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Struggling Metal and Electrical Industries Call for Urgent Reforms in Germany
High energy prices, taxes, and charges have taken a toll on the German metal and electrical industry, leading to production declines, profitability challenges, and urgent calls for political intervention and restructuring measures.
Industry Struggles
The steel and metal processing industry saw a 3.4% production decline in the first half of 2025, with weak order growth turning negative later in the year. The German Steel and Metal Processing Association (WSM) attributes this partly to high energy prices and taxes, alongside bureaucracy and infrastructure weaknesses, warning of potential structural erosion if not addressed.
Energy-intensive metals like aluminium face critical challenges, with electricity representing about one-third of production costs. European aluminium producers compete with large tech companies for affordable renewable power, giving utilities leverage to raise prices, which further strains metal producers operating on thin margins or losses.
The electrical industry, particularly companies like ZF in powertrain manufacturing, face economic pressure from a shift to electric drives combined with low demand and already tight profitability. ZF is undertaking a restructuring process involving tough decisions to cope with losses exacerbated by regulatory requirements and market changes.
The machine tool and precision tool sectors also experience negative impacts from taxes and bureaucracy. Production values fell in recent years with global crises and unfavorable political and economic conditions cited as causes.
Energy Consumption and Usage
Germany increased overall energy consumption by 2.3% in the first half of 2025, driven partly by increased gas use to compensate for low wind/solar output. Coal use rose in power generation but declined in steelmaking, indicating ongoing struggles in heavy industry, possibly linked to high energy cost environments.
Proposed Solutions
Industry associations urge bold political action to lower energy costs and taxes, streamline bureaucracy, improve infrastructure, and incentivize investments to prevent further industrial decline and spur innovation. Companies like ZF are negotiating social and management agreements to restructure divisions strategically, aiming to adapt to industrial transformation and regulatory pressures while preserving competitiveness.
Efforts in the manufacturing sector focus on sustainability measures such as developing carbon footprint standards, recycling valuable materials, and tool reconditioning to reduce costs and dependency on raw materials. Government proposals involve renewable subsidy reforms like adjusting solar compensation during negative electricity price periods and implementing two-sided feed-in tariffs to manage market risks for power developers, impacting energy prices and availability.
Continued Investment in Germany
Despite location disadvantages, Mercedes-Benz continues to invest heavily in Germany, particularly in research and development activities. Economy Minister Nicole Hoffmeister-Kraut suggested a reform of the scale of Agenda 2010 to improve the German location's competitiveness. Joachim Schulz, chairman of Southwest Metal employers' association, expressed dissatisfaction with the past seven years, which he described as lean years without growth and a drastic shrinkage in production volume.
For more information, contact Wolfgang Leja at 0711 66601-131 or w.leja@our website.
References:
[1] WSM. (2025). German Steel and Metal Production Decline. Retrieved from WSM website
[2] ZF. (2025). ZF Restructuring Process. Retrieved from ZF website
[3] BDEW. (2025). Renewable Energy Subsidy Reforms. Retrieved from BDEW website
[4] VDMA. (2025). Sustainability Measures in Manufacturing. Retrieved from VDMA website
[5] Statista. (2025). Germany's Energy Consumption. Retrieved from Statista website
In the context of the ongoing struggles within the German metal and electrical industry, there is a call for urgent reforms across various sectors, including finance, given the industry's potential structural erosion due to high energy prices, taxes, and bureaucratic issues. Companies in these industries are actively implementing business restructuring measures to adapt to industrial transformation, regulatory pressures, and market changes, ultimately aiming to preserve competitiveness and address profitability challenges.
