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Why German Carmakers Don’t Fear Tesla

Intelligent Drive Experience with the Mercedes-Benz research car F 015 Luxury in Motion in San Francisco 2015
The Mercedes F 015, a self-driving concept car presented in San Francisco last year.
  • Why it matters

    Why it matters

    As digital and automotive technologies converge, U.S. tech giants are eying the global car market.

  • Facts


    • Apple CEO Tim Cook has announced plans to develop the iCar. Google and Tesla Motors have focused on self-driving electric cars.
    • Tesla sold 50,000 electric cars last year. BMW, Mercedes and Audi together sell about 5.5 million cars, and are expanding their electric-car lineup.
    • The three German luxury brands jointly bought Nokia‘s mapping unit Here for €2.8 billion last year, in a move to develop autonomous driving.
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On the German autobahn and in big cities like Berlin, more and more of Tesla Motor’s electric cars can be spotted silently dashing along. With its sleek and powerful Model S, the Silicon Valley-based upstart has encroached on the home turf of its biggest rivals, the century-old giants like BMW and Daimler, in the nation that first invented the automobile.

All-electric cars like Tesla’s, as well as the data-rich, self-driving technologies which Tesla and other tech companies are also pioneering, have emerged as the two great trends disrupting the auto industry today. All of a sudden, an entrepreneurial outsider like Tesla founder Elon Musk is stealing a slice of the market from established auto-industry giants – a rare intrusion in a market traditionally controlled by just a handful of established companies.

Moreover, Tesla is not the only Silicon Valley-based firm with an eye on one of the globe’s biggest traditional industries. Data heavyweight Google is experimenting with self-driving cars. And then there is Apple, whose fast-advancing plans for an iCar are one of the tech world’s worst-kept secrets. With Apple, one of the globe’s largest and most successful technology companies seems poised to pounce on the global car industry with the same disruptive designs it unleashed on the computer, music and mobile-phone sectors.

For all its supposed tech savvy, Tesla has no technology of its own that the German carmakers don’t have already.

So it might be time for carmakers to worry. After all, it was German brands like Volkswagen that seemed asleep at the wheel as the world clamored for alternative-energy cars. A decade ago, the German companies ignored hybrids, leaving the market to Toyota and others, while they tried to convince consumers that diesel – with its better fuel economy than gasoline – was the future of green driving. That pretense crashed into a wall last year, when Volkswagen got caught in a massive emissions-cheating scandal.

Yet among all the headlines about Tesla’s cars and Apple’s plans – and the familiar narrative of startup-driven disruption – it’s easy to overlook the German carmakers’ own fast-advancing plans, not to mention some basic market realities.




Take Tesla. For all its supposed tech savvy, Tesla has no technology of its own that the German carmakers don’t have already. In fact, Tesla is loaded with components from German suppliers, from chipmaker Infineon to Bosch, which supplies the sensors for self-driving. Batteries are a commodity once production is up and running. German carmakers’ autopilot technologies – involving cameras, infrared, radar and more – are at least as advanced as Tesla’s, industry analysts say. Tesla’s innovation centers around the ambition and vision of its founder, and its willingness to burn investors’ cash, a German industry source says.

As it expands production, Tesla is now facing the same market realities as all carmakers – that of a notoriously cyclical and low-margin business. Across the industry, mass carmaking generates only around 3 percent, compared to profits in the IT sector of 30 to 40 percent. “Tesla is probably a bit bolder when it comes to bringing cars on the roads,” says Thomas Gronemeier, auto-industry analyst at Frankfurt-based Commerzbank. “German producers are more preoccupied with quality and security.” Testing beta versions on customers might be a standard part of the Silicon-Valley business plan. But a car is not a smartphone app, as Tesla’s first self-driving road death demonstrated in May. When those beta-testing customers start having deadly accidents, the Germans’ slower approach may turn out to save not just customers’ lives, but the carmakers’ reputation and sales.

At recent auto shows, German carmakers have begun showing a whole range of "Tesla killers."

At recent auto shows, the German carmakers have begun showing a whole range of “Tesla killers” – prototypes and concept cars they’re getting ready for the road. With Tesla still a minuscule player by any standard (it sold 50,000 cars last year, compared to around 5.5 million for Audi, Daimler and BMW), they can afford to watch Tesla blaze a trail while the start-up amasses losses.

The one potential challenger German companies most readily dismiss as a potential direct competitor is Google. For a data company like Google to experiment with driverless cars, industry analysts say, makes a lot of sense if Google wants to develop services it can push into every car. It would be bad strategy to compete with vehicles of its own, thereby losing access to the entire rest of the market. Cars married to digital technology are massive data-generation machines, from real-time traffic information to every step their drivers take outside the home. That’s why traditional carmakers worry most about losing control over data, becoming just another hardware supplier while California upstarts cream an increasing share of value off the top. In response, German carmakers have teamed up to create or buy their own data platforms, including the purchase last year of Nokia’s HERE, a digital mapping service crucial for driverless cars. “We must remain the masters of our destiny and not be dependent on others,” Volkswagen CEO Matthias Müller told Handelsblatt in June.

Apple, perhaps, is the most interesting challenger, with its powerful brand and track record of technological revolution. In Berlin, Apple has reportedly set up a development office that is poaching executives from German carmakers. Apple has also been talking to BMW and other companies about partnerships, mainly focusing on a better interface between its products and the cars. An iCar would, at most, be a niche product for die-hard Apple fans, industry analysts say. “Perhaps 1 or 2 percent of the population will buy an Apple car, but it will be hard to convince the masses,” says Jürgen Pieper, auto-sector analyst at Metzler. “If there were a rumor that Mercedes or Daimler planned to start building smartphones, then they would not be sleepless at night,” Daimler CEO Dieter Zetsche said of Apple’s iCar plans last year. “And the same applies to me.”

Lately, rumors have focused on a company like Apple either partnering with a carmaker or buying one outright. Speculation has centered on BMW, whose customers already have the greatest overlap with Apple’s. Indeed, Apple’s $233-billion (€212-billion) cash pile could buy BMW, valued at €49 billion, more than four times over. But BMW is controlled by a family, the Quandts, who have fiercely guarded their company’s independence. Still, the scenario of a tech company simply buying a global carmaker is the one wild card that could really change the game, industry insiders say.

Yet all the talk about disruption perhaps underestimates established players, who are not the slow, lumbering behemoths of a decade or two ago. With their powerful brands, century-old experience and massive development budgets, they can afford to watch their challengers experiment. And then pounce once their own technology is ready.


Gilbert Kreijger is an editor at Handelsblatt Global Edition in Berlin, focusing on companies and markets. To contact the author:

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