Excitement erupted around the world when U.S. media outlets reported computer colossus Apple is working on an electric car and has lured away former Daimler developer Johann Jungwirth, one of the sharpest minds in the industry.
Usually when Apple announces a new initiative, competitors tremble with fear. This time though, traditional automakers are not reacting to Apple’s big news with horror. They have already glimpsed the future and are racing to meet its challenges.
“Without question, we are embarking on one of the most transformative eras in the history of the auto industry,” said Mark Fields, chief executive of Ford at a recent conference. Innovations developed by car companies will change the world, he added.
The times when it was the production of quality vehicles taking center stage are gone and these days, it’s hard for carmakers to differentiate themselves in the marketplace. Instead, they are pushing alternative drivetrains, self-driving cars, smart cars and car-sharing fleets precisely because this is the direction Apple and Google are taking as they eye the automobile arena.
Today, the increasing quality, and with it the life of the car, is ensuring a lowering of replacement demand. Peter Fuss, Consultant
The biggest problem facing both the dominant top dogs and the challenging young pups is determining what customers want from these expensive options and what they can actually afford, a task complicated by the durability of current vehicles.
“Today, the increasing quality, and with it the life of the car, is ensuring a lowering of replacement demand,” said Peter Fuss, a partner at the consulting firm Ernst & Young.
Last year, sales reached a record low, with only 36.2 percent of new cars sold in Germany bought by private owners. In 2000, private buyers purchased half of all new cars.
In contrast, the company car sales segment, where premium high-performance and well-equipped vehicles are sold, is booming. And this is the customer base that IT companies most likely will target since these drivers pay far less attention to price than buyers in the highly competitive volume market. “Otherwise,” said a German automobile executive, “Apple would only be ruining the huge profit margin it has had until now.”
Meanwhile, industry experts see the company car segment as the only chance to drive up sales of electric cars, which still account for a small portion of the market. The German government has set a goal of one million electric cars on German roads by 2020, but a recent count found barely 24,000 have been sold.
The consulting firm Bridging IT in Mannheim just added ten Teslas to its corporate fleet of vehicles, making it something of a role model for fleet managers at major companies to change the way they think.
“As a rule, there are other concerns beyond the worries about the driving range and profitability,” said Bridging IT manager Klaus Baumgärtner. Those concerns include a general lack of knowledge about e-car technology. Apple also can expect such reservations.
The industry recognized the problem a long time ago, but is committed to pressing forward.
“We still have a lot of faith in the subject of electrification,” said Volkmar Denner, chairman of the board of management at Bosch, though he admits there is no profit in the sector at the moment. He knows why, too.
“The breakthrough won’t succeed with the current generation of lithium ion batteries,” he said. The energy density of the batteries must double while prices must fall by half, he added, which could happen by 2020. Apple might wait until then.
Low demand for electric vehicles, however, isn’t the only problem facing the car industry.
Politics stand in the way of another major project -- automated driving -- and much more so in Europe than in the U.S. The Vienna convention limits the maximum speed of driverless vehicles to 10 kilometers (6.2 miles) per hour. The German government wants to change this, but it takes time when dealing with UN Economic Commission for Europe (ECE), which oversees development of driverless cars.
Technically, the industry is ready. Daimler and Audi are staging attention-grabbing trial drives in the U.S. Experts believe assisted driving likely will be available in the near future, when forward and sideways guidance will be supported. The move from partial automation to full automation could take place in stages after that occurs, but realistically, that won’t happen until in the 2020s.
The glacial pace of politics is frustrating for many in the industry. Recently, at the International CES in Las Vegas, Audi’s head of development, Ulrich Hackenberg, argued that ministries must act to prevent Germany from falling behind in this emerging segment.
Carmakers have been cashing in with expensive navigation, communication and entertainment hardware options.
Meanwhile, the situation is starkly different with car sharing, an increasingly lively segment in the car industry. Virtually every manufacturer is offering it and growth has been impressive, though this is largely because it's starting from such a low level.
Whether it’s Daimler's Car2go, Flinkster offered by German rail service Deutsche Bahn, Drive-Now offered by BMW and Sixt, or Volkswagen's Quicar, all are profiting from city dwellers that only occasionally need a car, or cannot afford to purchase one of their own.
Yet a study by the auto supplier Continental found only 1 percent of 5,000 respondents in Germany, China, Japan and the U.S. use car-sharing, prompting Chief Executive Officer Elmar Degenhart to warn about unrealistic expectations. “That's why we aren't expecting a switch away from personal cars in the medium term,” he said.
The study suggests the next generation of sons and daughters isn't much different from their mothers and fathers when it comes to cars. It seems clear car-sharing also won’t conquer the mass market in the future, but will remain an alternative for those who don’t often use a car or shy away from major investments.
What remains is the fashionable subject of connectivity and the linking of cars and smartphones. This is where the auto industry expects the biggest changes in the future and where the opportunity for additional revenues lies. Everything from an office on wheels to a cell phone case that works as a car key are under discussion and the possibilities seem endless.
There are problems as well as possibilities. Carmakers have been cashing in with expensive navigation, communication and entertainment hardware options. Some customers will pay several thousands more for these goodies when buying a new car. But if many of these functions already are available in a smartphone, all that’s needed in a car is a plug-in interface and a screen.
No surprise, Apple has already shown how this is done. Soon, the company’s so-called CarPlay system will become a reality in Mercedes-Benz, Ferrari and Volvo cars.
Christian Schnell writes about the auto industry for Handelsblatt. To contact the author: [email protected]