Perpetual disruption: a lesson in the automotive industry

When I was having lunch with Michael Stucki a few weeks ago, I had just switched the post about the Faraday Future press conference live and he asked me why I was so interested in the automotive industry. I’ve been asked this question from time to time since then and realized that most people don’t realize that this industry is currently undergoing exemplary change processes that are driven by culture and new technology.

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BMW, BMW, BMW

Sometimes I regret a little that I wrote the article about my disappointment with BMW. Because I’m often asked about it now. From people who were somehow annoyed by BMW (“Scandal, they didn’t vacuum my trunk at the service appointment”), people who want to convince me that there are no better cars and people who simply have a Goliath complex and want to see everything great dead.

I have nothing in common with any of that. BMW is neither stupid nor lost. My disappointment was more in the direction of the fact that for a very long time BMW pushed ahead with technological innovations and made consistent decisions in many areas. They have left this path. What you get from BMW today is high-quality mediocrity at a higher price (brand agio).

How did this happen?

There are many reasons for this. However, they are typical of industries that no longer dare to make real innovations, but only drive incremental improvements to a product model. The reasons are, by no means exhaustive, as follows:

Success

As strange as it may sound, one of the biggest problems when it comes to innovation and reinventing products is a business that is doing really well. This has two dimensions: a) the fear of losing an existing business and straying from the path to success and b) the basic human disposition to make less effort when something is going well.

The very rare exception is entrepreneurs and companies that develop new things from a position of strength. Everyone talks a lot about it, but if we actually look at the companies that are moving forward, we find few that are successful and strong. It tends to be those that have to do something. Either because they are brand new or because their business is under threat.

NIH syndrome

The not-invented-here syndrome is widespread. In some cases, there are obsessive attempts to break new ground where there is simply no need for new approaches at the moment. Certain concepts are simply good and accepted and can be copied and used sensibly. For example, the operating concept using a large touchscreen. This was not invented by Tesla, but has long since passed its acid test in the iPhone. Copying this and using it in the car is neither groundbreaking nor ingenious. It is simply the most logical step to solve the problem of operation. There are no objective reasons why BMW and co. could not have done this.

Entrenched product thinking

Another point is entrenched product thinking. Sometimes it seems as if a car simply has to have a combustion engine. But if we compare the physical fundamentals, everyone quickly realizes that the electric motor has fundamental advantages.

Why weren’t new concepts developed based on these principles, especially in the wake of the emissions constraints? From a purely objective point of view, BMW and the other manufacturers were much better placed than Chevrolet and Tesla to build a car of this caliber.

In an article last week, I wrote that industries are beaten tracks. And I think that comes into play again here. There seems to be a lack of culture and mindset to think beyond your own product concept.

Me-Too digitalization & innovation. Yay!

And now, startled by Tesla, everyone is talking about digitalization, the mobility of the future, electromobility and software-driven concepts. That’s good for now. Because now there is movement in the industry.

And competition and, ultimately, better concepts for the customer. Because, unfortunately, not much fundamentally better has been produced in recent times. Much more would have been possible.

But when Harald Krüger now says that he wants to have thousands of additional software engineers at BMW in 5 years and that the strategy development took 18 months, then I get a very queasy feeling. Is the number of people in an area a serious KPI? I don’t think so. At most, it’s an indication. And the 5-year period? That’s roughly the time it took Tesla to develop the Model S.

“Five years is the new 15 years.”

Unfortunately, this has not yet arrived in the corporate world of Krüger.

And that is why it is unfortunately (no cynicism) not very likely that he will play a significant role with his company in this new era of the automotive industry. As an investor, I would certainly get extremely cold feet from such statements.

All technologies are relevant!

And there’s a lot of talk about digitalization in the automotive sector today, and that’s not wrong. But I’m a little worried that other technologies will be neglected for the time being. At the moment, digital technologies are priority 1 because we simply still have a lot of devices and machines that are not yet organized on a software basis.

That all has to be made up for. Of course. But it’s not everything. A combination of different technologies will bring us improvements on an unimagined scale in the future. The disruption of disruption is already on the horizon.

Visual instruction

This is all interesting because technological developments are changing an entrenched industry accordingly. For most players, this development was foreseeable to a certain extent. But the industry leaders in particular have not managed to become the drivers of this development.

This is a game with an unclear outcome and potentially high social costs. And with regard to Tesla, one with unequal stakes. Firstly because Tesla has far fewer resources and secondly because Tesla does not have the same goals as the traditional car companies.

No winner-takes-it-all game

Moreover, it is certainly not a winner-takes-it-all game. And it is also anything but clear whether Tesla will emerge as an economic winner from the battle that is looming in the near future. On the contrary. The chance that pioneers will also make an economic breakthrough is not particularly great.

So it remains exciting. The next chapter will open at the end of the month. Tesla will then present its popular Model 3. Together with the Chevrolet Bolt (Opel Ampera-e), this model will be the acid test in terms of drive technology and concept in the automotive market. And thus also a test for BMW and Co, who have so far been unable to offer anything comparable.

So another round of these “matches are open”. So far, we’ve seen great tennis in every respect! And it’s only going to get better.