German Manufacturers Fleeing “Toxic” Energy Costs

Germany and Italy represent together almost half of EU manufacturing output (45%). Figures for December 2023 for both countries show a deadly trajectory towards industrial collapse, mainly due to the effect of the sanctions on Russsia. Industrial production fell 1.5% on average in Germany, and 2.5% in Italy. This process of deindustrialization led the head of the German industrial association BDI, Siegfrid Russwurm, to call the government’s energy policies “absolutely toxic” in an interview with the Financial Times published Feb. 6.

For Russwurm, Germany’s climate agenda is “more dogmatic than any other country I know”, and has put German producers at a disadvantage compared to those in other industrialized nations. “Nobody can say with any certainty today what our energy supply will look like in seven years’ time, and that’s why no one can say how high energy prices will be in Germany then,” he said. “For companies that have to make investment decisions, that is absolutely toxic.”

“Companies are saying they are finding it increasingly difficult to do any long-term planning,” Russwurm added. “They have great doubts about continuing to invest in Germany under these conditions. The conditions are better elsewhere. And they’re going abroad.”

Indeed, according to data from the German Federal Statistical Office, Poland is now the most attractive supplier and relocation country for European companies. Of those willing to relocate, 23% opted for Poland, ahead of Germany (19%) and Turkey (12%). Almost 6,000 German subsidiaries are now based there, which together employ around 430,000 people. German companies have invested more than 40 billion US dollars in Poland in recent years.

High energy costs are the main reason for the expatriation. The irony is, that 70% of Poland’s energy supply is ensured by coal. And the country also has a nuclear power program, an advantage banned in Germany.

The latest news is that the flagship Miele company is relocating part of its production to Poland. But so is French automotive supplier Valeo, which plans to cease production of electric motors in Bad Neustadt an der Saale in Franconia in mid-2024 to move eastward. Automotive supplier IFA is also looking into relocating production from Haldensleben to Poland. Hearing aid manufacturer Bernafon is moving the production of its current in-the-ear devices from Berlin to Szczecin. TE Connectivity, which manufactures connectors for cars, among other things, is cutting 170 jobs in Germany and building a production facility in Poland instead. Most of the wooden furniture for Ikea is already produced in Poland.

As for VW, its combustion-powered Golf will no longer be manufactured in Wolfsburg, but in Poland, while Mercedes is building a factory for electric vans in Jawor. In terms of e-buses, Poland is the largest exporter in the EU, with more than 60 production sites for lithium-ion batteries.