Digital Reckoning in the German Automotive Industry
BMW Group Facility, Source: BMW
Despite producing some of the most recognised automotive brands in world, it is perceived that Germany is losing their competitive edge in the automobile industry. In one example, the flagship brand of Germany, Volkswagen, lost its sales lead in China last year to BYD. Tesla outperformed Mercedes-Benz BMW and Audi in the luxury segment in America. The German automotive sector is Germany’s largest export industry, with a turnover exceeding USD 450 billion. It also employs more than 786,000 workers. Hence, if the competitiveness of the sector declines, it would eventually endanger Germany’s economic future and exacerbate the nation’s geopolitical and social problems.
Rivian Infotainment, Source – Rivian
But will trade barriers benefit German carmakers when subsidies aren’t the only thing driving their rivals’ growth? After all, the future of the automotive value chain will be centred around software, digitalisation, and artificial intelligence (AI)–domains in which German automakers lag behind their American and Chinese counterparts.
VW Group Office, Source – Volkswagen AG
The best example of this was the Wards Intelligence Software Defined Vehicles Rankings. In the SDV Rankings, none of the German manufacturers made the top 10. Tesla, Lucid Rivian and NIO took the top spots. Mercedes-Benz ranked seventh in the list of German companies, followed by BMW (10th) and Volkswagen Group (12th). The report said that all leaders were “digitally native” and adopted a software-first strategy throughout their organizations. This is primarily a result of the fact that OEMs have a clean slate, which allows them to adapt faster to changing market dynamics and customer expectations. In fact, their accelerated pace allows them to shape trends and customer expectations.”
Cariad China Digital Cockpit, Source – Cariad
Make no mistake: German brands invest heavily in software, particularly those relating safety and connectivity, e.g. infotainment systems, advanced driver assistive systems (ADAS), autonomous mobility. The reported issues at VW Group’s Cariad tech division highlight the steep learning curve they face.
Cariad Logo, Source- Cariad
Cariad’s failures led Diess to resign as the group’s CEO in 2022, in part due to its failures. If that wasn’t enough, Diess had to step down as the group’s CEO in 2022, owing in part to Cariad’s failures.
That said, even though his successor, Oliver Blume, has restructured the subsidiary, the 56-year-old has also spearheaded VW Group’s USD 5 billion investment in Rivian in order to access the latter’s SDV know-how. While such collaborations are undoubtedly a step in the right direction for VW, critics argue they also reinforce the notion that German manufacturers have indeed fallen behind in the digital race.
Mercedes-Benz Infotainment, Source – Mercedes-Benz.
3D graphics made with Unity’s game engine display all the information the driver needs in real-time and stunning high resolution.
Nonetheless, one must also remember that Germany’s structural deficit in digitalisation weighs on its car industry. In the Digital Economy and Society Index of the European Union (DESI), Germany ranked 19th for digital skills. It was also ranked 21st overall in internet use, 22nd with digital public services, and 13th when it came to AI, cloud computing and data analytics. Even more worryingly, only 23 percent of Germans anticipate any major progress in this domain over the next few years (as per the European Centre for Digital Competitiveness).
As yet, if German auto companies do not get on top of this quickly, they risk substantial commercial and financial losses.
According to Boston Consulting Group (BCG), SDVs represent a USD 650 billion value potential by 2030, with 90 percent of car features to be differentiated via software. According to Boston Consulting Group (BCG), SDVs represent a USD 650 billion value potential by 2030, with 90 percent of car features being differentiated via software.
“German carmakers… became rich from the profits they made by building high-quality engines, and all their parts (gearboxes axles differentials etc.). In a Project Syndicate column, Yanis Varoufakis said that the power generated by such engines must be transferred to the wheels of a vehicle. Electric vehicles are easier to design mechanically. The majority of the added value is due to artificial intelligence and software that connects the car with the cloud …”
Needless, to say German automakers must excel in digital technology in the same way they excelled in hardware technologies and advanced production. As the nation’s leader in R&D and innovation, German automakers should take the lead. They have the resources to do it. They have just been complacent about creating the environment necessary for growth driven by software. Click here to read more about the latest luxury automotive publications.
