The German Automotive FDI in China: EVs, Innovation and Competitiveness

German carmakers Volkswagen (VW), BMW and Mercedes-Benz are increasing their presence and Foreign Direct Investments in China, which is showing new investment patterns. The Chinese Electrical Vehicle (EV) expertise and technology, together with the country’s large market, could help the European automotive industry to retain global competitiveness and further its electrification process. In this context, the EU should place the European automotive industry’s interests at the centre of its green transition. Apart from the growing political scepticism and potential competition, economic collaboration with Chinese companies and the need for a broader understanding of the Chinese market as well as related strategies will become increasingly important in the long term.

Given the relevance of the German automotive sector in the EU, exploring its latest FDI trends in China may offer a better understanding of the Common Market’s inconsistencies. If the EU’s green transition may be regarded as threatening to the industry’s profitability and innovation capacity, the Chinese market still represents an opportunity for German carmakers. After the Made in China 2025 strategic plan helped transform the country into a key electrical vehicle (EV) market, Volkswagen (VW), BMW and Mercedes-Benz deepened their integration into the Chinese ecosystem. In particular, their increasing FDI into China is set to challenge home-grown companies and capitalise on Beijing’s EV technology. In doing so, the German carmakers are trying to remain globally competitive and complete their electric transformation. Besides assessing the political backdrop, the following analysis will assess the German automotive sector’s investment model in China and its (demand- and supply-side) rationales. The possibilities that could arise from competition and collaboration with Chinese companies clarify why the EU should engage China in a long-lasting dialogue and relationship on the subject. Europe maintains its strengths but a clear vision for its automotive industry – compatible with its green ambitions – is still largely missing.

Author: Alessandro Laurucci, EIAS Junior Researcher

Photo credits: Pixabay