China is the new center of the auto industry


Interview with Prof. Ferdinand Dudenhöffer, Director, CAR Center Automotive Research

Prof. Ferdinand Dudenhöffer is one of the leading automotive experts in Germany. After completing his doctorate in the early 1980s, he gained over ten years’ experience in the industry, holding senior positions in sales and marketing at Opel, Porsche, Peugeot and Citroën. He then spent twelve years in academia as a professor of marketing and corporate management, where his research focused on ‘automotive economics’. Until 2020, Prof. Dudenhöffer held the Chair of General Business Administration and Automotive Economics at the University of Duisburg Essen. Today, he is director of the private-sector research institute CAR Center Automotive Research, which he co-founded.

Drees & Sommer (D&S): The automotive industry is in a state of radical change. What drives the transformation of international automotive markets?

Ferdinand Dudenhöffer: There are many examples of how the automotive industry undergoing radical change the likes of which we haven’t seen in the last hundred years. In today’s cars, software controls functions that were previously controlled by mechanical and mechatronic means. And this trend towards software control will continue to accelerate. Battery-electric drives are making cars more environmentally friendly and emission-free. Our assessment is that, in future, all private motor vehicles will be EVs. So the transformation couldn't be more far-reaching. Then there are new models such as Subscription and Rental, which allow the use of vehicles at monthly rates, services that allow customers to configure a car using an app, and mobility and ridepooling services in large cities. These are completely new business models. The conventional automotive industry of the past may only account for 20 or 25 percent in the future.

D&S: So what will the future be about?

Ferdinand Dudenhöffer: The key features of vehicles will be determined by software. Elon Musk was already way ahead of the field in this respect years ago when he installed a central computer in his vehicles. We now have a software pyramid, at the bottom of which you need to consider whether a car manufacturer needs its own operating system. Once you have such an operating system, you then also build the middleware – a translation layer that enables communication and data management for the applications. And the apps then sit on top of this. Until now, each manufacturer has developed such software independently. Today, people are considering an open-source approach. This would mean Bosch, Continental, BMW and VW giving away their software so that it can be integrated into larger software packages. That would be a revolution in car manufacturing.

D&S: How can European car manufacturers keep pace internationally?

Ferdinand Dudenhöffer: You have to take Elon Musk, the speed and scalability in his system and his company’s battery and software know-how extremely seriously. And the same applies to the Chinese automakers. China is the new center of the auto industry. And manufacturers there are already coming up with new concepts. Not least because people in China are much more interested in digital services. And these, in turn, form the basis for new vehicles that will then strongly influence this trend.

D&S: If other countries are ahead in most areas, where is the market niche for German and European carmakers? Or will they have to completely reinvent themselves?

Ferdinand Dudenhöffer: They need to get faster. They have a lot of experience, for example, in terms of chassis and build quality. You have to exploit that. But the main action is not taking place in Europe, but in the USA and China. And losing touch with customers there would mean the end ofthe European automobile industry. Too often, we see things from our perspective. I’ll give you an example from my time at Porsche. The worst thing for a Porsche engineer in those days was having to add more weight to the car. That made it almost impossible back then to install air conditioning in the 911. Because all the Porsche engineers in Weissach said, “The aircon weighs 20 kilos and will cost us 0.1 seconds on the Nürburgring. But customers in the US said, “Look, we have roads that are dead straight. It’s great that your cars can corner fast, but aircon is more important to us.” Our developers are still very much caught up in the old-school automotive industry. If we can get them to be more open, they will be able to compete with the Chinese and the likes of Elon Musk.

D&S: What role will biofuels play in the future of the automotive industry?

Ferdinand Dudenhöffer: Apart from Porsche, the 911 and maybe three Ferrari models, you can forget synfuels and biofuels, as they are infinitely less efficient. The only benefit is that you can refuel quickly. And make a lot of noise. But eventually that will get boring, as the example of Tesla shows. Then the question remains: How great is the benefit of fast refueling compared to the acceleration and power that an electric car offers? The only concern is range. The idea of battery swap stations is exciting. These would allow you to change a battery in three minutes – faster than filling up with gasoline or diesel.

