Why Volkswagen CEO Ralf Brandstätter & Tesla CEO Elon Musk Replied To My Tweets






July 19th, 2020 by  


A coup in three steps.

The promise of autonomous vehicles that drive humans safely and reliably in every condition and place in the world is an inspiration for humankind, and if realized will open the door to unprecedented productivity gains and not-seen-before profits. What we are experiencing today is the race to invent a system that — with self-learning algorithms, different sorts of sensors, and exponentially growing computing power — strives to become a superhuman driver.

The attempt to build an autonomous vehicle is the attempt to build a robot that, from recognition at one point in time may move to cognition. That has changed our world already, but its realization is a step into a new future with many opportunities outside of the transportation world that are much larger than anything we can imagine. The use case for the robot as a vehicle to transport humans and goods is the first step, but after this complex challenge is accomplished, a large number of doors into the future will open that we do not even realize exist.

Autonomous driving will change the fundamental business case of the automotive industry because the winner gets all. The value creation of an autonomous vehicle is orders of magnitude larger than any other vehicle today. Without that precious piece of technology, any other vehicle will only be kept for sentimental reasons, like people keeping their horse 100 years ago for sentimental reasons when they bought their first automobile. While, for many, an electric vehicle is the future, an autonomous vehicle is a world in a science fiction movie and that world may faster become reality than most anticipate.

Every vehicle today remains parked on average 95% of its time, waiting for the 5% of the time the driver uses it to commute to work or drive for other purposes. With a utilization rate of just 10%, which still keeps it standing in your garage or parking lots 90% of the day, you achieve an astounding productivity increase of 100%. If your car can offer service as a robotaxi for other people, you can easily double, triple, or quadruple its driving time, and with it the asset utilization of your investment. Your income grows and your robot contributes to your livelihood, not only to cover part of the costs but to also create a profit while you are at work or in a deep sleep at night. The total theoretical opportunity of productivity gains of your autonomous vehicle is on average about 2,300%. 

Baker Torpedo EV

Imagine you have a horse that can all of a sudden do the work of 24 horses in a day. You are a rich man now, and your horse overnight is an appreciating asset. Because your new horse has higher productivity, you can offer its services to your neighbors for a lower cost than the competition while still making a great profit. What do you think is going to happen to all other work horses? 

Exponential productivity gains are the holy grail of the economy, and the first one who can offer a robotaxi service will experience an unreal wave of demand because everybody wants one. If you can deliver it, it is like printing money for the manufacturer and the owner. Compared with the low margin of the hardware shell, the software margin can easily be above 90%, and as a subscription service, it can create a continuous revenue and profit flow. Every new robotaxi sold is a one-time revenue gain and an incremental revenue and profit addition to the bottom line versus today, while all other automakers are trying to sell the same thing they sold last year plus X%. On January 1, all incumbents start from zero while the car company that offers autonomous driving subscription services and over-the-air subscription services starts with 100% and gains from there. Even if they do not sell a single incremental vehicle that year, the subscription revenue will be at least as high as last year’s.

The complexity of the autonomous driving challenge will be solved with software algorithms, and can’t be easily copied from the competition as is possible with mechanical inventions. Everybody needs to invent autonomous driving for themselves, or license it and accept losing the majority of the profits created. The winner has a monopoly and will make the majority of the revenue and profits. It is almost an unfair situation.

Today, we have a variety of companies involved in the race to achieve full autonomy and it is yet to be seen who will win. Like in every race your pace is the critical element and if your pace of innovation is faster compared to your competitors, you will win. To be vertically integrated is helpful, as well as having the brightest talents in the world, and if you have a large organization that is not very agile, you have a disadvantage that is not easy to improve. 

Considering that definition of success, all incumbent automakers have a built-in disadvantage and that is expressed already today in their low market share of BEVs (fully electric vehicles) that require the same active ingredient, called software. Software is one of the key elements to develop a good BEV, which many call a cell phone on wheels. An autonomous vehicle compared to a BEV is a ghost in a shell. The shell is the easy part and the ghost the hard one.

