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BMW's Balancing Act

  • Why it matters

    Why it matters

    BMW’s market share in the luxury car segment could drop significantly in the long run if it were unable to offer self-driving vehicles.

  • Facts

    Facts

    • Self-driving and electric cars are seen as the major upheavals affecting the auto industry over the next decade.
    • The three big German carmakers VW Group, Daimler and BMW all adapted their strategies last year to make and sell more electric and self-driving cars.
    • Daimler, VW’s luxury car subsidiary Audi and BMW digital map maker HERE in 2015 for €2.8 billion, or $2.9 billion, from Nokia in a bid to create a rival to U.S. navigation systems and keep the technology out of the hands of the likes of Google, Apple, TomTom and other tech firms.
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    Audio

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Inside The 2017 Consumer Electronics Show
BMW management board member Klaus Fröhlich unveiled the BMWi Inside Future concept vehicle at the 2017 Consumer Electronics Show (CES) in Las Vegas earlier in January. Source: Bloomberg

Klaus Fröhlich is a BMW veteran. The 56-year-old mechanical engineer started at the German luxury carmaker in 1987 following his studies. At the end of 2014, he joined BMW’s executive board and has been leading the company’s development projects ever since.

It’s a position with more clout than ever before as the company steers its way towards digitalization. There’s no doubt that Mr. Fröhlich believes self-driving vehicles are the future. He spends plenty of time at trade gatherings, such as the annual IT fair Consumer Electronics Show (CES) in Las Vegas or Digital Life Design (DID) in Munich, where he often gets asked why artificial intelligence and data analysis have become more important to BMW than drive and engine technologies.

“For self-driving vehicles we need to cooperate with technology enterprises, because artificial intelligence is a deciding factor in this area,” he said. “The competence for that is located in Silicon Valley.”

“Only those who lose the direct contact with their customers do not survive.”

Klaus Fröhlich, BMW board member heading development

VW, Audi, BMW and Mercedes-maker are all boosting investments to develop driverless cars as Silicon Valley-based tech firms have moved in on their turf. Tesla has a car which can drive itself, while Google has also been working on a self-driving car for a few years, and last year named the project Waymo. Apple is also interested in self-driving technology.

Last July, BMW teamed up with chip maker Intel and software specialists MobilEye to create an autonomous vehicle system as an industry standard. Earlier this month, the companies announced they would send 40 self-driving vehicles out for testing on public roads in late 2017.

Volkswagen and its luxury brand Audi, a direct competitor of BMW, earlier this month announced partnerships with U.S. chipmaker Nvidia, also with the aim of improving a car’s artificial intelligence.

“Just as there is now industry cooperation on brakes and engine control systems, a safety standard would also be developed for autonomous driving,” Mr. Fröhlich said. “The question is whether the industry wants to spend €20 to 30 billion ($21.3-23 billion) on separate designs until then, or whether we drive the matter forward together from the start.”

The purchase of digital map maker HERE by BMW, Audi and Mercedes-maker Daimler was proof the carmakers were jointly boosting development of self-driving technologies, Mr. Fröhlich said. “Rationality can trump rivalry.”

The three carmakers bought Berlin-based HERE in 2015 for €2.8 billion from Nokia in a bid to create a rival to U.S. navigation systems and keep the technology out of the hands of the likes of Google, Apple, TomTom and other tech companies. Three weeks ago, Intel announced plans to buy a stake in HERE.

023 BMW-01 WTB 2015

The mapping alliance is not the only match-up on the market. American carmaker Ford and tech giant Google are cooperating as well.

“There are sure to be several designs,” said Mr. Fröhlich. “Just as Intel won’t be the only producer of the relevant chips, there will be others, for example Nvidia. It will be key for us to create compatibility between the designs … Cooperation helps everyone on the way to autonomous driving.”

He pointed to BMW’s strategy as a solid example of how cooperation can work in spite of competition. BMW plans to build an autonomous driving campus at Unterschleissheim, 17 kilometers or 10.6 miles from BMW’s headquarters in Munich, where other brands are also welcome to be involved.

“We can share the data generated there and exchange with each other,” he said. “It’s the only way self-learning networks and software for self-driving vehicles can become safe, intelligent and robust. The swarm manages more than every individual.”

Mr. Fröhlich was not afraid that only one platform would dominate, while the others perished.

“Only those who lose the direct contact with their customers do not survive,” he said. “For example, customers are not willing to load various apps onto their smart phones to use ride brokers like Uber or MyTaxi. We’re not breaking the contact with the customers and are continuing to sell them cars.”

One of the biggest digital challenges on the horizon is protecting cars against cyber attacks. Waymo, the automotive subsidiary of Google’s parent company Alphabet, recently urged companies to frequently disconnect test vehicles from the Internet to ensure security. Mr. Fröhlich said BMW has restricted access into entry points of its self-driving vehicles and, like other industry heavyweights, is constantly working on bulking up firewalls, although maintaining security is always a “hare and tortoise game with hackers”.

Of anyone, he knows that there is no such thing as being too safe. Like Facebook founder Mark Zuckerbeg, the BMW exec also tapes his laptop camera so no hacker can see through it.

Self-driving cars also create another challenge: huge files of data generated by the car’s sensors to let the computer drive autonomously. In Germany, data protection is a sensitive issue due to the country’s experiences under Nazi and communist rule. Nowadays, it has among the world’s strictest privacy laws.

BMW auf der Technik-Messe CES
The exterior of one of BMWs future self-driving vehicles. Source: Andrej Sokolow/DPA

“We have long lobbied hard for a unified data strategy in Europe, to prevent third parties using data against the will of the users, especially personal data,” he said. “To achieve this, I’m spending a lot of time in Berlin and Brussels right now. Cars must stay one of the few remaining protected areas.”

BMW faces an obstacle in doing so, despite the need to continue installing even more cameras into its cars. According to Mr. Fröhlich, cameras increase safety. Self-driving vehicles will need to be outfitted with sensors to recognize when human drivers are taking over from autonomous systems.

Self-driving technology can only move as quickly ahead as network capacity in different regions will allow it. The technology requires the fast exchange of large amounts of data. In Germany, BMW’s home base, network expansion efforts are notoriously slow. Mr. Fröhlich said the company has formed an initiative with network companies to address this problem, and support the evolution of 5G technology.

“(5G) growth must happen fast because data exchange is an important aspect,” he explained. “Just take as an example the high-resolution live map that has to go into your car for autonomous driving to work. Other parts of the world are moving faster on this.”

However, BMW has promised self-driving vehicles on the market by 2021. It is still possible, but just depends on the region, he said.

“In Korea, where a fast network is seen as a competitive edge, access to 5G should start in 2018, in Japan for the 2020 Olympic Games, China will also grow quickly,” he said. “We Europeans are slower and in danger of being left behind.”

So the company’s future relies very much on the telecommunications industry. It’s not a comfortable position for BMW, but Mr. Fröhlich remains certain that the company will develop self-driving technology in time “one way or another.” German or European customers just may not have the same functionalities available to other parts of the world.

“By 2021 our BMW iNext will be able to run fully autonomously from a technical aspect,” said the engineer. “But what stage of self-driving, whether full or only partial, which will be possible in various regions, is also down to regulations.”

 

This article is based on an interview originally published in Handelsblatt’s sister publication Wirtschafts Woche. Barbara Woolsey and Gilbert Kreijger, editors for Handelsblatt Global based in Berlin, contributed to this article. To contact the authors: astrid.maier@wiwo.de and michael.kroker@wiwo.de

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