Slow to Innovate

Monkeygate signals not only moral failings, but industry weakness

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No more monkey business. Source: Handelsblatt

The recently revealed details about animal experiments in which primates were subjected to diesel emissions are, of course, a testament to the moral failings of the German car industry. These failings have to do with a dubious corporate culture and managers who cannot distinguish between right and wrong.

But the scandals surrounding the testing on primates and the manipulation of exhaust emissions in Germany’s key industry also represent another problem, though one that correlates with culture and personnel: Companies are failing to come up with fundamentally new ideas for a radically changing world.

German engineers optimize their combustion engines right down to the last piston. But this technology has technical and economic limitations. The engineers eventually tried to overcome these limits with questionable animal experiments and cheating algorithms, and we all know what the consequences were.

Daimler changed mobility by manufacturing the first automobile and Volkswagen took it a step further with its mass-produced version. Today, too many German car manufacturers are still cultivating their ideas from the past. While they fine-tune their conventional engines, electric car pioneers such as Tesla and Chinese start-ups like Byton are reinventing the automobile. They no longer see the car only as a means of transport, but also as a kind of mobile phone on wheels, a platform for digital services and entertainment.

They don’t even address the question of environmentally friendly engines anymore, because that has become a matter of course. However, it has taken years for Volkswagen, BMW and Daimler to bring even a decent number of hybrid vehicles into showrooms.

Meanwhile, upstarts like Tesla are questioning almost all the laws of the old mobility world. They are shifting sales to the Internet instead of using expensive dealer networks. And their production processes bear a stronger resemblance to those of a software company. The new players see their vehicles in permanent beta status. This is what software companies call the versions of their programs that they publish for testing purposes, with the intention of continuing to work on them.

The problem of lacking innovation isn’t just affecting the German automotive industry. The entire economy is at stake.

And just like software companies, new generation automakers are constantly developing their vehicles. A Tesla 3, for example, not only loads the latest software onto the on-board computer, but Tesla engineers also adapt the interior of a current model series to customer requirements, a process that sometimes takes years for traditional car manufacturers. E-car pioneer Byton, on the other hand, is installing meter-long touch screens in its cars, a development that was previously considered technically impossible.

But the problem of lacking innovation isn’t just affecting the German automotive industry. The entire economy is at stake. On the threshold of digitalization, Germany’s domestic companies are showing weaknesses. Although Germany exports industrial goods all over the world, when it comes to digital services, the much-admired German economy suffers from a multi-billion-euro foreign trade deficit. Like a seismograph, the emissions scandal only indicates the first shocks, which threaten to become even more pronounced once the last piston has been optimized and no one wants to have it anymore.

Elsewhere, the future has already begun, especially in China, one of the key markets for German car manufacturers. For example, the southern Chinese city of Guangzhou now allows testing of autonomous cars on its streets. Start-ups show off their models there, and people can sign up for test drives. China, alongside the US, is becoming a hotspot for the automotive future, partly through government support of the industry. In Germany, subsidies worth billions are still flowing into the past, in the form of diesel fuel, for example.

Of course, it’s true that the new competitors sometimes build cars that are qualitatively inferior to German premium models. And of course, domestic companies hold a particularly large number of patents, including some related to innovations that will characterize the future, such as in the realm autonomous driving. In that US carmaker Tesla has only a tiny share of the global market.

But part of the essence of disruptions is that they are initially underestimated by established players. Whoever thinks this is alarmism should just think of the iPhone. When the Apple device was launched in 2007, it had to be plugged in every few hours. Nokia phones, on the other hand, sometimes lasted for days. Nevertheless, the iPhone prevailed – because it turned the smartphone into a remote control for the everyday needs of its users. Similarly, in electric cars, batteries now provide relatively short driving ranges, but it likely won’t stay that way, even though some in the domestic car industry may argue otherwise.

For Germany, however, this argument could prove to be dangerous, namely when the electric car gains a large market share and it turns out that Germany is not an automobile nation at all – but a nation of the internal combustion engine.

The author is deputy editor-in-chief of Handelsblatt. To reach the author: matthes@handelsblatt.com

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