To develop a software solution is a task that is best done by a software company, and therefore the likelihood is high that specialized companies like Nvidia, Waymo, or Tesla, which have software heritage and DNA, have a better chance of winning than the producers of the shell that is already today a commodity. Software companies have good software engineers. Otherwise, they would not exist. But car companies are not known for good software solutions. With the first autonomous vehicles on our roads, the shell/commodity will depreciate even further, and with it the shell manufacturers. The shell depreciates, but the vehicle with improving autonomous technology appreciates.

The hardware box we are driving around today and we are used to paying a lot of money for is valuable for us because we don’t have a choice. The day you have the choice to order a robotaxi, the shell instantly becomes a low-value item, because if you have the choice to own one horse or 24 for almost the same revenue potential, the decision is a no brainer and the value of those other horses becomes much lower than it was.

Every incumbent automaker that doesn’t realize that choice is a game-changer is obsolete, and the market knows no mercy. They realized things too late with BEVs, and they are late again with autonomous vehicles. They did not change because they did not understand they should, and when they wanted to change, they did not know how.

Most of them have been confident that the choice will never appear, or if it does, it will be one day in the far future. Even today — with Waymo, Tesla, Nvidia, and others having vehicles on the roads already that give us a decent understanding of how the autonomous vehicle future will look — most of the incumbents have not even started to develop solutions that enable them to differentiate from shell manufacturing. Some have realized, though, that they are late and defined a tactic to compensate for the lost time by making the main competitor seem slower, to make it look like the incremental speed difference is small.

Because you cannot influence the business of the competition directly without illegal action, you can choose an indirect approach with, for instance, regulation of what an autonomous or driving-assist system is allowed to do, or how it is allowed to do it and whether a company can advertise it. The thought is, if you are slow, the market will not realize how slow you are if your competitor looks slow as well and cannot deliver or at least talk about what it has invented and could deliver if regulation would allow it. This strategy is as old as the automotive industry and has proven in many cases to work.

If a vehicle with the same technology driving on almost the same roads and conditions can stop at red lights, overtake vehicles on its own on highways, and drive autonomously without a driver in parking lots in North America but not in Europe, then European customers will not see a superior vehicle in their neighbor’s garage, and what you cannot see and touch in our imagination does not exist. It’s a magic trick to influence consumers, but the best is that it is completely legal.

Regulators have decided that a Tesla is not allowed to do in Europe what it does in the USA despite statistical data showing that the accident and injury rates are lower using Tesla’s driving-assist system and fewer people are injured or die. Critics claim that having 8 times fewer accidents is not enough — as if 1 injured or dead person weighs more than 8. This is against all facts, logic, and science, but as of now, they achieve their goal by confusing many in the media and politicians. Don’t allow regulators to make the perfect the enemy of the good and put profits above our health and safety.

It is not an exaggeration to say that the UNECE regulation for the 50+ countries that agreed to it last month is every day putting our health and safety at risk because lobbyists influenced them successfully to protect their industry for reasons of profit. As a human, a technology that you don’t know, have not experienced yourself, and have not learned about in depth is easily classified as a threat. Lobby groups and politicians who want to be reelected, keep the support of core industries, and get workers from the auto industry to vote for them, can easily influence the few regulators who decide certain matters. The judge, in the name of safety — although putting us all at more risk than needed and tolerating more deaths, injuries, and accidents then they have to — goes along with them. Data is data and facts should not be denied, but, unfortunately, we experience exactly that in the year 2020 in Europe. It is embarrassing.

The current UNECE regulation would be as meaningful as the regulation that vehicles not be required to have safety belts in the 20th century. A campaign, as we now know was initiated by auto companies, claimed that safety belts were dangerous for passengers. The first vehicle with a safety belt was the electric Baker Torpedo in 1902, and despite its undisputed success protecting its passengers, it took European and US authorities 60 years to regulate them and an additional two decades to mandate seatbelts in case. In the early 1980s, surveys showed that, still, 65% of the population opposed the usage of safety belts in the USA. That and the regulation being 80 years too late should be a lesson learned for all of us that safety and health should be the number one priority, but aren’t.

