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Published on June 15th, 2019 | by Alex Voigt

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Illusions

June 15th, 2019 by  


Illusions are realities for those who have them. When you try to convince those having them that they are illusions, they try to convince you that they are the realists.

An illusion is defined as an incorrect recognition of reality, or interpretation of reality, and I claim that’s exactly what the German auto industry has. In the world of psychologists, an illusion is called a misperception, but it is not always about the senses, and I believe in this case it is not about senses giving a wrong signal, but about brains making wrong conclusions.

Everybody who believes he has no illusions does actually harbor illusions, and that includes me. Unfortunately, it was not an illusion when I predicted in my articles last year that German automakers are not able to manufacture a car like a Tesla — otherwise, we would have seen it already. Such a vehicle is yet to arrive, and that’s not an illusion.

Range and Recharging Chart

The latest efficiency tests of the Audi e-tron compared against others, as well as the released specifications of the Daimler EQE, confirm my darkest nightmares about the abilities of the highly praised German engineering world with respect to battery technology and all that belongs to it.

Some illusionists in the German auto industry not only risk their own jobs and companies, but also risk the economic welfare of Germany — in irresponsible and dangerous ways. That’s the only reason why I feel it to be my duty to write this article, others before it, and maybe a few more.

An illusionist is trying to move a square through a circular hole, which is like trying to make an illusion become reality. Like with a young child trying to do the same, it somehow looks like it should work, but regardless of how hard you try to stuff that one piece in, it still does not fit. Most illusionists ignore the reality and say it is only a matter of time until they will make the vision real. For clarity, they never do, regardless of how long or hard they try.

At the end of the day, we do not know if those illusionists are mentally ill or just misguided by incorrect signals, but frankly, that does not matter, because while trying and trying, they forget the most important aspect — they lose too much time waiting for the future to arrive. Time is running out for the German auto industry, while it still chases an illusion. There is just not much time left and to believe the industry still has time is likely the worst illusion of all.

Time is possibly the most precious and underestimated asset we have as humans and as companies, and we often do not even really value it. While chasing an illusion, valuable time goes by, and that can be at the end deadly — deadly for your job as well as your company because time cannot be recalled and once it’s gone its gone forever.

Last year I wrote an article claiming that the German auto industry is still sleeping and needs a wakeup call. Luckily, I believe that some of them are now awake, but today I feel forced to write an article about the German auto industry now having many illusions and needing a reality check, and sanity check. I am forced to write this — I do not do this out of joy but simply because the situation drives me mad.

Allow me to explain what I mean with this. The best way to do that is to give you a few examples of illusions the German auto industry has, illusions that eat precious time away and that are a danger for German society.

It’s an illusion to believe that companies that build successful internal combustion engine (ICE) cars can build the best electric vehicles.

It’s even more of an illusion to say they can do it better than any startup and can start developing on a clean sheet of paper with a new team and no weight on their shoulders from 100 years of building ICE cars.

A fully electric vehicle (BEV) is a completely different vehicle, and that’s not the case simply because it has a battery, but because everything is different — and it has a battery. Although it may look the same from the outside, if you look under the surface, the outside is about all you’ll find to be similar to an ICE vehicle. You don’t have to be an engineer, just a consumer, to understand this.

For years, actually a decade, I’ve come across people who claimed this will be easy for all large automakers and once they start they will dominate. It’s not been easy and they don’t dominate at all. Instead, they look quite bad, with broken promises and many never delivered specifications and cars.

If it was easy, we would have seen electric vehicles from all these companies already, if only to keep Tesla small and controlled and to make sure the good and profitable businesses they have been running for many generations does not suffer or go away.

It’s an illusion to believe with a horizontally integrated company you can win against a vertically integrated competitor in a time of technology disruption.

It’s an illusion because to build a good fully electric vehicle, you must be vertically integrated and own many parts of the supply chain, many parts of the vehicle, and many parts of the services. This keeps costs low, margins high, innovation fast, and agility unprecedented.

When a new technology appears, you need to question your business model from the ground up and start thinking from the end to the start. Ford knew that Apple implemented it and Musk is mastering it. If you don’t integrate vertically and fully, then you compete with just an element of your business against a universe that you don’t own, manage, and control.

With vertical integration, you can optimize design, engineering, and manufacturing — and balance the combination of software and hardware on a level that brings a better customer experience and more margin and profits. You avoid friction all others have with conflicts of interests.

If you are horizontally integrated, you cannot easily change to vertical integration, as you would lose your business partners and would have to build know-how in house that you don’t have today. For that, you need time that you don’t have in a time of disruption. That makes it almost impossible for incumbents to compete successfully against companies like Tesla.

If that were not true, we would have seen major horizontally integrated competitors already using their financial strength — cost or margin or scale advantages — to reduce the importance of Tesla, a vertically integrated company.

It’s an illusion to believe if a new technology changes a large industry in a fundamental way that size matters.

