You can only move fast if you know where you're going…

You can only move fast if you know where you're going…

Capital Markets Commentary by Kai Jordan, Member of the Management Board of mwb Wertpapierhandelsbank AG

 This quote from Joe Kaeser has become an absolute guiding principle in an age of constant transformation. But do we in Germany actually still know where we're heading?

When Handelsblatt reported in mid-October that the German government was planning an AI partnership with Nvidia, backed by EUR 300 million in seed funding, our initial, admittedly uninformed reaction was rather dismissive: “That kind of money might just get you through to Nvidia's receptionist.” We couldn't have been more wrong. It wasn't the receptionist who picked up the phone – Nvidia CEO Jensen Huang came to Berlin in person. And he brought a list of conditions.

Among other things, he attended the “Invest Germany Summit” organised by the German government. There, he delivered a stinging rebuke to Germany's decision-makers (“It hurts to see how far the country has fallen behind”), while simultaneously praising German engineering excellence and urging those in charge: “Just get to work!”

At this event, attended by around 200 investors from across the globe, the Chancellor, who has otherwise faced plenty of justified criticism, made a very good impression, at least at first glance. Hardly surprising. Given his professional background, particularly his time on BlackRock's supervisory board, engaging with companies and investors is familiar territory. It is a stage he understands and knows how to command.

To be clear, we fundamentally welcome events of this kind. They represent an attempt to reverse the steady decline in investment volumes in Germany and bring the government into direct dialogue with investors, perhaps even helping it eventually understand what is actually holding the country back. And if those in charge were listening, the exercise may well have achieved something.

After all, by the end of the summit, investments of – let us cautiously put it this way – “up to” EUR 230 billion had been announced. Whether that figure consists exclusively of genuinely new investment plans is widely questioned.

What also emerged was that most of these “commitments” depend on conditions that Germany would first have to meet. Whether the current governing coalition can deliver is something everyone will have to judge for themselves. What is at stake comes down to nothing less than three essential prerequisites:

- AI regulation: During his discussion with Huang, the Chancellor sought Jensen's agreement with the proposition that AI must, of course, be regulated. Huang's response, in essence, was that you first need something worth regulating. The industry must be allowed to grow before its applications can be regulated – and regulation should target applications, never the technology itself.

Our view: The man is right.

- Machine utilisation and working hours: Expensive machinery alone will not deliver the turnaround. These machines need to operate around the clock, which means separating operating hours from employees' working hours.

Our view: Whether trade unions, or politicians permanently stuck in election campaign mode, will go along with this is anyone's guess. Simply berating voters for supposedly not working hard enough will not do the trick. What is needed are practical, balanced solutions. And leadership!

- Energy costs: Germany must bring down energy costs. Households and industry are already struggling with high energy prices. The AI data centres of the future will consume enormous amounts of electricity.

Our view: The Federal Ministry for Economic Affairs continues to head consistently in the wrong direction. A stubborn retreat into the fossil-fuel Stone Age, creating new dependencies in the process, is already laying the foundations for potentially irreparable damage.

One example is the situation surrounding the proposed revision of the Offshore Wind Energy Act (WindSeeG). Having already extracted enormous sums from major project developers such as BP and TotalEnergies through offshore wind site auctions, the government now faces a situation in which many of these companies no longer want to proceed with construction because, in their view, the economics simply do not work.

At the same time, smaller and other potential developers are willing to step in. Yet the Ministry for Economic Affairs has so far refused to include transfer provisions in the revised legislation, arguing that it wants to preserve auction discipline. Germany therefore risks ending up with so-called “zombie wind farms”.

According to the German Offshore Wind Energy Association, projects and procurement contracts worth up to EUR 50 billion are at risk. Job losses in the supply industry have already begun, with further cuts looming.

We could be talking about the loss of 25,000 to 30,000 jobs. Offshore wind would then gradually follow the solar industry's trajectory – straight to China.

You couldn't make it up. And you certainly don't have to be a Green Party supporter to criticise this. The CDU/CSU and SPD also have plenty of expertise on board.

In a strongly worded letter to Chancellor Friedrich Merz, Schleswig-Holstein's Minister-President Daniel Günther sharply criticised Federal Economics Minister Katherina Reiche's reform proposals concerning the amendment of the Renewable Energy Sources Act (EEG) and the electricity grid package.

The heads of the federal states – Lies (Lower Saxony), Söder (Bavaria), Özdemir (Baden-Württemberg), Günther (Schleswig-Holstein), Rehlinger (Saarland), Tschentscher (Hamburg), Schwesig (Mecklenburg-Western Pomerania) and Bovenschulte (Bremen) – have now reinforced this criticism in a further joint letter to the Ministry for Economic Affairs. They warn of “misguided regulatory and industrial policy decisions that encourage deindustrialisation”.

What exactly is driving the minister is becoming increasingly difficult to understand. Whether it has something to do with her previous or future career, or whether she is already positioning herself for future political majorities, remains a mystery.

And yet, it seems that common sense may occasionally prevail over dogmatism. The minister is now having to back down on this issue as well. If individual projects prove no longer economically viable, an “orderly surrender and reallocation” of the relevant sites should be permitted, without releasing the companies from their financial obligations, she recently told German news agency dpa.

