When a German city repurposed an automotive plant for battery-cell production in six months, it revealed how regional industrial immunity hinges on relatedness, climate policy, and fast-track funding.
When the mayor of a German mid-size city convened the board of a legacy automotive supplier, the agenda was stark: “We must repurpose half of our plant floor for battery-cell R&D within twelve months, or the town loses 1,200 jobs.” The board, composed of engineers, union leaders, and a venture-capital partner, left the meeting with a concrete plan. Within six months, they had signed a memorandum with a university spin-out, rewired the assembly line for lithium-ion prototypes, and secured €30 million in regional development funds. By the end of the year, the plant’s output shifted from steel-stamped brackets to high-density energy modules, and the city’s unemployment rate fell below the national average.
That decision—reallocating existing industrial space to emerging technology—captures a broader shift. Regions no longer wait for multinational CEOs to locate new factories; they actively rewire their own production bases to ride the wave of emerging tech. The story is not unique to Germany. Across Europe, Asia, and the Americas, municipalities are turning dormant factories into innovation hubs, leveraging local skill sets, supply chains, and climate imperatives to stay competitive.
From global supply chains to regional resilience
The case exemplifies a transition from cost-driven global sourcing to proximity-driven resilience. For decades, firms chased the cheapest labor and raw material bundles, stretching supply chains across continents. Today, geopolitical tension, pandemic-induced disruptions, and climate-related shocks force a re-evaluation of “efficiency at any cost.” Companies now prioritize supply-chain robustness, faster feedback loops, and the ability to pivot production on short notice.
This pivot aligns with the “regional industrial immunity” concept, which we define as a region’s capacity to absorb shocks and reconfigure its economic base without catastrophic job loss. Immunity stems from three pillars: a diversified industrial portfolio, strong knowledge spillovers within the region, and policy frameworks that lower the friction of re-tooling. The German city’s swift conversion of an automotive line into a battery-cell lab illustrates each pillar. Its existing metal-working expertise lowered the learning curve for new electro-chemical processes, while proximity to a university fostered rapid knowledge exchange. Meanwhile, the regional development agency’s fast-track funding removed bureaucratic delays that typically stall such transformations.
Ernest Miguelez, senior researcher at AQR-IREA, puts it plainly:
Its existing metal-working expertise lowered the learning curve for new electro-chemical processes, while proximity to a university fostered rapid knowledge exchange.
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“When technological knowledge clusters within a geographic area, the diffusion speed accelerates dramatically, allowing firms to repurpose assets in months rather than years.” – Ernest Miguelez, University of Barcelona
The speed of diffusion matters. The working paper that introduced this insight spans 61 pages and aggregates 11 research articles on the geography of knowledge diffusion. Its findings show that regions with dense networks of related industries experience a faster adoption rate for emerging technologies than more fragmented economies. That statistic underscores why the German city could retool in half a year while a comparable region in the United States languished for three years.
Regional pivots thrive when old factories become tech incubators Photo: pexels
The pattern is structural, not anecdotal. Three interlocking dynamics drive it:
Technological relatedness – Industries that share inputs, skills, or equipment can more easily transition together. A region specializing in precision metalworking, for instance, can pivot to aerospace components, medical devices, or battery casings with minimal retraining. This relatedness creates a “technology adjacency matrix” that firms navigate intuitively, reducing uncertainty and investment risk.
Climate imperatives – Regions exposed to severe climate impacts—coastal zones facing sea-level rise, or inland areas prone to heatwaves—face mounting pressure to decarbonize. Policy incentives for green manufacturing, coupled with the physical necessity of adapting infrastructure, push local economies toward renewable energy, electric mobility, and circular-economy models. The German city’s shift to battery cells dovetails with national carbon-neutral targets, turning a climate mandate into an economic opportunity.
Policy scaffolding – Governments now act as “industrial architects,” deploying targeted subsidies, fast-track permitting, and workforce-upskilling programs. In the case above, the regional development fund’s €30 million grant covered a portion of the plant’s retooling costs, while a joint apprenticeship scheme supplied 200 newly trained technicians within six months. Such coordinated action lowers the barrier to entry for high-tech manufacturing and sustains the momentum of transformation.
These forces coalesce into a self-reinforcing loop: related industries attract talent, talent fuels innovation, and innovation draws policy support, which in turn deepens the industrial base. The loop explains why regions that once seemed peripheral—such as parts of the Rust Belt or the Baltic states—are now emerging as niche hubs for advanced composites, AI-enhanced logistics, and green hydrogen.
Our view is that the diffusion of knowledge is no longer a global, homogeneous process. Instead, it follows a “regional cascade” model: breakthroughs emerge in core hubs, then ripple outward through adjacent industries and geographic clusters. This model predicts that regions with high technological relatedness will capture a disproportionate share of future growth, while isolated economies risk stagnation.
Policy scaffolding – Governments now act as “industrial architects,” deploying targeted subsidies, fast-track permitting, and workforce-upskilling programs.
Edge cases: when the pivot stalls
Not every region can execute a seamless transition. Some areas lack the critical mass of related industries to support a pivot. For example, a coal-dependent town in Central Appalachia, despite generous federal grants, struggled to attract clean-energy firms because its labor force lacked the requisite technical skills, and its supply chain remained entrenched in heavy-equipment manufacturing. Similarly, regions with rigid zoning laws or fragmented governance often encounter bureaucratic inertia that slows retooling.
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Another edge case involves “over-specialization.” A city whose economy hinges almost entirely on a single high-tech niche—say, semiconductor fabrication—may find itself vulnerable to global demand shocks. The 2024 semiconductor shortage illustrated how supply bottlenecks can cascade, prompting some regions to deliberately diversify by nurturing complementary sectors such as photonics or advanced packaging.
These outliers highlight the importance of balanced diversification and adaptable governance. Policymakers must monitor both the depth of relatedness and the breadth of sectoral coverage to avoid creating new forms of mono-dependency.
What leaders should do next
Regional pivots thrive when old factories become tech incubators Photo: unsplash
We recommend three concrete steps for regional leaders and corporate strategists:
Map technological adjacency: Conduct a systematic audit of existing industries, skills, and equipment to identify natural expansion pathways. Use the “Technological Relatedness Framework” to quantify overlap and prioritize sectors with the highest transition potential.
Activate fast-track policy tools: Design grant programs that cover a portion of retooling costs, paired with streamlined permitting processes. Tie funding to measurable workforce-upskilling outcomes to ensure talent pipelines keep pace with new production lines.
Embed climate targets into industrial strategy: Align regional decarbonization goals with industrial diversification plans. Incentivize firms that embed low-carbon processes into their pivot, turning regulatory compliance into a competitive advantage.
By treating industrial transformation as a regional, climate-aware, and policy-enabled process, cities can turn legacy assets into engines of future growth. The German city’s rapid conversion from auto parts to battery cells shows that when local actors coordinate around relatedness, resilience, and climate imperatives, the old factory floor can become the launchpad for the next wave of technology.
Tie funding to measurable workforce-upskilling outcomes to ensure talent pipelines keep pace with new production lines.
We see the emerging geography of industrial transformation as a playbook for any region facing disruption. Map your assets, align them with climate and policy levers, and move fast. The next decade will reward those who turn existing factories into incubators, not relics.
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