In a disruptive situation, all that matters is the pace of innovation, and that you are inventing faster with a leaner, more agile organization versus a heavy, large, and slow one. You can throw as much money at the problem as you want, but you will not innovate faster if you are large and horizontally integrated because there are too many elements that are synchronized, interrelated, and affected if you change just a single one.

If existing auto companies were able to innovate faster than Tesla with electric vehicles, we would know it and see it working in existing or presented BEVs, but we don’t.

It’s an illusion to believe the methods and tools that worked to compete in the past will be methods and tools that will work in a future in which the fundamental rules of your business have changed.

To be able to produce a part cheaper and more precisely for an ICE vehicle does not matter if your vehicle contains 10,000 parts but the ones you compete against have just 110.

Existing auto companies have tried to use their strengths from the past — like brand recognition, scale, and financial power — to compete, but we can measure from the delivery numbers that customers are not convinced by their BEV offerings and recently not even with their ICE offerings. The value of your brand will decrease if you disappoint customers. The Audi slogan “Advantage through technology” has been humiliated by a disappointing range and efficiency for the e-tron — and with every single mile Tesla adds through over-the-air updates or better hardware or better charging capability, that slogan belongs not any longer to Audi but to Tesla.

If they understood BEVs, we would have seen a 400 mile BEV from Daimler, BMW, Audi, Porsche, or VW already. Instead, we learn these days that Tesla intends to bring 400 miles of range to the updated Model S by the end of 2019 while an e-tron driving on the German Autobahn at 80 miles/h has a range of 187 miles.

It’s an illusion to believe in a world where autonomous driving has an opportunity to become reality in a few years, or a little later, that consumers will not wait with their purchase just to understand if it’s true that this new promised technology may help them make their car a revenue generator as a robotaxi (and by doing that see it appreciate while your old car depreciates).

With that, the ICE resale values will drop further and people will not buy new cars unless they are BEVs that can drive autonomously, and that can be added to a ride-hailing fleet while you are at work or do not need it.

This is the overlooked elephant in the room. A Tesla can drive today with no driver in a parking lot guided just by Autopilot, and will soon drive itself on streets to your location.

It’s an illusion to believe that a vehicle that continuously adds functionality over time that was not available when you bought it will not be more attractive to consumers than vehicles that do not continuously add new features. As a Tesla gets new and improved features over time, every other car gets older.

The paradigm of what a car is and what it should be is changing with over-the-air updates. Consumer expectations are growing now that this ability is getting more and more attention from Tesla updates, but the technology to enable it requires building a software organization that happens to builds cars, whereas most automakers are instead primarily hardware organizations building the hardware for cars.

Pace of innovation is all that matters. In the old days, innovation in the auto industry was all about what you brought to market in new vehicles, but now pace of innovation also means how your vehicle improved after you bought it, and after you sold it to the next owner.

That paradigm shift changes everything.

It’s an illusion to believe a company that is designed to maximize shareholder value can win against one that is designed to transform society and bring about sustainable transportation.

Smart, innovative, and idealistic people tend to join smart, innovative, and idealistic companies. If you are a really talented, smart, young, motivated engineer or manager in software, artificial intelligence, or battery technology, there is only one auto company in the world you want to work for — even if you get a lower position and less good salary. That company is Tesla (or SpaceX if you are into space stuff).

This is simply because you can make a positive impact on society and working for the greater good of the environment, and that is worth much more for you as a person than all the money you can earn. The feeling to help the earth get rid of pollution is priceless, and the biggest motivation and incentive you can give a young person. It’s a life-changing experience to be a part of it. This is not an idealistic or altruistic approach, but a logical one — you get within Tesla all the support, funding, and resources to make your dream come true, and you work with people having a shared dream and you feel like you are a bigger part of an important movement.

When Werner von Braun worked for the Nazis in the 1940s to develop the first rockets the world had ever seen, he did it because they offered him all the resources he asked for to make his dream come true, to fly to the stars. He said in an interview that it was his dream since childhood to build a rocket that could fly to the moon and to Mars. He used the opportunity after WWII to continue his work in the US with the Apollo program to go to the moon, and he is now a national hero in the United States because of a dream.

To have a dream is the strongest force on earth, and you don’t want to compete against anyone who has one.

Illusions are hard to argue against because they look so real. The thirsty man in the desert who walks towards the illusion of an oasis that is in reality just a reflection of the sunlight in the far distant sand is so certain about it that he bets his life, and he loses it because the illusion looked just so real to him. He had a deadly illusion.

I wrote some alarming articles about the German auto industry in the past, calling those automakers asleep. Now, while I feel some of them are a bid more awake, I have other bad news for them, which is — you may feel awake now, but what you believe to be reality is full of illusions, and they can be deadly for you.

If I had 8 words that I could say to the CEO of a German automaker, they would be:

“End your illusions and start with a dream.”

 
 





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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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