Mechanical engineering industry remains on course despite supply chain bottlenecks

The mechanical engineering industry is increasingly feeling the effects of global material shortages and supply difficulties. "As in all industries, the supply chain difficulties for some preliminary products will continue to make themselves felt for some time.

But the order books are still well filled. Therefore, we expect sales from these orders to be booked with some delay," VDMA President Karl Haeusgen said in a press briefing at the 12th German Mechanical Engineering Summit. "Many machine builders will already reach the sales level of 2019 again this year. For 2021, we confirm our forecast of real production growth of 10 percent compared to the previous year. Without material shortages, even higher growth would have been possible. But the uncertain situation in the supply chains is also increasingly preoccupying us," he added.  For 2022, the VDMA economists continue to expect a further increase in production of 5 percent in real terms.

Aiming for a new positioning between the USA and China

For the export-strong industry, which sells an average of four out of five machines abroad, the confrontation and the drifting apart of the two economic powers, the US and China (decoupling), represent an ever greater challenge. According to a recent survey by the VDMA, almost half of the mechanical engineering companies source components from China or the USA that are critical for their own production. These are primarily electronic components and parts, but also raw materials such as steel and castings, as well as various other preliminary products. "There is a risk here of being pressured by China or the US in the event of trade disputes," Haeusgen said. "Companies therefore know they have to act."

There are different ways to do this:

In the survey, every second company stated that it would continue to focus primarily on customer-oriented special solutions with which the mechanical and plant engineering sector makes itself indispensable for customers in the USA and China.

Just under a third of those surveyed intend to opt for a "forward strategy", i.e. to increase their own investments in the USA and China in order, for example, to set up or expand an assembly or production facility there.

16 percent of the companies are thinking of developing more of their own products for the American and Chinese markets in the future, even if this would involve corresponding development effort and costs.

A good third of the companies surveyed also want to intensify their search for suppliers from third countries in order to avoid possible sanctions from the Chinese or American side.

At the same time, more than two thirds of the companies stated that they were not planning any immediate changes to their strategy. "Medium-sized companies only strategically re-align themselves after a precise analysis," explained the VDMA President. "But in the medium term, it can be crucial to reposition oneself. That is why it is all the more important that Europe not only tries to keep markets open worldwide, but also negotiates further international trade agreements.

Climate protection needs a different framework

Technologically, the mechanical and plant engineering sector considers itself well equipped to play a key role in the fight against global warming. "We can supply the equipment needed for everything from the generation of renewable energies and the construction of distribution networks to the storage of energy and recycling of materials," Haeusgen emphasized. At the same time, he said, climate protection needs compelling changes enforced by policymakers to succeed in Europe and beyond. "In this country, planning and approval procedures in particular must be drastically simplified; in future, it must no longer take  five years until a new wind farm can be erected," Haeusgen demanded.


In addition, there is a need for a comprehensive system of CO2-pricing that consistently promotes investment in climate protection technologies and at the same time abolishes the plethora of other taxes and levies on energy.


"And last but not least, climate protection must always be thought of and approached globally," stressed the VDMA President. An international climate club of major industrialized countries with similar ambitions in terms of reducing greenhouse gases - ideally also including China - could be the decisive breakthrough for still achieving the Paris climate targets. "The window of opportunity to establish such a climate club is not too large, however, the agreement should best be reached during the next UN climate summit in Glasgow in November," Haeusgen said.

A task book for the "traffic light"-coalition

With a view to the ongoing coalition negotiations in Berlin, the VDMA president praised the swift exploratory talks between the three "traffic light" parties. "A quick formation of a government would hopefully give companies the planning security they need for the coming years," he said. Speeding up planning and approval procedures should become the general guideline of the future government in this context, beyond renewable energies. "Because we will not achieve any of the important climate or digitalisation goals if the existing bureaucratic hurdles remain," Haeusgen warned. The commitment in the exploratory paper that tax increases will be avoided and no taxes on assets will be introduced should definitely remain in the coalition agreement, Haeusgen emphasized. The VDMA is concerned about the chapter on the labor market in the exploratory paper and a largely empty space on the subject of foreign trade. "Here we are counting on improvements in the negotiations. Foreign trade needs political power!", emphasized the VDMA President.

For these and other policy areas, the VDMA has listed a large number of concrete steps with the help of "wish chapters for a coalition agreement", which would strengthen the industrial SME sector and thus contribute to securing millions of jobs. The complete document with the VDMA's "wish chapters" can be found here: #btw21