Today, 40 years later, it is hard to believe how completely wrong 65% of the population, politicians, and regulators were about seatbelts, but the same is happening today with driving assistance systems and autonomous driving vehicles. Do we need to repeat the mistakes from the past that cost countless lives and tremendous pain and suffering? 

It is time for all of us to wake up and oppose factually wrong regulatory decisions. Not because we want dangerous driving assist system or autonomous driving vehicles that put us at risk, but because we want to stay healthy and use technology to achieve that.

As long as the consumer does not experience what a Tesla can do and how far ahead the technology really is, it is much easier to pretend that, for instance, a German automaker can offer the same, which is, as every European who drives a Tesla in North America quickly discovers, a clear lie. We all know from politics that if you insist on and repeat a lie often enough, there are always some who believe it.

The next step after the European auto lobby succeeded in reducing or banning available and life-saving driving assist functionality in Europe is to make sure your competitor cannot promote its cars or talk about what they can do if allowed. Right now, it is hard to experience the available technology from Tesla first hand, because, given the corona crisis and associated travel restrictions, even if you wanted to, you can’t easily travel to North America and drive a Tesla these days. You can drive one in Europe, but as lined out above, in Europe it is not allowed to do what it really can do.

In Germany, we have laws that do not allow a company to promote functionality if it does not exist or is not available for the consumer. These are valuable laws intended to protect the consumer from paying for something they do not get. Like always in life, though, laws can be framed in a preferable way for one party. That’s what lawyers are for. All you have to do to achieve that is to influence a single judge, who likely never has been in a Tesla nor experienced its technology before.

The judge may have heard in the media a lot of negative things about the new technology and watched controversial discussions. Judges are not engineers and may have a limited understanding of what Tesla offers today. Having given many first-time drives for people in my Tesla, I can testify not a single one believed what the advanced Autopilot can do until they experienced it themselves. The situations in which Autopilot kept me safe are many. Many people have also stated publicly that they would never buy another car again other than a Tesla because of its superior safety technology.

A judge in Germany made a decision that the terminology “Autopilot included” and “Full potential for autonomous driving” and “By the end of the year: … automatic driving in urban areas” was misleading and prohibited it. Tesla can appeal that decision at a higher court, the OLG.

The judge explained his decision with: “the statements from Tesla are giving the impression that the vehicles advertised in this way could and may drive autonomously by the end of 2019. This impression was reinforced by the statement ‘By the end of the year: … — automatic driving in urban areas …’. However, these announcements were not fulfilled in this way, because some of the functions mentioned have not yet been legally permitted in road traffic in Germany.”

I believe, in contrast to the Munich court and judge, that NOT mentioning that the vehicle allows automatic driving in urban areas would be misleading and that automatic driving is not autonomous driving. Also, it’s fair to expect that everybody in Germany understands that to have potential for something does not mean it is available today or it is guaranteed to have it in the future.

The chances that a single judge will “for the good of the consumer” decide that a company like Tesla cannot use the word Autopilot and describe future autonomous driving capabilities is high, but it bears the question why German automakers and companies — BMW, Mercedes-Benz, VW, Bosch, and ZF — can do that?! BMW claims several autonomous driving capabilities and uses the term “autonomous” 118 times in a brochure, even though their vehicles are not able to do even Level 3 autonomous driving.

What is the difference between the terms Autopilot and Copilot? Both can fly a plane, right? The first term is used by Tesla and the second by ZF, an automotive supplier that offers a driving assist system with technology from Nvidia.  

A Copilot is a human who can fly a plane, but ZF does not provide a human nor a technology that handles a vehicle on its own as a Copilot does. “Autopilot” is a simpler support technology for pilots that does not have as much capability as a human Copilot.

Manager Magazin, a German media outlet with a high reputation of having reliable sources, wrote in an article that one of the parties that sued Tesla in the Munich court (Landgericht München I) is a German automaker that does not want to be named. The suing association Zentrale für Wettbewerbsrecht has Volkswagen, BMW, and Mercedes-Benz, besides others, as its members. Is that a coincidence? 

