German Power Costs Hit Eastern Suppliers

Germany's energy transition is no longer just a German argument about climate targets, grids and the price of keeping factories open. It is becoming a competitiveness problem for the countries that built their industrial model around supplying German manufacturers.

A survey by Germany's chambers of industry and commerce, the DIHK, found that 40% of firms now judge the effects of the energy transition negatively (FAZ). A third have cut investment in their core operations because of energy costs. 20% said they had moved production abroad or were considering it, rising to 40% among industrial firms, though that figure covers both actual moves and contingency planning.

That does not amount to proof of a factory exodus. It does show something more gradual and more difficult to reverse: German manufacturers are delaying spending, trimming orders and protecting margins. The first countries to feel that are not always Germany's competitors, but its suppliers.

How a German power bill crosses borders

German factories sit at the top of production networks that run through Poland, Czechia, Slovakia and Romania. Chemicals, metals, cars and machinery move through these chains as parts, components and unfinished goods before they become the finished product sold under a German brand.

When a German producer postpones a plant upgrade or cuts orders because electricity is eating into margins, the decision travels quickly. The ECB, the European Central Bank which sets monetary policy for the euro area, put the point plainly in its 2026 economic bulletin: parts of euro-area manufacturing have lost competitiveness, and costs are passed rapidly through supplier links (ECB).

The electricity bill German factories pay is not just the wholesale price quoted on exchanges. Eurostat breaks the final industrial bill into three parts: the energy itself, network charges for using and expanding the grid, and taxes and levies.

Germany's industrial electricity prices fell 4.2% year on year in June (Destatis), so the worst of the 2022-23 shock has passed. But grid fees and carbon costs under the EU emissions trading system, where polluters buy permits to emit CO2 and those costs feed into electricity prices, keep the total bill high enough to shape investment choices. Wholesale prices can fall while the structure around them remains expensive.

Romania and Slovakia show the exposure

Romania shows how exposed the eastern end of the chain has become. Transport equipment and machinery account for a large share of its exports to Germany (HotNews). Romanian industrial output fell 3.3% year on year in January-May 2026, with manufacturing down 4.5% (ZF).

Vehicle output in the first half of the year dropped 12.7% to 247,972 units (PSNews), and more than 18,000 auto and parts workers lost their jobs between January 2025 and April 2026 (Jurnalul). German energy costs did not cause all of that. But when an economy depends heavily on German orders, any German retrenchment lands hard.

Slovakia's response is easier to see. Industrial orders fell 3.4% and output dropped 2.0% in May (Slovak Statistics). Bratislava is compensating energy-intensive firms through carbon-cost refunds and cheaper state hydropower (Denník N). Volkswagen's Slovak plant is building on-site solar to cut power bills by millions (Autoviny).

That is spending, but not the kind that signals confidence in expansion. It is spending to reduce exposure. Across Europe, restructuring in the auto sector cost more than 70,000 jobs in Germany in 2024 and more than 40,000 again in 2025 (Eurofound).

Some factories can gain from the reshuffle. Certain Czech VW plants reportedly produce below the group's €3,000-per-vehicle cost target, while German sites exceed it (EVmagazin). But cheaper Czech production still depends on German demand, and that demand is softening.

The evidence does not point to a sudden German industrial collapse. It points to a slower loss of investment confidence, with Central and Eastern European suppliers absorbing part of the cost through weaker orders, delayed upgrades and layoffs in sectors whose vulnerability was built into the supply chain long before energy prices became the immediate problem.