President Hou’s note: Today I saw an article by Peter Mertens in my friend circle, and his opinion is good. I adjusted a Google translation and share it with everyone to take a look.
I am writing this article full of anger – as a German in the German automotive industry.
The octopus is one of the most fascinating and intelligent creatures in the ocean. Scientists predict that if they had not died so early in their generation, with their learning ability, they would be the “humans of the sea”, ruling all other sizes of marine animals in the ocean, just like we humans do on land.
An octopus has 8 arms, hence its name starts with “octo”, and each arm has its own little brain to manage it. These 8 little brains communicate with the central brain. Scientists have not figured out how it all works and why their arms don’t block each other.
The current automotive industry – the OEMs trying to develop “competitive pure electric vehicles” – faces the same challenges, but progress is not optimistic. Their “arms” are still moving in their own directions, not coordinated, and soon exhaust the available energy in the vehicle.
Traditionally, over the past few decades, since software began to dominate more and more devices in our lives, each small automotive subsystem has had dedicated chips/software/processors, but the different parts of the car still cannot communicate with each other. This has been the way the industry has developed over the past 40 years.
If you look at the arms of an octopus as different functions and subsystems in a car, you will find that each subsystem has been fully defined and delineated, and because the ICE (Internal Combustion Engine) industry has already been fully mature, real innovation is no longer appearing. Each of these subsystems has been outsourced to suppliers who provide better, faster, and lower-cost solutions. Nowadays, 90% of Volkswagen Group’s software is outsourced – a real win-win situation. Welcome to the world of low “vertical integration” and “innovation pace”.
If you are driving a car manufactured by these traditional automakers, there are probably hundreds of chips, each independently managing a very complex network. But none of these are integrated or centrally controlled. Thousands of suppliers are involved, sometimes working together, sometimes working independently. The commonality is that all subsystems only work in their own little boxes and do not communicate with the central computer – or, to put it another way, these arms do not communicate with the octopus’s central brain.Before Tesla released its first BEV, the automotive industry was a world undisturbed. Tesla was the first company to release custom designed cars – their vehicles are managed by a central processor that highly vertically integrates and manages all core and edge functions. You can’t see it from the outside, which is why people still don’t understand why Tesla is so different – these people often only recognize their difference when they step on the accelerator pedal.
This design allows Tesla to magically change the driving performance, range or acceleration of the car through new software, just like Harry Potter with his wand and spells, these functions fly magically into your car through the cloud. It reduces costs, making your vehicle safer and giving you new features to improve efficiency, all from someone pressing a button at Tesla’s Fremont factory in the United States.
Tesla changed the rules of the car business, using a tool called “software” to do it.
To meet the challengers, the current automotive industry has activated its greatest strength – the supplier base. Car manufacturers asked tens of thousands of suppliers if they could develop similar products, to which suppliers convincingly confirmed “yes, we can”, but not realizing what they had promised. 10 years later, the largest and most outstanding research and development departments in the automotive industry unveiled a car that was not even close to the 2012 Tesla Model S.
Former Audi R&D head and board member Peter Mertens said in June 2020: “To be honest and personal, we actually slept until now, not just the car industry, especially the suppliers.” He added, “I made the wrong decision. We were too trusting that the supplier would somehow make it happen.”
For ten years, the supplier base has been continuously improved, and its subsystems have been integrated into the existing IT and software infrastructure of the vehicle, claiming that as long as they work hard, they can manufacture integrated digital cars within ten years – and achieve what Tesla can do. Senior executives in the German automotive industry decided to cooperate with existing or new suppliers using the power from the ICE era to achieve this goal.
Suppliers developed from the subsystems without using the integrated software architecture around “custom chips and technology” to start completely new designs. Their reason is simple: revenue and profit. Congratulations, dear automotive managers, you just invited vampires to manage your blood bank.
At least at that time, I hope the professional managers in the automotive industry could realize that they asked the wrong people – their suppliers are not the ones who can solve their problems.Today, all these managers have left, but their successors still hesitate, or do not know how to cut off the past and start a revolution. Instead, they continue to adopt slow evolution methods – but they actually don’t have time. Time is the most precious and limited asset in today’s automotive industry. This is an asset that cannot be purchased with all the money that the automotive industry has. You cannot solve software problems by investing money and resources.
Herbert Diess, CEO of Volkswagen Group, said in June 2020: “To achieve a leading position, we still need many years to reach the necessary level of software expertise.”