So why do such prominent figures as Jensen Huang and BlackRock's Larry Fink travel to Germany to make conditional investment pledges, while sometimes praising the country's undeniable strengths to the skies?

The short answer: our data.

To understand why, we need to look at how artificial intelligence is evolving. Germany and Europe largely slept through the first wave of AI, dominated by large language models (LLMs), with only a few exceptions. Now comes wave two: physical AI – artificial intelligence that understands and controls machines, factories and vehicles.

While the LLMs of the first AI wave were trained using information available on the internet and insights gained through their use, physical AI requires real-world data, patents and industrial expertise.

Germany possesses vast data treasures accumulated over decades of mechanical engineering, chemical production and automotive manufacturing: telemetry data, maintenance cycles and the physical limits of materials and machinery.

However, if German companies lack their own computing infrastructure or the necessary software expertise, they have to upload their data to the clouds of US hyperscalers, such as AWS or Microsoft, to have it analysed and processed by foreign AI models.

Once these industrial data treasures have passed through US models, the mathematical patterns and physical principles extracted from them will presumably become part of the technology companies' proprietary knowledge.

Examples worth examining include the start-up project Prometheus, whose strategy in this second wave of physical AI involves acquiring large volumes of data from around the world. Nvidia is likewise pursuing projects in Germany with Siemens, Audi, Mercedes and Freiburg-based AI flagship start-up Black Forest Labs. These developments are well worth looking into.

Given Germany's position as a technological laggard, the country probably has little alternative at present if it wants to catch this wave at all. And it may still benefit substantially from doing so.

However, against this backdrop, attracting these investment projects to Germany can only be described as a major achievement with some reservations. Investors are also coming to acquire know-how, thereby transferring an important share of value creation overseas.

On the other hand, without US computing power and platforms, German industrial data would simply gather dust on local servers, unused. It is a delicate balancing act between losing valuable know-how and enabling modernisation in the first place.

Another interesting detail: The chemical industry has rejected almost all investment commitments. The exception is Sanofi, which apparently is currently receiving substantial subsidies from the federal government and the state of Hesse. Talking your book!

At the summit, the Chancellor delivered a speech praising Germany's reliability and predictability as qualities investors love.

But when Merz remarked that “if we Germans are invited to dinner at 7 p.m., we arrive at 6:58 p.m.”, we couldn't resist returning to our earlier mockery.

The man probably hasn't travelled on a Deutsche Bahn train in a very long time.

About mwb:

mwb fairtrade Wertpapierhandelsbank AG is a securities services provider authorised by the German Federal Financial Supervisory Authority (BaFin), with offices in Gräfelfing near Munich, Hamburg, Hanover, Frankfurt and Berlin. The company was founded in 1993 and went public in 1999. Today, mwb shares (ISIN DE000A3EYLC7, WKN A3EYLC) are listed on the Munich Stock Exchange in  m:access and traded on the open markets of the Düsseldorf, Frankfurt (Basic Board), Hamburg and Stuttgart stock exchanges, as well as on the Tradegate Berlin Stock Exchange.

With regulatory licences covering commission-based securities trading, underwriting, proprietary trading, placement services, investment brokerage and contract brokerage, mwb ranks among Germany's leading securities institutions specialising in exchange-based and over-the-counter securities trading. Within this peer group, the company offers a particularly broad range of services.

Its portfolio includes capital market transactions, listings, paying agent services, designated sponsoring, institutional client services in Germany and abroad, and order execution. Through mwb analytics, the company complements its offering with proprietary research covering small- and mid-cap companies.

In securities trading, mwb manages more than 57,000 order books covering equities, fixed-income securities and open-ended investment funds, making it one of Germany's largest specialists in order book management (Skontroführung).

Contact and Further Information:

mwb Wertpapierhandelsbank AG
Kai Jordan
Kleine Johannisstrasse 4
D-20457 Hamburg
Tel: +49 40-360995-20
E-Mail: kjordan@mwbfairtrade.com

 

Disclaimer:

mwb fairtrade Wertpapierhandelsbank AG is the publisher of this document. Although the information contained herein has been obtained from sources considered reliable by mwb fairtrade Wertpapierhandelsbank AG, no guarantee can be given as to its accuracy.

This document does not constitute a prospectus and is not suitable as a basis for assessing the securities referred to herein. Any estimates and opinions expressed in this document reflect solely the assessments of mwb fairtrade Wertpapierhandelsbank AG at the time of its preparation and may be changed at any time without prior notice.

mwb fairtrade Wertpapierhandelsbank AG or its affiliated companies may, from time to time, hold positions in securities mentioned in this document or in derivative financial instruments based on such securities. They may also provide or have provided other services, including advisory services, to any company mentioned herein and may, to the extent permitted by law, have used the information contained in this document or the underlying research prior to its publication.

The transmission or distribution of this document does not establish an advisory relationship of any kind between mwb fairtrade Wertpapierhandelsbank AG and its recipient. Each recipient is responsible for conducting their own due diligence and taking appropriate measures to assess the economic viability and suitability of any investment decision in light of their individual personal and financial circumstances.

mwb fairtrade Wertpapierhandelsbank AG accepts no liability for any consequences arising from reliance on the opinions or statements contained in this document or for any omissions herein.

Any US person receiving this document who wishes to enter into transactions involving securities mentioned herein must do so through a service provider duly authorised in the United States.