Greets.

This question is specifically addressed by Ralf Raths, director of the Deutches Panzermuseum in an interview I did with him back a couple years ago. Start at 20 seconds in.
https://www.youtube.com/watch?v=pFGZV-PDbWM

However, for those who don't want to click, the short, written version is as follows.

Immediate reaction after initial tank use at Flers-Courcelette : "Holy crap. What are these new things? We need to have our own. We need to have lots of them! Quick! Start designing!"

Considered reaction after the initial shock had worn off and the Germans had a bit of time to think about things: "Actually, hold that thought. These tank things are slow, vulnerable to direct artillery fire and even armor penetrating rifle bullets. They are also apparently highly unreliable, keep breaking down, and we just capture scores of them for our own use as well. Not that we expect much, as the failings are just as applicable in the other direction. Now, the other thing we can do with our steel manufacturing and engine capacity is build U-Boats and strangle the British. Do we want to build lots of tanks or lots of submarines? Which is more likely to win the war? On the basis of how they're doing right now, submarines it is! Send the steel to Hamburg!

Revised reaction after Cambrai: "Holy crap! We seriously misjudged the potential of these things. Turns out if you use a -lot- of them at the same time, they really are dangerous! Quick! Designers! Construction folks! Get busy, make us lots and lots of tan..... wait... armistice? What armistice? But we don't have our tanks yet.....?"

The designs, obviously, didn't go anywhere. The LK-II ended up being used by Sweden as the FM-21/28, and that was about the end of it.

Hope that answers your query!