Daimler’s Rollercoaster of Feelings

Daimler can really give you chills and hot flashes. The good news, not so good news and bad news alternate. And for many it is confusing, as the headlines of the last few days have shown. But let’s start slowly.

One piece of news that was both encouraging and worrying was that Daimler posted a profit of €3.07 billion in the third quarter of 2020. In the second quarter the company had posted a loss of EUR 2 billion. That is a positive development, but it also is worrying how it was achieved. Although €1.2 billion in dividends were received from the Chinese joint venture BBAC, thanks to the recovery of the Chinese automobile market, the other amounts were recovered through strong cost-cutting programs. And these apparently included several research projects and future technologies.

Where can the board satisfy shareholders and investors and secure their own bonus? In the short term? Certainly not with costly, long-term development projects that are important for the future, and in which future technologies and business models are developed, i.e. the first two of the three types of innovation identified by the late Harvard professor Clayton Christensen. The first is so-called empowering innovation, which creates jobs by empowering people to take on new activities.

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The second type of innovation is the sustaining innovation. As an example Christensen cites Toyota’s Prius and Camry models. Good innovation like the Toyota Camry was replaced and supplemented by the better innovation Prius. Some new jobs will be created in the process.

The third type of innovation is the efficiency innovation. This occurs when production processes are made leaner, less material is used, higher throughput rates are achieved with fewer or the same employment figures. This type of innovation destroys jobs.

If these types of innovation are contrasted with their effects on jobs and capital, the following table shows the picture:

Empowering InnovationSustaining InnovationEfficiency Innovation
Jobscreates manycreates fewdestroys
Capitalbinds resourcesonly limited resourcesfrees resources
ROI Durationlong termmid-termshort term
Successsehr very uncertainuncertaincertain
Revenuehighaveragelow
3 Types of Innovation according to Clayton Christensen

For this third quarter, Daimler does appear to have – not unexpected – relied entirely on the third type of innovation: efficiency innovation. Costs have been cut wherever possible, without regard to the potential impact on the long-term viability of the company. The Daimler Strategy Day already demonstrated this, and it became even clearer what the Daimler Board of Management is focusing on when compared to the Tesla Battery Day. At Daimler, the penny-pinching and bean-counting approach to maintaining a margin reigns supreme, while at Tesla engineers presented their vision and development efforts. Here the discontinuation of projects, job cuts, plant closures, there investments, hiring, and above all technology development at all levels.

The clear-out at Daimler, which included the dissolution of the development partnership with BMW for autonomous driving, was replaced by a partnership with the leading TPU/GPU chip manufacturer Nvidia. That leaves the software: Daimler and Waymo announced today that they would enter into a partnership for autonomous trucks.

What at first glance looks like a great development partnership has a downer. And that’s because Daimler doesn’t get access to the Waymo AI, the so-called Waymo Driver. Daimler only supplies specially prepared trucks. This means that – as mentioned in my book, The Last Driver’s License Holder Has Already Been Born – the traditional manufacturer, the OEM, is being downgraded to a supplier.

This article was also published in German.

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