D&S: Range continues to be a big issue. Many people liked being able to drive 900 to 1,000 kilometers on a single tank of diesel. What are your thoughts on that?

Ferdinand Dudenhöffer: From spring 2023, the Chinese manufacturer Zeekr will be building a car with a battery called Quilin manufactured by CATL. It has a range of 1,000 kilometers. CATL has developed a completely new concept with large cells that are ventilated differently. Battery technology still has a lot of potential – and you really don’t need a range of more than 1,000 kilometers, if indeed you need that much.

D&S: Hybrid subsidies have already ended in Germany and EV subsidies are due to be discontinued here too. What incentives can be created for customers to switch from an internal combustion engine to an electric vehicle?

Ferdinand Dudenhöffer: What the German government is doing right now is absolutely chaotic. And I think it is also a huge mistake. But it only applies to Germany – and Germany is not so important in business terms. In China, there are big ideas and incentives in the EV sector. China is currently supporting its auto industry to enable it to sell more. And we are doing the opposite. The US has the ‘Inflation Reduction Act of 2022’: US$370 billion is being invested in green technologies – and people buying an electric car get a US$7,500 tax credit. That’s a lot of money in the US. Electromobility is taking off in the US, as it is in China. And nobody worldwide is really interested in what happens in Germany, because we are unimportant as a market.

D&S: Mobility solutions that go beyond the private car are being sought for the future. One of the terms that frequently comes up is ‘shared mobility’. Will car manufacturers also have to become part of this ‘sharing economy’ or do you see another solution for the transport transition?

Ferdinand Dudenhöffer: Imagine living in a hotel and having a different room every day. Some people, on the other hand, are happy if they have their own house and can make themselves comfortable in it. The same thing probably applies to cars. ‘Shared mobility’ sounds good, but if you live a bit further out and have to wait half an hour for a share vehicle or robocar, you won’t be all that happy. You feel better if you have one in front of the house or in the garage. And in future there will also be different brands that cater to different demands. I think it will stay that way as long as people can afford it.

D&S: We have the transformation taking place in big cities, where people say switching from internal combustion engines to electric cars will not help our cities. Inner-city parking is being reduced and rideshare services are available. Won’t this lead to a decline in car sales in the long run and won’t that mean the end for many car manufacturers?

Ferdinand Dudenhöffer: We have been predicting the demise of the industry in Germany for 20 years. And what us actually happening? More cars on the roads every year. Today there are 580 vehicles per 1,000 people. The number increases every year, including in cities like Stuttgart and Munich. But when it comes to city centers, you’re absolutely right. There’s no room for more cars and sharing concepts are gaining traction. But as soon as you drive a little further out, there is more space. And I believe that will continue. To be honest, all sharing concepts have failed. People lost a lot of money with Share Now, even though the free-float concept with no rental stations was a really interesting one. But the business model failed, and it remains a niche market that you don’t need in every village. That’s why we have to make sure we find a good mix.

D&S: When we talk about the future of mobility, it is closely linked to the energy transition. Do you see the current energy crisis more as an opportunity for the mobility transition or is it making it more difficult for electromobility to achieve greater market penetration?

Ferdinand Dudenhöffer: It always depends on where you look. In Germany, it will falter because subsidies have been abolished, electricity is expensive, and the price of fuelis going down again. So we will sell more internal combustion engines over the next three or four years. If you look at the US now, it will be the exact opposite. They have subsidies. And China will also be the opposite. If renewable energy works out in Germany and a transmission line to Bavaria is also built, we would have cheap green electricity in five years. Then it could work.

D&S: If you had one wish regarding the mobility transition and the future of the German automotive industry, what would it be?

Ferdinand Dudenhöffer: My greatest wish would be for Germany to open up instead of cutting itself off from China. To be open to topics such as autonomous driving. And open to new ideas, rather than sticking with the old-school ways of doing things. I wish we would we open the borders and let everyone in and thus become stronger.

Ferdinand Dudenhöffer sees Chinese and American automakers as having a head start because they act faster and more dynamically in areas such as batteries and software. The best thing German car manufacturers could do to improve their chances on the world market would be to open up to the Chinese market instead of sticking to the old-school ways of doing things.