Where German mechanical engineering can grow again

The value of German machinery exports amounted in the first quarter of 2026 to 48.9 billion euros. In nominal terms, that was 2.0 percent less than a year earlier, adjusted for prices 3.5 percent. At the same time, shipments to India rose by 8.5 percent and to Europe by 1.6 percent. Demand is therefore not returning across the board - it is shifting.

The slump conceals a new demand structure

In the second quarter of 2026, sentiment in mechanical engineering brightened somewhat. However, the VDMA does not see a sustainable recovery. Opportunities arise where customers cannot wait long: when staff are lacking, energy consumption becomes too expensive, infrastructure must be expanded, software secured, or an old machine fleet must be modernized.

The industry brings domain knowledge, specialized supplier networks, global customer access, and a large installed base for this. However, these strengths pay off only if companies develop repeatable modules from customer-specific engineering, price software, and sell service across the entire life cycle.

What does German mechanical engineering supply to the defense industry?

Without precision machines, no tanks; without lasers, robotics, and software from mechanical engineering, no modern defense production - the industry is deeply involved in the defense sector. How deeply, read here.

Automation becomes a capacity issue 

Worldwide, around 542,000 industrial robots were installed in 2024, more than twice as many as ten years earlier. 74 percent of new installations went to Asia, with China alone accounting for 54 percent. Germany remained, with 26,982 installed units, Europe's largest robot market, although the number fell by five percent compared with 2023. Added to this is demographic pressure: at the end of 2025, according to the DIHK, 36 percent of the surveyed companies were at least partially unable to fill open positions; among small and medium-sized businesses, it was more than 40 percent.

The opportunity lies not only in the robot arm, but in quickly reconfigurable cells made up of gripper, image processing, feeding, and software. One example is the automatic loading of a machine tool with changing batch sizes. Mobile robots connect machining, inspection, and assembly; vision systems detect variants or quality defects. Machine manufacturers, component suppliers, and integrators that combine automation with process knowledge benefit from this.

Humanoid systems are for the time being a development market

In a Bitkom survey from spring 2026, six percent of industrial companies with at least 100 employees used humanoid robots. For 72 percent, they were not yet an issue; 41 percent considered the costs to be higher than the benefits. In the short term, cobots, mobile platforms, and assistance systems are more robust. Humanoid technology requires narrowly defined tasks and a demonstrable advantage over conventional automation.

AI must create revenues beyond machine sales

According to the same Bitkom survey, 40 percent of industrial companies used artificial intelligence, while another 38 percent planned to use it. Digital twins were used by 45 percent, and 26 percent had corresponding plans. Revenue potential is offered by, among other things, variant design, optimized process parameters, anomaly detection, quality forecasts, energy optimization, and predictive maintenance.

A digital twin can check control, material flow and cycle times even before setup. During operation, it compares wear or energy consumption with the target state. This can generate revenue for monitoring, optimization, updates or guaranteed availability. The machine remains the entry point; the longer-term business develops from the data and service contract.

Humanoid and cognitive robotics: when AI enters the machine

Humanoid and cognitive robotics are considered the next major stage of development in automation. For mechanical engineering, this is not only about robots in human form, but about systems capable of learning that can see, understand, decide, and work safely with people.

Robust data architecture is needed

57 percent of the industrial companies surveyed by Bitkom saw missing data as an obstacle to digital twins, 48 percent an insufficient IT infrastructure. Data models, interfaces, access rights and cybersecurity therefore belong already in the design phase. Manufacturing-X can facilitate exchange along the value chain if open standards and concrete applications take precedence over further platform silos.

Grids and new factories create long order lines The International Energy Agency expects global electricity consumption to grow on average by 3.6 percent per year from 2026 to 2030. Drivers include, among others, industry, data centers, and electric mobility. For 2026 it forecasts global energy investments of 3.4 trillion US dollars; around 2.2 trillion US dollars are to flow into grids, storage, low-emission energy carriers, nuclear energy, renewables, efficiency, and electrification.

Demand for data and energy infrastructure

This increases demand for equipment for cable and transformer manufacturing, power electronics, test benches, pumps, compressors, cooling, and water treatment. Data centers need energy and cooling technology, semiconductor factories need cleanroom and vacuum systems, battery plants need production, testing, repair, and recycling facilities. Electrified process heat requires electric furnaces, high-temperature heat pumps, drives, and control technology. In hydrogen, orders depend more strongly on secured offtake, infrastructure, and financing; modularly scalable solutions have an advantage.

The German special fund includes a borrowing authorization of 500 billion euros for the years 2025 to 2036; for 2026, around 58 billion euros of this are earmarked at the federal level. The European Commission already put the investment need for European electricity grids by 2030 at 584 billion euros in 2023. But these sums are not yet an order backlog. Only faster planning, procurement, and grid connections turn them into orders. Mid-sized providers should monitor tenders early and develop documented standard packages for grid operators and general contractors.

Nuclear fusion: where mechanical engineering comes into play

No fusion power plant is supplying electricity yet. But a market is already emerging around magnet coils, high-power lasers, vacuum technology, special materials, and robotics. For mechanical engineering, this is therefore not about a pipe dream of the future, but about the question of who will make the technology industrially viable.

