German car industry is case study for disruption at play
“You’re not good..You just know how to hide, how to lie.” This line from Scarface epitomizes the leadership of German car manufacturers. For years German car managers have been hiding and lying. Even now they still are . VW CEO Herbert Diess recently took selfies with Elon Musk to show off and give the impression of being in tune with the times. Sorry Mr. Ziess. You’re not. You’re hiding and lying.
BMW is even worse. New CEO Oliver Zipse who took over in 2020 still talks the same party line about flexible production and the power of choice. It’s a lie. He knows it, we know it, employees know it and customers know it. The game is over. Since September 22 2020, when Tesla unveiled their new battery technology, all ICE car manufacturers have been literally sentenced to death. It’s like Elon Musk pulled his gun and shot them Tony Montana style, in plain sight, in front of everybody’s eyes.
The problem with the Germans is that they were negotiating with time. They hoped to either see Tesla fail or at least see them slow down so they can catch up. They thought they saw this movie before. When the Japanese and later Koreans came to market, German car makers withstood the pressure. How? They let the Asians commoditize the market and then took the high end. This was plan B. Something like: “If Tesla doesn’t go bust, then commoditize the market and reclaim the high end.”
But Zipse, Zeiss and their Daimler counterpart Ola Källenius missed the point. They not just underestimated Elon Musk, they never really got him. What they really thought, I don’t know. But what I know is that even in 2019 the German establishment still thought, Tesla will go bankrupt. Then they hoped for commoditization. Now, they are out of options.
Negotiating with time is bad business. It’s bad for individuals and even worse for corporations and definitely disastrous for countries. Imagine you’re an aspiring writer living in New York or LA hoping to break through with your novel, play or script. But nothing works. You miss the mark, you’re out of touch with the current Zeitgeist. Whatever the reason, you just don’t get the desperately needed attention. Now what?
You start negotiation with time. One more year as a waiter, some family help, your girlfriend, wife, anything helps to extend your time line. In the end almost all “time negotiators” end up in the gutter.
The German car industry is one of them. They saw it coming. They saw their product market shares eroded by Tesla slice by slice. First the Model S, then X, then 3 and now Y.
So plan B was to penetrate the market with decent products, cut price and commoditize as fast as possible. VW in particular is trying to do this. And it worked for a while. Even the EV fan community still applauds when VW announces new products. Same for Detroit. When Ford launched their EV the environmental community applauded. But those products are nothing but Troyan horses. “If you can’t beat them, join them.” That became the party line.
The goal of this exercise was to commoditize the EV market.
But not with Elon. He knows deep in his gut that his mission of transforming the car market to electric from fossil can only happen if he controls the market. And market control means all the pieces in the value chain.
That’s why Battery Day was so key. Battery Day was the JFK moment for Tesla. Instead of “We want to bring a man to the moon”, Musk said, “we want to bring electricity to every car.” And while he is doing this, he cannot accept any competition. The best way to avoid competition is to control the value chain. This is the key message from Battery Day:
CONTROL THE VALUE CHAIN, FROM CELL TO END PRODUCT
And for the Germans, now what? They lost their bet. They will not be able to carve out a niche in luxury ICE cars because in less than 10 years ICE cars will be worth about as much as the scrap metal. In some cases even less.
The implications are monumental. Whole regions are condemned to irrelevance, very much like the Ruhr region was sentenced to irrelevance in the 1970s.
It didn’t have to be that way. The German car leadership could have acted earlier, committed to an EV roadmap and executed in tandem with Tesla. In fact Daimler owned 12,5% of Tesla. I bet that former Daimler CEO Dieter Zetsche and his lieutenants who decided to sell their Tesla stake at around 200$/share are all enjoying their retirement. They were negotiating with time and they even thought they made a few bucks while doing that. Now Musk is erasing their former empires in true Tony Montana style.