In the lobby of the building that houses the Audi Innovation department in Ingolstadt, until recently a permanent showcase of the latest models of the five rings, an electric SUV from Li Auto and a sports model from Avatr were on display last October. . This is an unavoidable wake-up call for those who have not yet realized that, at some point in the technological race for electric mobility, China took the lead and has become an essential reference. Audi, in fact, is no longer able to compete in the Chinese market with local technology and its profits have plummeted by 91%, after registering a 16% sales decline in the Asian giant.
To curb this trend, like Volkswagen, it has increased cooperation with the Chinese state-owned company SAIC to jointly develop vehicles on a new electric platform and has founded a new brand for the Chinese market. Audi has even given up its historic logowhich is no longer a symbol of cutting-edge technology in China. The cooperation of its engineers with Chinese engineers, according to the German manufacturer itself, has reduced the development time of the models by 30% and has allowed the inclusion of extras that Chinese manufacturers have been offering for quite some time, such as an avatar as a digital assistant. of the driver or additional space for rear seat passengers, in addition to greater autonomy, up to 700 kilometers, and recharging capacity for 370 kilometers in just 10 minutes.
Barely two years ago, Germany continued to protect itself from Chinese industrial espionage, but now it is the Chinese counterintelligence service that suspects German engineers, a symptom of an evil that extends to other sectors of German industry and that explains, at least in part, the enormous uphill climb that the European economic engine faces in its recovery: ‘German technology’ is no longer synonymous with innovation.
Traditionally, German industry has led Europe in investing in innovation. The last three years of government of the ‘traffic light coalition’, led by Olaf Scholz and which has succumbed to budgetary chaos, as well as the effects of inflation and the slow intervention of the ECB, have however removed Germany from those leading positions. The Innovation Indicator, which since 2005 has been presented in Berlin by the Federation of German Industries (BDI) and the management consultancy Roland Berger, has seen Germany drop this year to 12th place on the list of 35 economies. In this indicator, China still appears behind, but not in all sectors and mainly because it started from extremely lagging positions. And in any case, it is the only large economy that has continuously exceeded its capacity for innovation since the indicator began to be developed.
Germany continues to achieve a high score in the knowledge generation sub-process, directly related to the educational system and investment in research and development (R&D): in 2017 the objective of 3% of GDP was reached, and 3. 5% remains the goal for 2025. But the country obtains much worse results in the Knowledge Transfer to Innovation subprocess, mainly due to the unfavorable situation in the hiring of qualified workers, the still low level of venture capital investment and low state support for corporate research and development activities according to international standards.
“Our competitiveness depends largely on our capacity for innovation,” acknowledges BDI President Siegfried Russwurm, “Companies invest in innovation when the framework conditions are right and that includes lower energy prices, efficient administrative procedures and taxes. competitive corporates. “Equally important is a bold approach to state funding of research and development, better start-up conditions and an intelligent approach to civil and military research,” adds Russwurm.
Investor deficit
It seems clear that German companies are no longer in the framework conditions that encourage investment in R&D. In this sense, the latest report from the management consultancy EY is quite alarming: American companies increased research spending twice as much as German companies in 2023: 169 of the world’s top 500 investors are American companies. They are followed by Japan (86), China and Germany.
The online retailer Amazon is the company that invests the most in research in the world, almost 80 billion euros per year. They are followed by companies such as Alphabet (Google), Meta (Facebook, Instagram), Merck (pharmaceutical) and Apple. The German Volkswagen occupies eighth place on that list, as the first European company, ahead of Intel (semiconductors) and Roche (pharmaceuticals). But other traditionally large German investors in innovation, such as BMW, SAP, Mercedes, Siemens and Bayer, have unfortunately been left behind. The reason is the freezing of German economic growth and growing uncertainty. «The gap between the United States and Europe and Asia threatens to widen further. After all, today’s research and development investments are tomorrow’s innovations and the day after tomorrow’s profits,” warns Henrik Ahlers, CEO of EY Germany. The difficult situation invites companies to save money. “However, most resist the temptation to cut spending on research and development,” says Ahlers.
Revealing data
We find the raw data in the statistics that the German government presents every two years, the Federal Research and Innovation Report (BuFI). The latest edition, presented last June, shows that the State, universities and industry invested around 121.4 billion euros in R&D in 2022, 3.13% of GDP. Compared to the previous year, spending increased by 8.2 billion euros, 7.3%. Traditionally, the business sector is the largest contributor to German research and development spending, with spending in 2022 of €81.8 billion. That year, however, neither the State nor the universities could keep up with the dynamic development of the economy and inflation increased at the same rate as R&D spending, which was largely neutralized.
And despite the efforts, made within the framework of an economy that has not yet managed to return to growth levels similar to those before the pandemic, the Global Innovation Index 2024, published last September, places Germany in the ranking behind Switzerland, Sweden, the United States, Singapore, the United Kingdom, South Korea, Finland and the Netherlands.
Signs of weakness in the chemical industry
The German chemical industry invested around €5.5 billion in R&D in 2022, making it the German research champion. But, although it achieved a milestone with the first Covid vaccine thanks to the injection of public money, it is losing the race for the product of the moment for the global sector, the active ingredients for the treatment of type 2 diabetes that as a side effect cause loss of weight, in which the Danish Novo Nordisk leads the way, followed by Eli Lilly, Pfizer and Roche. The German Bayer, which has promised its shareholders 10 innovation successes in the next 10 years, has lost 2,217 million euros from January to September, which is added to the losses of 4,278 million in 2023, and expects a “complicated” 2025 , which can ruin your promise.
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