Resource efficiency also expands the market

Fragile supply chains, rising raw material prices and circularity requirements increase the value of equipment that avoids scrap or automatically disassembles products. Examples include the remanufacturing of drives, the disassembly of battery modules and the recovery of high-quality materials. Design for disassembly and digital product information thus become part of the machine concept.

Retrofit makes the installed base a growth market

In a weak investment phase, operators are more likely to renew controls and drives or add sensors, energy measurement, machine vision and remote access instead of replacing every machine. For the first quarter of 2026, the VDW explicitly reported that service and retrofit stabilize the machine tool business. Similar opportunities exist for process plants, packaging lines and conveyor technology. Such a conversion can become a contract for condition monitoring, spare parts availability, software maintenance and energy optimization. 

Starting on September 11, 2026, the first reporting obligations of the Cyber Resilience Act take effect, and the essential product obligations starting on December 11, 2027. The EU Machinery Regulation is to be fully applied from January 20, 2027. Not every older machine thereby becomes a remediation case. Networked new products, substantial modifications and higher security requirements do, however, create demand for secure updates, technical documentation and vulnerability management.

Difficult processes protect against price competition 

According to VDW data, aerospace, defense, medical technology and electronics developed better at the beginning of 2026 than the automotive industry, metalworking and general mechanical engineering. At the same time, China has overtaken Germany in machine tool exports. A German standard machine with a higher price and similar performance thus inevitably comes under pressure.

More viable are solutions in which process knowledge counts more than unit costs: highly precise machining, difficult-to-machine materials, validated medical technology processes, traceable electronics manufacturing or flexible small batches. The value lies in the mastered process, in short startup times and stable quality. Such competencies must be scalable as modular platforms instead of being newly engineered for every order.

The security and defense industry can also trigger additional orders. The EU plan Readiness 2030 is intended to enable more than 800 billion euros in spending; the financing instrument SAFE provides up to 150 billion euros in loans. These are financing frameworks, not a revenue guarantee. Opportunities exist for production machinery, measurement technology, additive manufacturing, robotics, drives and dual-use components. Access requires auditable processes, information security, export control, certifications and long-term ability to deliver. An ethics and compliance review belongs before the sales decision.

New markets require local presence

In the first quarter of 2026, German machinery exports to the USA fell by 6.7 percent and to China by 12.0 percent. India increased by 8.5 percent. The country grew in real terms in fiscal year 2025/26 by 7.6 percent; Germany Trade & Invest expects 6.6 percent for 2026/27 and an increase of 6.7 percent in gross fixed investment. A capacity utilization of just under 76 percent shows that this has not yet led to a broad investment boom. India requires local application engineering, spare parts and often more procurement or assembly in the country. 

In Vietnam and Indonesia, food, textile, and wood processing offer opportunities, Malaysia is interesting for semiconductor equipment. In the USA, shortages of skilled workers and the need for modernization are driving automation, while tariffs make business more expensive. Europe remains the most important sales market and grew at the beginning of 2026 despite the overall weakness.

Bosch secures 225 million in funding for US chip plant

Bosch is pressing ahead with the expansion of its SiC chip production in the USA. Funding of up to USD 225 million supports the conversion of the plant in California.

Local-for-local does not mean that medium-sized companies have to build their own plant everywhere. Regional service hubs, local application engineering, partners, spare parts warehouses, and limited final assembly are often sufficient. Core modules, software, and critical process knowledge can remain in Europe. This makes it possible to reduce delivery times and trade risks without multiplying technology uncontrollably.

The reorganization of supply chains also creates demand for smaller, flexible production lines for several regions. Those who offer short ramp-up times, changing variants and standardized data handovers can benefit from nearshoring and stronger European sourcing. The IFR already sees nearshoring as a driver of European robot demand.

Opportunities only become orders with speed

The location remains the biggest reservation. According to IEA calculations, electricity prices for energy-intensive industries in the EU in 2025 were on average more than double the US level and almost 50 percent above China. The DIHK cites high energy and labor costs, long approval procedures and bureaucracy as brakes on competitiveness. Also corporate taxation, digital infrastructure and slow technology transfer make scaling more difficult.

Policymakers must make investments feasible: with faster approvals and awards, predictable energy conditions, capable power and data networks, competitive taxes and simpler transfer programs. Growth and venture capital is especially needed for robotics, industrial AI and energy technology, because development, certification and industrial sales have long lead times. Public funds can support demonstrators; customers and private capital must scale.

In companies, organization is decisive: A VDMA survey of 248 member companies found that 60 percent have a digital strategy, but 22 percent work without clear guidance. The respondents named IT security, change management, speed of implementation and human resources as the greatest obstacles. What is needed are software product management, data and cyber expertise, targeted qualification and projects with measurable customer benefit.

German mechanical engineering does not have to be the cheapest provider. It must demonstrably reduce downtime, energy consumption, scrap and start-up risk and be able to improve its machines safely over years. Those who translate process knowledge into modular technology, software and lifecycle service and move closer to customers in the regions have real growth opportunities. They lie in the tasks that must be completed despite the weak economy.