Are German premium car manufacturers being disrupted in the global automotive market?

This article is based on eighteen expert interviews with senior managers working with premium car manufacturers, automotive suppliers, international automotive consulting firms or in science. Each expert was able to give deep insights into the development of the automotive industry and the interview process paints a 360-degree picture representing the collective opinion on the future of mobility as well as the automotive industry.

CASE represents four individual, but interrelated mega trends in the automotive industry. The four megatrends make new strategic alignments necessary and are leading to new partnerships outside and within the industry. While there are differences in the views towards the individual aspects of CASE amongst the experts, they unanimously agree that in some areas of CASE, the German premium car manufacturers have fallen significantly behind. Many experts point towards the traditional hardware engineering mindset, which is commonplace in the German automotive industry, that is preventing the industry to successfully compete with the consumer centric, fast paced, iterative, software driven mindset of their new competitors.

The question if the German premium car manufacturers are currently in the process of being disrupted is answered positively. This finding is not based on a single CASE mega trend but rather on the sum of their disruptive potential and the speed with which they, together, will lead to a new transportation era and how they will revolutionise how mankind perceives mobility. 

The challenges for the German premium manufacturers are manifold: The internal combustion engines are being disrupted by the battery electric car. The digitalisation and consumer behaviour influenced by smartphones, increasingly potent driving assistant systems and active security features have drastically changed what digital capabilities are expected from a modern car. The huge business potential of a fully autonomous car has attracted very sophisticated and well-funded competitors. The vehicle software has overtaken the engine as the centrepiece of a modern car and has led to the convergence between the automotive and the IT industry. This change forces traditional car manufacturers to fundamentally rethink how they build their cars and how they develop software. Their decentralised hard- and software approach is reaching the limits of manageable complexity and has led to unprecedented reorganisation efforts to develop the necessary software capabilities inhouse or form official partnerships with soft- and hardware companies allowing OEMs (Original Equipment Manufacturers) to acquire necessary skills externally. 

Most of the interviewed experts perceived Tesla as the benchmark in connectivity, electrification, and autonomous driving. However, during the interviews, none of the experts raised any deep concerns with this situation even though Tesla’s CEO is very confident to be able to complete the software that would allow Tesla to enable their fleet of cars to drive autonomously and have their owners rent them out. As it stands, developing the best suited software that will lead to the breakthrough in autonomous driving, (e.g. the proficient usage of artificial intelligence), is highly challenging, especially for traditional car manufacturers as they historically have their core competencies in designing, assembling and marketing cars. As the competencies needed to assess a technology are the same capabilities needed to develop it, the most accurate evaluation of the technology’s potential and its capabilities will likely come from the company that has advanced the technology the most. This could very well mean that the German premium car manufacturers have fallen further behind than what they are currently aware of. This situation is assessed as very dangerous as the race towards full autonomy will likely only have a very small number of winners. Hence, the following measures will undoubtedly result in a leading role in the exciting future world of mobility:

• Acknowledge that autonomous driving will likely disrupt the entire German automotive industry (not just Original Equipment Manufacturers), hence the dedicated focus on autonomous should be given the highest priority
• Mindset change that competition is no longer found in other premium car manufacturers but in high-tech companies
• Targeted filling of key positions with people from high-tech companies
• Mindset change along with the importance of hardware vs. software
• Generating, collecting, and learning from data needs to be prioritised
• Regain and retain the customer interface by partnering

Do you want to learn more or meet an expert from our Automotive & Mobility Practice? Feel free to reach out to me or my colleague Klaus Steinmann.