German Innovation Problems Explained With Porsche And Tesla

Porsche Mission E

German car makers have been under pressure for some time, and that from an unexpected area. Not the usual suspects are giving them hard times, but newcomers who come with full war chests and lots of ideas to overtake markets that make traditional concepts look old.

A recent announcement of Porsche to offer an all electric vehicle code-named Mission E until the end of this decade shows how much Porsche’s hand has been forced. Porsche announced to spend €700 million in the headquarters in Zuffenhausen to prepare the production for the Mission E. At a first glance the performance numbers of the electric Porsche look impressive. The car will have a range of 300 miles (500 kilometers) with one charge, the electric motors will bring 440 kw / 600 horsepowers on the street and accelerate the car in under 3.5 seconds from zero to 60 miles per hour (100 kmh) And the batteries shall get an 80% recharge within 15 minutes at the Porsche-specific charging stations.

This all sounds great, if there were not a small party pooper around. Tesla with its Model S already offers most of those performance measures not only today, but surpasses them. The Tesla Model S 85D has a range of 330 miles (528 kilometers). It accelerates from zero to 60 in 3.1 or even 2.8 seconds, depending on the upgrades. Considering that Tesla’s cars have seen continuous improvements since they hit the markets five years ago – and that even with cars already delivered as we have seen with the semi-autonomous drive mode that was made available to 10,000 Teslas with an over-the-air software update – then you can expect that until the end of the decade Tesla will have rolled out a number of new improvements.

Why is Porsche (as well as BMW, Volkswagen, or Daimler) a laggard in technological developments? Even in their own core-domain of sports cars? And it’s lagging behind companies that hadn’t much to do with making cars in the past?

Some reasons are corporate culture and inertia.

Lets start with corporate culture. The former Porsche-CEO (and current CEO of Volkswagen) Matthias Müller considered in an interview with the German ‚auto motor und sport’-magazine self-driving cars as a ‘hype’ and stated his displeasure with who makes a decision in such a car. “I always ask myself,” he said, “how a programmer can decide whether an autonomous vehicle shots into a truck on the right side or crashes into a car on the left.”

This is a partly understandable reaction from the CEO of a sports car maker. After all the fun in a sports car is driving it yourself. Porsche sees its lunch being eaten by others, when human-driving cars are being pushed aside. But Matthias Müller reaction is also a signal to his employees that cannot be underestimated by its outcome. It signals that innovation in disruptive technologies will publicly be made fun of by your very own CEO. Everyone daring enough puts his career on line. Nobody will dare to make suggestions and change the company from inside. If you don’t control disruption yourself, somebody else from outside will come and do the job for you.

A better and more honest question coming from Matthias Müller should have been “How does a self-driving sports car look like?” and “What makes a sports car a sports car?” If he had asked those type of questions earlier, then he’d probably have a solution for “How does a Porsche without a gas fuel engine look like?” and you’d not leave the market to a competitor like Tesla with an electric vehicle that outperforms your own cars.

Another element that stifles innovation in companies is inertia. Not the inertia that nothing is done, but that disruptive things are not done.

It’s not expected from CEOs to question the status quo. It’s often even expected that they don’t ask questions but have answers. Questioning the own strategy creates uncertainty among employees, share holders, customers, and supervisory board. The same is true for employees. They are supposed to execute, be productive, and contribute to profit. Management is tasked and trained to execute and scale. And that’s what they do very well. Production becomes more efficient, more cars are being produced, and work in general is efficient. People become better in their fields and optimize processes and products. Occasionally some innovation is added or done that is complementary but not threatening the status quo. Airbags, seat belt, connected car are a few of those improvements that didn’t change the nature of the product or questioned it.

Disruptive innovation as it arrives with electric vehicles makes many of those improvements obsolete. Gasoline engines became unnecessary, and with that also the employees with the expertise around them. Exhaust system, transmission, and fuselage are also components of the past. Instead, expertise on battery systems and software, charging stations, a newly designed frame and others need to be built up. These are huge investments and efforts. And it’s uncertain whether those efforts will pay off. Uncertainty is created, things become less predictable, and that is a risk many companies don’t want to take on.

At the same time those unnecessary departments traditionally were very important and powerful within the company, and together with a works council they will fight for maintaining their power and keeping their jobs. Such an internal struggle costs a lot of energy, which delays change, while Tesla without those infights can focus on their models and improvements.

The Volkswagen exhaust scandal drastically shows how those both elements – corporate culture and inertia – led to a moral and economic collapse. Daimler, BMW, and Opel are facing a similar situation as Porsche. And Tesla is just one of many competitors. Google, Apple, Uber and many more smaller companies are pushing into this industry, often will heavy war chests which will turn automotive technologies and business models upside down.

What can Porsche do? It’ll be not easy, but if Porsche wants to have a fighting chance, then it should partner with an innovative manufacturer, be humble and learn, or spin off the Mission E into its own company without control from the mother-ship.

This article was first published in German on my blog Die Silicon-Valley-Mentalität.

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