The German Car Industry Musters for a New Tech Battle
09 Octubre 2020 - 7:41AM
Noticias Dow Jones
By Stephen Wilmot
Is the heart of your car a screen?
Having spent years -- and tens of billions of dollars --
preparing for a shift in production toward electric vehicles,
German car makers are expressing a new angst: that digitally
"connected cars" could prove even more disruptive to their
traditional strengths. This second leg of their race against Tesla
could become a fresh excuse to squander investors' capital.
Daimler set two priorities for technological leadership in a new
strategy for its Mercedes-Benz brand this week: electric drive and
car software. For the latter, the company is working on an entire
operating system, MB.OS, that from 2024 will run not just
Mercedes's proprietary infotainment system and its mobile broadband
connection but also crucial elements of the driving experience,
including self-driving features and battery management.
The company will partner with technology specialists for
specific applications, notably Nvidia for automated driving. Yet
the closer the software gets to the customer experience, the more
Daimler wants to do in-house. The interface with the driver in
particular "is not something that we would like to outsource to
somebody else," said Chief Executive Ola Källenius.
Volkswagen is on a similar road. At last week's annual general
meeting, Chief Executive Herbert Diess said replacing engines with
electric batteries and motors would be simple to manage compared
with the transformation of the car into a "fully networked mobility
device." He is tackling the challenge by investing heavily in
coding: VW wants to increase the proportion of software written
in-house to at least 60%, from 10% currently, at a cost of EUR7
billion, equivalent to $8.23 billion, by 2025.
The shadow haunting the German automotive industry is, of
course, Tesla. Mr. Diess regularly spurs on his managers by
invoking the U.S. company's technological lead and astronomical
market value. The starring role accorded to the infotainment screen
in a Tesla seems to be a popular feature with the kind of
tech-loving consumers who might otherwise buy an Audi. Auto makers
are also envious of Tesla's capacity to keep consumers' systems
fresh via "over-the-air" updates.
One reason Daimler cited for focusing on software was the scope
for using this kind of live digital connection with its customers
to sell them services well after they have bought their
Mercedes-Benz. Many manufacturers have talked of this potential,
but Daimler was bold enough to pin a number on it: It hopes to make
EUR1 billion in operating profit from digital services by 2025.
The software industry has been through a wrenching transition
over the past decade from selling one-off packages to subscriptions
for access to a constantly updated, cloud-hosted service. As more
vehicles are connected to the internet, infotainment systems are
likely next in line. One big unknown is what consumers will be
prepared to pay for, and who will get it -- vehicle manufacturers
or software developers. Another is how deeply the infotainment
system will end up being linked to driving controls.
For now, though, most car makers are more relaxed than Daimler
and VW about ceding control of at least infotainment to the tech
industry. General Motors, Volvo Cars, the Renault-Nissan-Mitsubishi
alliance and Peugeot (which Fiat-Chrysler will likely follow) all
are partnering to varying extents with Alphabet's Google, which has
developed a vehicle version of its smartphone operating system
called Android Automotive.
"Our customers spend about one hour a day in their car and one
hour a day away from their phone. Any car maker who tries to create
an ecosystem around the car deserves to lose the customer," says
Martin Kristensson, head of digital business at Volvo Cars.
Volvo and others say partnering with Google makes sense because
consumers already use and like its products. The glitchy reputation
of auto makers' existing vehicle infotainment systems adds weight
to this argument. But partnering also is probably the cheaper
option.
"There are a lot of economies of scale in software development.
Auto makers who want to get more programmers and do the work
themselves are generally underestimating the costs," says Mark
Wakefield, co-leader of the automotive and industrial practice at
AlixPartners.
The insistence of Daimler and VW on building up software skills
might therefore be another iteration of their historic bias toward
over-investment. The vast expense of electric-vehicle development
has forced both companies to get more serious about cutting fixed
costs in recent years; Mercedes-Benz this week committed to a 20%
reduction by 2025. Ominously, though, the company also is charging
into yet another technological battleground.
Drivers and investors alike may end up preferring auto makers to
focus on what they are best at: assembling cars.
Write to Stephen Wilmot at stephen.wilmot@wsj.com
(END) Dow Jones Newswires
October 09, 2020 08:26 ET (12:26 GMT)
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