently stated that Germany is one of Tesla’s preferred locations for building a European Gigafactory. Therefore, the country is clearly widely seen as the prime European location for foreign investments in the field.
  1. Governmental energy transition policies: Germany spent on average 450 million Euro in respective research areas between 2012 and 2015. The government is driving the renewable energy expansion forward thanks to the German Energiewende program, which aims at abandoning nuclear power supply by 2022.

Energy Transition Policies have now a Higher Political Priority

Considering that in Germany transportation causes around a third of annual CO2 emissions, energy transition policies have a higher political priority. For instance, the country´s gas reduction goal is more ambitious than the one of the European Union, as Germany aims to cut greenhouse gas emissions by 40 per cent within 2020, by 55 per cent within 2030 and up to 95 per cent by 2050, compared to 1990 levels.

In 2000, the German government issued the “Erneuerbare Energien Gesetz” (EEG) a series of German laws that provide a feed-in tariff scheme that guarantees top prices for electricity generated or put into the grid. However, the EEG will expire in 2020, and after that, system owners will produce electricity for lower prices, almost for free. This poses a serious challenge, but it also creates room for new ideas to tackle the problem.

Venture Capital Investments in German Startups are Increasing

Many newborn start-ups are now leading the way into a new era of sustainable and renewable energy and storage.

Our CLR internal data reveal that over the last two years, German startups have been increasingly founded within the energy landscape, as some of their new storage systems can offer huge benefits and revenues. In fact, storage technology can give producers a competitive advantage, since it provides the possibility to store excess energy during times of overproduction and release it back into the grid once the demand rises. One of those Startups is Volterion. The Dortmund-based company develops and manufactures redox-flow battery stacks and systems for commercial bulk energy storage of renewable energy sources at lowest cost of storage.

Germany needs to lead the European Cleantech Innovation

As Germany lies in the midst of a networked electricity system, it undoubtedly represents an important hub for innovations in the field. A difficult adaptation to new cleantech trends could threaten not only future revenues and profits of the biggest three European producers, Daimler, BMW and Volkswagen, but also Germany´s status as one of the most important global automotive producers.

Therefore, it is crucial that the German government positions itself as an enabler of the mobility future in Europe, becoming the central planner and innovator for a European mobility transition.

The current German landscape of subsidies, incentives, and benefits for consumers and companies is insufficient. The automotive industry will only be able to compete in the global electric mobility future, if the country tackles the transition head-on, overcoming the risk of becoming a mere assembly provider for Chinese or US technology leaders.

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