German industry’s resilience and sovereignty

German and European industry is strongly intertwined globally. When it comes to essential raw materials and components, in some cases, production is more than 90% dependent on supplies from autocratic regimes. This concerns not only essential raw materials, but also intermediate products. 

The lack of capacity and expertise along all production steps – from raw material extraction to the production of specific intermediates – leads to strong dependencies, especially on the People’s Republic of China. This carries with it significant risk, giving China as well as other countries the opportunity to exploit their market dominance – a phenomenon already demonstrated by recent developments in the photovoltaic industry. 

Our study results show that what is needed are European responses to monopolistic structures. 

On behalf of the Netzwerk Zukunft der Industrie e. V., we investigated supply relationships in four key German industries: e-mobility, defence, wind power and microelectronics. The study presents a detailed dossier for each of these four key industries. 

German industry is, in some cases, up to 90% dependent on China – answers are needed to the difficult questions

The study analyses the supply chains and dependencies of German industry – with a focus on raw materials, intermediate goods and technologies originating from authoritarian states. Using examples from electromobility, microelectronics, wind power and defence, it identifies risks in the supply chains. It also examines current strategies to address these challenges and provides recommendations for action.

Here are the key results: 

• Germany and Europe are over 90% dependent on China for raw materials such as rare earths and graphite.
• In the global division of labour, Germany and Europe have surrendered too many areas of expertise to other countries, especially China – for example, the exploration and processing of raw materials.
• Dependencies therefore exist at different stages of the value chain, not only in terms of the mere availability of raw materials, but also when it comes to intermediate products and technologies.
• The dependencies affect key industries, crucial to our prosperity, such as the automotive industry and energy transition technologies.
• For the most part, companies are aware of these dependencies. They are also often already conducting risk prevention. In many cases, however, the existence of these dependencies is accepted. The reasons for this are both price-sensitive competitive conditions, as well as generally stable supply relationships and a lack of alternatives.
• Political strategies designed to counter the dependencies that affect the entire value chain are extremely significant – so far, at national and European level coordination and implementation have fallen short. 

Conclusions:

• German industry currently depends heavily on reliable supply relations with autocratic states.
• These countries secure long-term benefits by tapping into sources of raw materials on other continents.
• They develop and possess the processing and manufacturing expertise that German and European industry partners lack.
• These strategic advantages are used to achieve absolute market dominance and to outperform competitors.
• Photovoltaics, as an example, demonstrates how Europe can quickly lose decisive shares in the world market.
• China’s influence on intermediates such as permanent magnets and battery materials carries similar risks for important industries.

Recommendations for action 

The toolbox for reducing resilience risks provides companies with a variety of options for action that to a large extent are already being deployed – such as diversification, warehousing, friendshoring, and strategic partnerships. Political support can also help strengthen research and options in the circular economy. Two aspects in particular merit further attention from policy and business in Germany and Europe:

1. Effective risk management forms the basis for all measures. In order to develop different options for action it is first necessary to identify where in the supply chain and to what extent there are unilateral dependencies. Transparency is the prerequisite for informed decision making.
2. National and international coordination and cooperation are crucial to enable strong action in geopolitical conflicts. This is particularly true at European level. Issues that have thus far been avoided must be addressed, such as the development and processing of raw materials in Europe. In the face of unequal competitive conditions in the areas of energy, labour costs and environmental standards, Europe will need to develop strategies to ensure its competitiveness while acting in compliance with ESG. Joint European action that creates fair conditions for competition is essential.

Dossier: Battery production for electric cars

The electromobility dossier focuses on the dependencies along the lithium-ion battery value chain. Traction batteries are the heart of electric cars and are an essential component of the transport transition and the future viability of the German automotive industry. For this reason, politics and industry are planning to ramp up battery production in Germany and Europe, due to the enormous dependencies in the procurement of the necessary raw materials and intermediates or the components for the production of lithium-ion batteries. Dependencies are particularly concentrated in China.

Core results

• There are strong dependencies at all levels of the value chain, particularly on China, and at the intermediate stages of the value chain. In some cases, these dependencies are indirectly due to direct investment and in others they are directly due to Chinese dominance, for example, in the extraction of raw materials, and will therefore not change for the foreseeable future.
• As a result of its dependence on graphite, more than 90% of the anode active material for lithium-ion batteries comes from China, which is also a leader in the construction of manufacturing facilities.
• Technical development is extremely dynamic and can have a major impact on resilience in the battery value chain in the longer term via opportunities for substitution.

Recommendations for action

• For battery producers, developing anode and cathode material capacities in Europe is just as important as securing raw material extraction and processing capacities.
• A uniform and effective European industrial strategy for raw materials that strengthens competitiveness in battery production could prevent individual regulatory measures from making battery production more difficult.
• In order to reduce dependence in mechanical and plant engineering for cell factories, German and European politicians will need to increase the attractiveness of German and European products. This can be achieved through European mergers and measures to facilitate market entry.

Our approach

Based on literature research, the evaluation of trade data and interviews with experts from industry and research institutions, we analysed the entire production chain from raw material supply and processing right up to battery cell production. We also examined the areas that have thus far received little attention – the intermediate steps in the production of battery materials, such as the production of anode active material or factory equipment for battery cells. In addition, we looked at existing resilience strategies.

Dossier: The semiconductor industry in Germany and Europe

Semiconductors are an essential intermediate product for any modern economy. The industry that produces them is more globally intertwined and interdependent than other industries. Dependencies in the semiconductor sector exist at various levels of the value chain – from the raw material level to finished semiconductors. In our analysis, we differentiate between the different types of semiconductors including state-of-the-art leading-edge chips, because their specific applications mean they are not interchangeable. At the same time, we show which strategies and measures are currently being pursued at operational and state level in order to reduce dependencies in this area. 

