Dirty secret

That’s where Germany comes in. The dirty little secret of European R&D spending is that half of it comes from Germany. And most of that investment flows into one sector: automotive. 

While that might seem obvious given the sector’s size (the German auto industry’s annual revenue is nearly half a trillion euros), it’s not where you can get the most bang for your buck (or euro). That’s because innovations in the auto sector, such as improving an engine’s fuel efficiency, are incremental.

In other words, the companies are literally reinventing the wheel, instead of whole new products, like an iPhone or Instagram, that would create a whole new market.

If nothing else, Europe has been quite consistent. In 2003, the top corporate investors in R&D in the EU were Mercedes, VW and Siemens, the German engineering giant. In 2022, they were Mercedes, VW and Bosch, the German car parts-maker. 

Overall, putting all Europe’s eggs in one basket worked out pretty well … until it didn’t. Though Europe accounts for more than 40 percent of global R&D spending in the automotive sector, Germany’s vaunted carmakers somehow managed to miss the boat on electric vehicles.

That failure is at the core of Germany’s economic malaise, as evidenced by VW’s recent announcement that it would shutter some German plants for the first time in its history. Germany’s auto sector, which employs about 800,000 domestically, has been the lifeblood of its economy for decades, contributing more than any other sector to the country’s growth.