Grandfather was born in Germany.
Yes. Both his father’s parents were born in Germany. To refer to his father as German is just normal language usage. People do that all the time to refer to their ancestry without implying that they were born there.
When asked, ‘Are you German?’ My mother would answer in her heavy accent that she was ‘American’. (She was born in 1920 Germany and came here in 1957. She was proud of America)