German Innovation Insider: Catch-Up in Mobility Arena

Posted on February 23, 2016

0


German Car Brands (image: bna2013.com)

Automotive, a moving example

We explored German innovation barriers to digital transformation in German Innovation Insider: The Brakes on Digital Innovation previously.  As a follow-up, let’s look at an example of a successful industry already known for German high-tech innovation: the iconic German automotive industry.

Automotive is the largest industrial sector in Germany.  Vehicles and parts make up some 20% of total German industry revenue with auto sales and exports worth 368 billion euros ($411 billion) in 2014.  Car-making is a German strong suit with luxury cars being the most profitable segment.

Electric Vehicles? – “Nein, Danke!”

Disruptive players emerged with electric car concepts for years. They were generally ignored by the established car makers despite the high eco-consciousness of German society in general.  The new technology was not considered a threat nor as profitable as the existing businesses.  So electrical vehicles were disregarded so not to disrupt or cannibalize the traditional business with combustion engine vehicles.

The influence of the car industry remains strong and has an outspoken lobby also in Germany.  This contributes to failing the German government’s announced goal of leading the electric mobility market with “one million electric vehicles on the road by 2020” since only 8,522 new electrical vehicles were registered in German in 2014 (up from under 3,000 in 2012).

2015Q1 ihs-automotive-electric-vehicles-ranked-by-country(businessinsider_com)

Germany ranks 6th in electric vehicle (EV) registrations by country in Q1/2015. EV registrations in percent of all vehicle registrations displayed.  (image: countrybusinessinsider.com)

Innovation Catch-up by the Automotive Industry

The game changed when disruptive niche player Tesla Motors started cutting into the highly profitable luxury car segment with its high-end and high-tech electric vehicles.  Tesla also receives outstanding customer service reviews in key markets such as the United States.  Suddenly German car builders scramble to catch up to protect their stakes: everyone wants to offer at least one electrical vehicle in their luxury car portfolio as a ‘Tesla Killer.’ Finally, negligent or halfhearted governmental support of the program just changed course by offering temporary tax breaks and other incentives.

Growing out of the Niche

Now, disruptive innovation may not make cars obsolete.  We still want to get from A to B, so incrementally improved cars (better safety, quality components, etc.) will remain in demand and customers will continue to pay premium for luxury models. Take a closer look at Tesla though to see the difference of their bigger and bolder view: the Model S versions, for example, are constructed all the same except for the model sticker on the back.

The true battlefield is no longer the physical car alone.  From the steering unit to the break system Tesla’s are built from pre-assembled, tried-and-tested components from quality manufacturers; including parts from some German hidden champions such as Stabilus (liftgate gas spring) and ZF Lenksysteme (steering mechanism).

tesla-suppliers-2013(insideevs_com)

Model S relies on quality parts by suppliers  (image: insideevs.com)

Software is Pivotal

Nonetheless, it’s the software configuration in the Model S that makes the difference from regulating the available battery capacity (extended range) to other features (acceleration) that become available to its passengers.  Tesla added ‘Autopilot’ functionality and a self-parking feature to its fleet just recently – simply via remote software update. Voila!

Reaching beyond the individual vehicle the software running the car became the key to future mobility.  The question becomes who will own the car operating system of the future?  Chances are it’s the exponential silicon players from sunny California who are best positioned, experienced and deeply understand both, digital integration and exponential innovation.

Mercedes meets the software threat and opportunity by aiming to control this pivotal technology, which may otherwise be seized by more avid digital players such as Google, Microsoft or even Tesla.  Mercedes made some progress when it just announced its new E-class vehicles connecting and sharing relevant information among each other.

Out for the kill?

German luxury car-makers proudly announce their future ‘Tesla Killers’ playing catch-up with high-end electric cars of their own, such as Audi’s Q7 E-TRON Quattro, BMW’s i5 or Porsche’s performance vehicle Mission E (the latter two not available before 2019).  Tesla hardware is even coming under attack with future competition getting ready; among them  Silicon Valley’ Atieva and Tesla clones from China.

In true sports-car fashion, Porsche’s marketing highlights 600hp for 0-to-60mph acceleration in under 3.5 seconds. Tesla already achieves this mark today. So where is the actual ‘kill’?

Porsche unvels Tesla Killer

Porsche unveils ‘Tesla Killer’  (image: CNBC)

The Mobility Arena

The real question aims at the next step: where will the drivers of the new Audi’s, BMW’s and Porsche’s charge their batteries on the road?

Looking at future mobility as an arena rather than just vehicles, Tesla’s venture also crossed other industries such as the critical battery business in partnership with Panasonic.  In addition, Tesla offers a wide-cast net of ‘SuperCharger’ power-stations free of charge for its customers at many highway rest-stops and gas-stations positioned to allow Tesla drivers to reach most areas of the continental U.S. already today.

Tesla Supercharger ranges (reddit_com)

Tesla Supercharger station with vehicle range  (reddit.com)

Fueling the Future

Here, Tesla secured first-mover advantage in securing the precious real-estate needed at busy rest-stops.  In the long run, it appears doubtful that rest-stops will grant additional dedicated slots with proprietary pumps to every car-maker to recharge their line of vehicles.

Tesla SuperChargers

Tesla SuperChargers  (image: teslamotors.com)

So the German car manufacturers may be forced to cut a deal with Tesla adopting the Tesla technology and paying for using Tesla’s high-speed pump space on-the-go in the future.  Tesla even announced it will not enforce patent protection for anyone who, in good faith, wants to use the Tesla technology, which may smoothen over the adoption by other car-makers.

Outlook

Looking into the crystal ball, the automotive industry is not just about introducing more electric vehicles, but is morphs to become a new mobility arena as Tesla is demonstrating.  Being still at the early stage of an exponential growth curve, Teslas are certainly not cheap to buy – yet.

Looking at  electric vehicles simply as a sophisticated hardware components, however, we may just enter a scenario in the not-too-distant future that reminds of Amazon’s successful strategy: giving the Kindle eReader (hardware) devices away cheap. Amazon is not interested in hardware but the content, the vast library of eBooks (software) fueling the customers’ demand, which makes all the difference and holds the keys to a proprietary, digital kingdom with recurring high revenues.

kindle-fire(michaelhyatt.com)

Amazon’s Kindle hardware is fueled by eBooks  (image: michaelhyatt.com)