“Even today, almost no line of software code comes from ourselves.”
Without software, you will lose the most valuable asset as a “consumer-facing” company: contact with customers.
Without software, you will lose the gold of the digital age, customer data.
Without software, your company is probably a low-profit metal box assembly company – and this low-profit metal box is a worthless common commodity.
I have been working in the software industry for 20 years, and I can confirm that software is not magic, but technology. To manage software, you need software engineers and software-oriented organizational structure. If you expect to manage your software with hardware managers in a hardware organization, this will not be successful.
Ten years have passed, and the existing industry has failed to develop effective IT and software operating systems for its BEVs, and they are still repeating the same mistakes- outsourcing the technology that is critical to their success, profits, and future, one after another.
Automotive managers who knew how to develop ICE vehicles and succeeded in the hardware field are still responsible for the software organizational structure of e-tron, Taycan, EQC, ID.3, and even the future concept BEVs of these companies. The German automotive industry provides the most critical new products (these will determine whether they can continue to survive in the future as a company) to managers who lack experience and knowledge in the most critical part (i.e. software).
Volkswagen Group is trying to concentrate 10,000 IT resources in a new department to solve the software problems of ID.3-but actually, 100 (or even 50) excellent software engineers are enough. This is the foolishness caused by not understanding software.
Herbert Diess lost the important position of Volkswagen brand CEO due to software problems with Golf 8 and ID.3. More managers will lose their responsibility because it is obvious they don’t know what they are doing.“`markdown
Due to the fact that their future depends on software (whether it’s about services, value or profit), the software department must have the strongest power in the company. The representative of the software department on the Volkswagen board of directors was promoted in 2019 and is in a weak position without power or influence. How can a company succeed if its primary profit has no place in the decision-making committee?
These managers have never written a line of code during their entire career, or they don’t understand it at all. But they are making decisions about the “vehicle software” with the largest future profits. In the software industry, profit margins of 80-90% are not uncommon, while the profit margin of the automotive industry is only a few percentage points. These people don’t even understand the basic software languages currently in use, nor do they understand what it means for success or how to evaluate the quality of code – but they are making important decisions. They don’t even understand the problems that software engineers are trying to explain to them. They don’t understand where the problem lies, so it’s impossible for them to solve it.
Senior management in the German automotive industry always proudly says that they have “gasoline in their blood” (such as former executives like Piech or Winterkorn, and all others today). This is seen as a condition for assuming this top management position. However, in the electric world of BEVs, where batteries and codes are key qualifications, are they really suitable for the role they play?
Do they have electricity and passwords in their blood? They don’t, so they are unqualified because they don’t understand software, batteries or electric powertrains. If they knew, why did they release disappointing electric vehicles?
If senior management in the old ICE world started their careers as mold makers or similar positions, then today, using the same standards, the career of top executives should start with a coder. If you don’t understand the work your organization is doing, not only are you outdated, but you also bring risks to the company’s future.
After I finished writing this article, Herbert Diess resigned as CEO of Volkswagen due to the software disasters of Golf 8 and ID 3, but what changes will the new CEO bring? Does Brandstätter understand software? Did they choose the new CEO based on software or battery expertise?
Tomorrow, we will evaluate all senior managers of Volkswagen, Audi, Porsche, BMW, and Daimler, and ask them to write small games or simple but effective viruses. If they can’t, fire them immediately because they’re not suitable for the job. How many will be left?
This may sound like a radical measure, but isn’t risking the loss of thousands of jobs more radical because top executives are incompetent and can’t even understand the basic source of company value?
“`Why can’t the CEOs of German automakers do what the CEO of Tesla, who has been in business for only 12 years, did in 1984? If you were the CEO of a German automaker: “Respected CEO, this is your challenger! As an adult, can you do the same thing and prove that you understand this?”
In 1984, 12-year-old Elon Musk created BlaStar.
As a shareholder of one of the aforementioned companies, you hope that your managers understand their business. I believe that this is a basic, reasonable, and fundamental requirement. Shareholders understand and believe that Tesla has become the world’s most valuable car manufacturer, higher than the sum of Volkswagen, BMW, and Daimler. One reason is proprietary software technology reflected in future profits, and profits are the valuation of the company.
The remaining choice is simple, you can replace the top management-bring in those who understand these businesses, or you will lose everything.
Peter Mertens, former board member of Audi, Volkswagen, Volvo, FCA, and Jaguar Land Rover, said in June 2020:
“We slept (…) it will be bloody!”
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.