This Is Why German Automakers Are Really Struggling (My TV Analysis)

Welcome to Issue #59 of The German Autopreneur!

Recently, I was invited for a TV interview on Germany's national broadcaster.

My task? To explain why German automakers are struggling.

What I realized: In just 7 minutes of airtime, it's nearly impossible to capture the full picture. The situation is far too complex. Too many puzzle pieces that need to fit together.

German automakers aren't facing one, but 3 transformations at once.

1) From Combustion to Electric

Let's zoom out for a moment:

We've already passed the global "peak" for combustion engines. Since 2017, sales have been declining worldwide.

Meanwhile, electric vehicles keep growing. The global EV market share has more than doubled since 2021.

What does this mean? The market is shifting from combustion to electric.

But here's the challenge: This shift is happening at different speeds around the world.

China has already reached the tipping point. They sell more EVs than combustion cars.

The U.S.? They're still far behind.

This creates a massive problem for traditional carmakers:

They need to build both combustion and electric cars at the same time.

Meanwhile, they're competing against companies that only focus on one technology.

In this situation, carmakers should grow with the market.

Their EV sales should increase each year, matching the global trend.

But what's happening? Mercedes (-23%) and VW (-3.4%) are seeing declining EV sales.

This is alarming for their future.

And remember: An EV isn't just a car with an electric motor.

It's a completely new product category.

Just like a smartphone wasn't simply a better cell phone.

And this leads us to the second transformation.

2) From Hardware to Software

Software is now the main differentiator in cars.

In the past, automakers built the hardware first and added software later.

Today, it's the opposite. Software comes first, hardware second.

Tesla understood this first.

Chinese manufacturers have taken it to the next level.

This change is incredibly hard for traditional carmakers. Why?

For over 100 years, they've built their entire companies around hardware excellence.

But don't get me wrong. German automakers definitely recognized software's importance.

The thing is:

They tried to handle this transformation on their own.

But that approach didn't work.

Volkswagen's CARIAD project shows this clearly.

Despite hiring 6,000 employees and investing billions in this software subsidiary, they couldn't breakthrough.

The problem wasn't talent.

It was their rigid corporate culture and the existing power dynamics.

Now we're seeing a clear shift in strategy.

German automakers are teaming up with outside partners.

VW is partnering with Rivian and Xpeng – an admission that changing from within takes too long.

But these partnerships just buy time.

The real work of becoming software-first still remains.

3) From Human Driving to AI Driving

While the first two shifts are still happening, a third one has already started: the move to AI-driven cars.

This one goes beyond the software transformation.

Now, becoming a software company isn't enough.

Carmakers need to become AI companies.

Tesla has already shifted its strategy.

They now call themselves a "robotaxi company."

In China, we're seeing an innovation race for the best self-driving AI.

Companies like Li Auto and BYD are reinventing themselves as AI businesses.

Their bet: In the future, humans won't be the main drivers anymore.

Self-driving will become the new normal.

This changes what buyers care about:

• Hardware era: People bought cars based on engines, materials, and build quality.

• Software era: People buy based on digital features and user experience.

• AI era: People will buy based on which car has the best self-driving system.

For German automakers, this is brutal. They're still working on the first two transformations while the third is already here.

It gets worse

All these changes must happen at once, in markets with totally different customer needs.

In the past, VW could develop its "world car" in Germany and sell it everywhere.

That no longer works.

Customers in China want something completely different than those in Germany.

This forces a "local-for-local" approach. Development and production are moving directly to target markets.

This cuts economies of scale, adds complexity, and increases costs.

The real problem: Changing the organization

The financial impact of these transformations is clear in the profit drops of German automakers (2024):

• BMW: -36.9%

• VW: -30.6%

• Porsche: -30.3%

• Mercedes: -28%

My conclusion:

The real bottleneck isn't technology. It's internal change.

Inside these companies, change meets strong resistance.

Transformation hurts.

It threatens existing power structures and flips traditional success formulas upside down.

Technology can only move as fast as the organization allows.

The key question:

Can German carmakers transform their organizations fast enough?

Can they compete with companies that started software-first from day one?

If you ask me: I'm confident we can.

🔗 BMW | VW | Mercedes | Porsche | Tagesschau

That's all for today.

Feel free to reply to this email with your thoughts.

Until next week,
— Philipp

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