Elon Musk’s tweet reply to me insinuates it likely isn’t. Whoever that automaker is, it had a motivation that went beyond a terminology, and recall that terms like “Clean Diesel” have been widely used in advertising. Also, remember that Tesla is not even doing any advertising. It was sued because of what was written on its webpage.

To be clear, everything is fine with this case and it is absolutely nothing illegal but the issue I would like to address can be found somewhere else. All of those above described measures are intended to hinder Tesla to deliver a technology in Europe German Automakers cannot compete with. To hinder a competitor does not give you one minute of the past back nor does it make your innovation faster but that is what you should aim for. Secondly, regulators and even a first court decide against the health of consumers and support profit ambitions from incumbent automakers. They have proven before with intend to have misled with the cheating devices regulators and courts for the benefit of their profits and the expense of the health of an entire generation. Do we need to repeat history? 

German Automakers will not be faster in their pace of innovation and Tesla will not be slower nor restricted to deliver its technology to other parts of the world, where it can prove its technology leadership by rapidly gaining market share. To believe that the European consumer will not recognize that, is like believing he will never discover that the manufacturers cheated with devices that pretended ICE vehicle emissions were within the legal threshold. This is believing like you can breathe the emissions that are supposedly clean because you have a “clean diesel” tag on the car. It’s an insult to the intelligence of the customer and declares him or her to be a fool.

Every time such an incident happens, the impression that German automakers believe they can cheat their customers is confirmed again, and every one of those attempts leads to an erosion of credibility and trust, two elements very critical for the customer relationship and future business. 

In any case, the coup attempt is almost complete now. The last step you need is to pretend to the consumer you are ahead instead of behind. 

Against all odds, obvious facts, and undisputed delays in the German auto industry — be it with BEVs or autonomous driving — the CEO of the Volkswagen brand, Ralf Brandstätter, is not shy to claim that the many patents the company owns are a sign of e-mobility and autonomous driving leadership, even though Volkswagen has no vehicle with autonomous driving technology available. When I pointed out to him in a tweet that innovation is not measured by the number of patents, he agreed in his reply but claimed that Volkswagen would become the first volume manufacturer of electric vehicles. Looking at the global market share, that is at best misleading, if not a straight lie, if we remember the market share and volumes delivered by Tesla today.

Like we have seen during the cheating device scandal, denying and claiming the opposite of reality may work with some, but the truth comes to surface in time, and I do believe that it does not suit Ralf Brandstätter, the new Volkswagen brand CEO, well to call what is common sense wrong. Even the Volkswagen Group CEO, Herbert Diess, acknowledges that Volkswagen is late. If that is true, why argue against almost everybody? Credibility and trustworthiness are the most valuable asset you have as a manager, and if you lose them, you lose everything.

I named in my articles the strategic mistakes that have been made, but even worse, today, the new-in-charge top German managers repeat with open eyes the mistakes their predecessors made before them. Mercedes-Benz, BMW, Porsche, Audi, and now Volkswagen are known as companies that do not have the required software competence to develop autonomous driving technology, but claim they will have better solutions available in 4 years from now compared with companies with decades of software competence, like Tesla, Waymo, and Nvidia, which have worked on autonomous driving solutions for many years and have the data, experience, and resources required to succeed.

It is obvious that it will take much longer for incumbents to develop what software-oriented companies that have a reputation for attracting the best software engineers in the world have achieved in 10 years.

If you lost your credibility as a German automaker, you lost everything. The continuous pattern of cheating, pretending, avoiding, lobbying, and more recently suing does not give you credibility, but takes it away from you.

The time to put your customer in the center of your mission is overdue.

It’s time for change.

 

 

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About the Author

Alex Voigt has been a supporter of the mission to transform the world to sustainable carbon free energy for 40 years. As an engineer, he is fascinated with the ability of humankind to develop a better future via the use of technology. With 30 years of experience in the stock market, he is invested in Tesla [TSLA], as well as some other tech companies, for the long term.













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