Core results

• The semiconductor sector is characterised by many interdependencies. Critical dependencies exist, among others, on China for certain raw materials and process chemicals and on the USA for design.
• Although Europe consumes around 20% of the microchips produced globally, only around 10% of them are produced here. There is an extremely high level of dependency on memory chips and the state-of-the-art "leading-edge chips” required for AI applications.
• A huge global subsidy race is already under way for the establishment of semiconductor manufacturing sites and trade tensions are increasing in this sector, particularly between the US and China.

Recommendations for action

• Industry and trade policy should work at international level to maintain and develop free and fair trade relations and partnerships.
• The promotion of investment and innovation should focus more on upstream levels of value creation, while at the same time increasing efficiency and becoming more future-orientated.

Our approach

We examined supply-chain dependencies and current resilience strategies based on analysis of foreign trade data, as well as current studies and other freely accessible information. To supplement and validate this research, we conducted interviews with experts from industry and industry associations.

Dossier: Resilience in the wind industry

The wind power industry is one of the key building blocks to ensure a successful energy transition. Germany and Europe is home to a large number of mostly medium-sized manufacturers of components for wind turbines. We analysed the production of key components (rotor blades, turbines, permanent magnets, etc.) and highlighted the significance of Chinese manufacturers. 

Core results

• Over 90% of the permanent magnets required for wind power are imported from China.
• Chinese manufacturers occupy more and more stages of the value chain and are threatening to largely displace European suppliers (model photovoltaics).
• The way in which competition is being conducted is taking an increasingly unfair turn, using means such as price dumping.

Recommendations for action

• European and national trade policies are being called upon to ensure a level playing field. German and European manufacturers should be protected against offers that specifically override market conditions.
• European and national wind turbine manufacturers need certainty of action. Consequently, the tendering and procurement processes will also have to be accelerated.
• Manufacturers of components are being challenged to both increase their competitiveness and create the basis for closed product cycles through innovative solutions. 

Our approach

This field already benefits from a wide research base (see Prognos study "Securing Germany’s sovereignty", in German, for the Climate Neutrality Foundation). Based on literature analysis, we hosted a workshop with experts from the industry as well as conducting additional interviews, in which, in addition to raw materials and components, there was a specific focus on the competitive strategies of Chinese suppliers.

Dossier: Supply chains for titanium in the defence industry

Titanium is an indispensable material for defence products. Due to its special properties, it cannot be replaced by other materials. It plays an important role for Germany, especially in terms of military aviation and naval shipbuilding.

In this study, we analysed the global production and trade of high-grade processed titanium (Grade 5 Titanium/Ti-6Al-4V) and its specific use in the defence industry. In addition, there was a focus on the challenges and geopolitical risks associated with the supply of titanium. 

Core results

• In terms of titanium metals used in the defence industry, Germany and Europe are almost 100% dependent on imports. In this case, the most important suppliers are countries such as Russia and Kazakhstan.
• Companies are pursuing a diversification strategy for the sourcing of high-quality titanium metals, but rising demand can lead to price increases and supply bottlenecks. This mainly affects reliable supplier countries such as Japan.

Recommendations for action

• There is currently a lack of European production capacity for titanium sponge. In the context of the discussion on technological sovereignty, whether or not the development of production capacities for processing titanium ore into titanium sponge should take place within Europe will have to be examined.
• It is more likely that solutions to secure the supply of titanium sponge will be found at European level. EU strategies to strengthen the recycling and circular economy of titanium should take into account the interests of European aerospace companies and the role of American suppliers.
• In strengthening partnerships with democratic states that support the current order, Japan and Ukraine should be highlighted. These partnerships should serve to spread the risks through diversification strategies. 

Our approach

In order to conduct the analysis, we first collected data on the global production of titanium, its trade and its use in the defence industry. We then evaluated trade data and analysed global production capacities and trade links. The different processing stages also played a specific role here, as the production capacities of titanium sponges, for example, are concentrated in only a few states. In addition, we conducted interviews with experts from the defence industry, German Army-run universities and other research institutions in order to substantiate and classify the results of the desk research.

Starting position

Europe’s economic development is based on a global division of labour: resources, inputs and products are freely traded and exchanged. But the geopolitical situation is changing: the Covid pandemic, the economic domination of the People’s Republic of China and the USA, and Russia’s invasion of Ukraine demonstrate the vulnerability of trade and logistics. How do we deal with dependencies on authoritarian states where human rights have little value and whose reliability as a trading partner is questionable? 

This will require Germany and Europe to reassess their technological sovereignty.

Our study analyses supply relationships and supply dependencies in the key German industries of electromobility, microelectronics, wind power and defence. It focuses on raw materials, precursors and technologies that are almost exclusively extracted, processed or produced by authoritarian states. 

Our approach

The analysis focused on concrete value creation and supply chains in key areas of German industry. Based on the trade data, we evaluated the research literature as well as current industry reports and annual company reports. In a series of technical discussions and workshops, we collected the perspectives of companies and industry experts, in turn, providing the analyses with greater depth and specificity. An important sparring partner was a Netzwerk Zukunft der Industrie e.V. working group with representatives from trade associations and trade unions. 

Links and downloads

To the study (PDF in German)

The Netzwerk Zukunft der Industrie e.V. and Prognos will present the study on April 10th:

To the live stream of the event

More information about the study (Netzwerk website in German)

Project team: Michael Astor, Tim Bichlmeier, Jakobus Kai Jaspersen, Leonard Krampe, Paul Möhlmann, Bianca Derya Neumann, Helena Seide, Miguel Wahle

Latest update: 10.04.2025