The German automotive industry focuses primarily on luxury. In doing so, it should strive solely for technological leadership.
(Photo: Bloomberg)
Munich The past year will be fondly remembered for the automotive industry. Mercedes has already earned ten billion euros in the first three quarters, at Volkswagen it is 12.7, and at BMW there are a smooth 16 billion euros on the books.
The double-digit billion profits are all the more amazing because the public believes the industry is in a constant crisis scenario. The lamentations about the lack of chips from Taiwan and the lack of wiring harnesses from Ukraine are loud. But when the production lines stand still, the state still generously buffers the losses with short-time work.
The car manufacturers make clever use of the shortage when dealing with their customers. Only what is noble and expensive is built and sold without a discount. At BMW, record-breakingly large radiator kidneys can be lit on request.
Competitor Mercedes now calls itself “the most valuable luxury automobile brand in the world”, CEO Ola Källenius considers the comparison with Gucci to be appropriate. Siemens also refined its last cell phone series with Swarovski stones. Shortly thereafter, Apple presented its iPhone.
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In fact, a look at the balance sheets of the German auto industry shows that the risks are still great. On the one hand, because the profit comes almost exclusively from China. The companies in the Far East generate between 30 and 40 percent of their sales, and the profit contribution is even higher.
When it comes to drives, the dependency on the combustion engine is striking. Between 80 and 90 percent of the new cars sold by German car companies still run on petrol and diesel.
Even if the engines are getting bigger and therefore more profitable: It is the last boom of the combustion engine. However, this product does not have a long future. From 2035 there will be a ban on the sale of petrol and diesel in the EU.
The US group has a return of 14.7 percent with its electric cars.
(Photo: IMAGO/Political Moments)
The German car industry is not yet in the electronic world. The bumpy start of Volkswagen’s ID models is exemplary for the entire industry. BMW and Mercedes are electrifying their SUVs and limousines, but so far no one has made the big leap.
This can be seen in the Chinese market, where the Germans have so far hardly gotten their foot on the ground with their electric cars. For its electric flagship EQS, Mercedes even had to lower the prices in China – poison for its own claim to luxury.
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Tesla in particular makes money with electric cars. The Americans continue to ramp up their factory in Brandenburg. With its electric cars, Tesla achieves a return of 14.7 percent – without the Gucci flair and the glowing radiator grille. In November, Tesla’s Model 3 sold twice as well as the BMW 3 Series in Germany.
And the Chinese are also gaining a foothold in Germany. In October Sixt announced a cooperation with BYD. The most important German car rental company, which has so far mainly advertised with German brands, wants to buy 100,000 electric cars from the Chinese in the coming years.
Their products are no longer cheap copies of Western brands. They already dominate the business with electric small and compact cars. Smart and Mini, subsidiaries of Mercedes and BMW, have their electric cars developed primarily by Chinese partners through joint ventures.
The real competitors come from China
In the long run, the Chinese are probably the stronger competitors than Tesla. They are based on the largest car market in the world, which is now also the most innovative.
The Chinese see a car as part of a digital ecosystem. Like a smartphone, the car must be networked with the city, it must be able to learn and renew itself through constant updates from the Internet. Such cars thrive on new and bold interiors, here you communicate with voice assistants, and not with complicated user menus.
Here, too, the Germans have yet to show that they dominate the field. In the VW group, the first attempt went wrong. The chaos surrounding the software subsidiary Cariad, which cost Herbert Diess his job as CEO in the summer, has not yet been resolved. His successor Oliver Blume had to postpone important projects for the time being. This also includes the promise of the premium subsidiary Audi to bring autonomous driving into series production.
(Photo: Kostas Koufogiorgos)
China not only has strong Internet companies, they also control battery technology and five of the nine most important raw materials for electromobility. It is already clear that the demand for lithium, cobalt and rare earths will significantly exceed supply in the long term. After chips and wiring harnesses, raw materials are in danger of becoming scarce and expensive.
This competition can only be won with a clever raw materials policy and courageous innovations. The government is responsible for raw materials policy, while the companies are responsible for innovations. 2023 would be a good year to prove that. It is not the profit from the last combustion engine or the largest Swarovski crystal that decides the fate of the German car industry. But only the question of whether the industry is technologically ahead.
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