This article is adapted from the business magazine Capital and is available here for ten days. Afterwards it will only be available to read at www.capital.de. Like stern, Capital belongs to RTL Deutschland.
It’s not often that halfway good news arrives in Germany these weeks, especially not when it affects the core of German industry – and then also from the center of constant upheaval, Silicon Valley. But this is how one can and may interpret the news that the tech giant Apple is unexpectedly stopping its work on its own Apple Car.
Admittedly, the news doesn’t have to trigger a storm of cheers in Wolfsburg, Stuttgart, Dingolfing and Ingolstadt. But it does contain some messages for German car manufacturers that are worth taking a closer look at.
First of all, there is the realization that the development of cars and their production on an industrial scale is not such a trivial matter: the interaction between design, technology and software, motorization and the conditions of large-scale series production with its logistics and supply chains is pounding You can’t just get it out of the ground – that requires at least decades of experience and fine-tuning.
It is not impossible, as shown by the rise of Tesla and also some Chinese car manufacturers, who are now also making massive inroads into the European market. But car production on an industrial scale and at such a high level as German car manufacturers have been practicing for decades (and as one would have expected from an Apple Car) is not so easy to imitate. Especially if you add profitability as a further condition: Apple apparently buried its plans because it realized that it would hardly be possible to produce cars for less than $100,000 that even came close to the margins that Apple’s Managers are otherwise used to their products.
That is undoubtedly true – margins of 25 to 30 percent cannot be achieved with cars in the mass market, but only in the absolute luxury segment. And even significantly lower margins of ten to 15 percent are extremely sporty. On the other hand, German car manufacturers in particular are proving – despite ever-increasing doubts about the future viability of their products – that they can earn good money with their cars: Mercedes, for example, had sales of 153 billion euros last year, which left a good 14 billion euros Net result: the group once again exceeded most analyst estimates.
That is not to say that German car manufacturers do not face enormous challenges. But first of all, they can build on skills and an industrial substance that others would like to have and that cannot be replicated nearly as quickly. The shining figure Elon Musk is currently experiencing this with his car brand Tesla: supply chain problems, quality deficiencies, disappointed customer expectations and significant cost increases reduce sales in a competitive market and reduce profitability. This may be a painful descent into normality for Tesla and Musk, but their German competitors have been there for decades and are very familiar with such adversities and setbacks.
The question of when autonomous driving will come and we’ll actually fidget on the iPad, watch films or play with the children while driving is almost a minor game. Maybe it will happen at some point, but all previous promises have proven to be far too optimistic. The German car manufacturers are neither at the forefront here nor are they far behind – when the technology is ready, it will come, everywhere. However, it is unlikely that it alone will decide the future of the car market.
A completely different task is more important – it is the real challenge for German car companies: battery technology. Whoever is at the forefront here will win the competition for attractive products and high margins. Today’s lithium-ion batteries have many disadvantages: they rarely do what their manufacturers promise, they are too expensive (which makes the cars unattractive) and practically all car manufacturers depend on Chinese manufacturers for technology and raw materials, especially from BYD (which is now also making powerful inroads into western car markets). In short: If the electric car is the future, which there is a lot to be said for, then German manufacturers must invest in new battery technologies.
This is the big insight, also from Apple’s rejection: Even if they had gotten everything about the car right – production, supply chains, autonomous driving – in the end, Apple’s success also depended on access to cheaper and better battery technology. This is where the margin in the future car market will be decided. BMW, Mercedes and VW also took (too) long to realize this. But at least they understood it and are now investing. The race for the best battery and power storage technologies is just beginning – today is the opportunity for German car manufacturers.