“Germany is highly innovative”

Germany’s status as a place of industry seems to be at risk.

The debate has taken on a sort of life of its own, fuelled by many companies' fears that they will fall behind in making any necessary course corrections. In this scenario, all the virulent issues of the day are now being discussed at the same time. This makes some people lose their nerve.

What are the burning issues for businesses?

The issues have been known for a long time. The US has had its election and we could have prepared ourselves. We have known for five years that the CO₂ tax would increase significantly at the start of the new year and that, simultaneously, the fleet consumption limits would have to be reduced. We have known for ten years that we need power lines to bring green electricity to the southern parts of the country. And we have been talking about cutting red tape and simplifying infrastructure since the last century. But what did we do? Not a whole lot. And now we are running out of time.

Keyword VW: The group is not as competitive as it used to be. And China seems to be a big problem.

This is true for all carmakers. China is not only the largest market, but for a long time now also the most profitable. Wages in Germany do not correspond to the reality of the market and are cross-subsidised by profits from other income streams. There is also new competition from more innovative manufacturers in the US and China. Ten years ago, we said they were just copying us. Five years ago, we said they were making inferior products. But anyone who knows the country knows that this is no longer true. Today, the Chinese have more attractive products that are of interest not only to Chinese customers but also to many Europeans.

So do you share the claim that German manufacturers are weak in innovation?

Let’s have a look at the electric strategies of Volkswagen, Mercedes and BMW. VW came to a grinding halt after the diesel scandal. The Golf has been rebranded and is no longer called Golf but ID.3, ID.4, and ID.5. These new models are virtually the same in design; it takes an expert to even tell them a part. This was followed by technical difficulties, including badly functioning infotainment systems and unilluminated buttons on touchscreens.

And what did the others do better?

BMW decided to install electric motors in existing vehicles on the same production lines. Then, it doesn’t matter whether the market is demanding petrol, diesel, hybrid, or electric cars, or whether the order comes from Europe or another continent – BMW is always in a position to act. This means losing out on some of the advantages of bespoke electric production, but the other uncertainties are more risky. BMW appeals to an older, more conservative target group that is reluctant to make major changes. Mercedes, on the other hand, has gone overboard with its electric models. When I look at new car buyers in Europe or Turkey, for example, I see that they don't want to be sold an EQS in large quantities.

How is the market evolving for suppliers?

It is shrinking in Europe. Due to the coronavirus and the gas shortage, the European market has permanently lost two million produced cars, with the number falling from 17.7 million in 2019 and to 15.3 million in 2023. This is difficult for suppliers because they are sitting on the capacity for the large volumes that are currently not used – and at the same time they have to ramp up their capacity for new technologies. With huge investments that are not yet paying off. Because they are still making money on the old technologies and burning it on the new ones. Now that the internal combustion engine is being phased out and there will soon only be electric vehicles, many players will have to come up with a plan if they want to remain in the automotive supply industry.

The global figures show this: There is a slump in Europe, but elsewhere in the world, things are picking up. In 2019, the global automotive and supply industry was prepared to produce 91 million cars a year, but this will fall to 77 million in 2020. In 2023, 93 million cars will be produced, more than before the coronavirus. That shows it's possible.

Is everyone equally affected?

If a company makes gaskets for cylinder heads, that means it has to reorient itself because soon there will be no need for cylinder heads. So companies swerve and specialise in something else, develop something for fuel cells, maybe stacks – and if that doesn't pan out, they are in trouble. For a company that makes car electronics or tyres, on the other hand, it makes no great difference whether they go into combustion engines or electric cars.

Chinese manufacturers often have more vertical integration: a supplier builds the batteries for the specific vehicle, rather than outsourcing to a supplier. Will supplier diversity be threatened in the future?

Here in Europe, we need to understand the industrial policies that China and South Korea have pursued for many decades. South Korea focused on a few industries such as steel, heavy ships, semiconductors, and car manufacturing. They then promoted these sectors at all political levels. And what are we doing? We are shooting in all directions at once and drive ourselves into corners all the time. There is the political term of technological openness. What do we mean by that? Of course we can't subsidise everything at the same time and we can't provide the necessary infrastructure for everything. To me, it just sounds like a blatant weakness in decision-making.

Isn't mobility today a much wider concept, with the move away from the personal car towards shared solutions? The question is: which mode of transport will allow me to travel one kilometre at the smallest environmental footprint and the lowest cost?

Well, according to the Federal Motor Transport Authority, the number of cars in Germany is higher than ever. Although fewer new cars have been sold in the last five years, the old ones are being driven much longer. This is good for the aftermarket because the need for repairs is constantly increasing. Definitely at least since the coronavirus, people want a reliable vehicle.

But the new mobility offers are also accepted!

Yes, car owners also want a safe cycle path and a functioning subway system. They want to have options and often decide on the basis of price or the weather. Everyone is working from home and yet the roads are full. People seem to be taking more and more short holidays. In Germany, the railways and public transport are currently being chastised for the number of delays, the rail network, etc. But the total number of passengers has never been higher.

German manufacturers in particular are often criticised for their lack of innovation.

What is certain is that our market is extremely receptive to innovation. And this will also apply to autonomous driving. Every convenience in driving is already being used today. The windscreen wipers, daytime running lights, and headlights all come on automatically. You don't need to change gear anymore. We also use the hands-free phone system in the car. I think it will happen very quickly, that these incremental advances will be used – sending off a quick email or checking WhatsApp – and so autonomous driving will come without us really being aware of it.

And when it’s said that German software is weak, is this also exaggerated?

Well, if you start with a blank canvas like Tesla, you have a much easier time of it than someone working within an established infrastructure. There are 80 computers in a modern car and they all need to talk to each other. We have an established supplier structure with considerable expertise. The company with the chassis expertise has an electronic control unit with all the data relating to the chassis, as does the diesel engine specialist. Tesla turned this around from day one and said we have the computer and the source code, the supplier gives us the parameters and we program it ourselves. Do I believe in German industry to be able to think like that? Of course I do. But the reorganisation that has to take place means that the competence provider is suddenly just an extended workbench – it's a completely different ball game.

Do you still make money from software products?

When Apple created the App Store platform, no one understood what they were doing with it. Now it's their cash cow. We also think Google is free. The consumer doesn't understand how they make their money. Because that happens in completely different places. To answer the question of whether there's money to be made, you have to look at the ecosystem. And not just a few lines of code or a piece of hardware.

So nothing is lost yet?

Germany has been and continues to be a highly innovative location. Much of what goes into Apple and Tesla is developed and manufactured in Germany. Germany has a weakness when it comes to creating mass markets. We invented technologies like MP3 and VHS, but we can't seem to market them and distribute them millions or billions of times around the world. We tend to be very innovative, creating small and medium-sized companies and employing sales engineers to sell specialised products around the world.

And in the automotive industry?

I am not so sceptical because it was internationalised very early on. I don't see German carmakers relying solely on German suppliers or thinking only in terms of German solutions. They have always understood that there is no such thing as a world car, that vehicles have to be customised. We have to worry about whether there will be enough growth to finance everything that lies ahead. As a country, we have to recognise that we are no longer the leaders and we can no longer do everything at once, although we may be able to do so intellectually – we lack the muscle. We have to think on a European dimension and say exactly what we stand for.