Automotive after peak car: Valhalla burning?

Have we reached peak car, the tipping point where sales and usage of cars start to decline? And what does this mean for automotive, the dominant German industry?

Germany as a country defines itself, to a certain degree, by its automotive industry. Think BMW, Daimler, or Volkswagen. Over the past decade, their relative weight increased tremendously, as a recent Accenture study found out. (Full disclosure: Accenture is the mother company of SinnerSchrader, one of the hosts of NEXT.) How can the German car giants keep their top position in a peak-car world? Or are they doomed?

Over the last couple of years, this blog and the accompanying conference have repeatedly been stricken by a touch of apocalypse. The sky is falling. Dance on the volcano. Or is it Twilight of the Gods? Richard Wagner's opera Götterdämmerung ends with Valhalla in flames, and the gods burning. Is this the fate of the German car industry?

Bloomberg provides a lot of data, painting a bleak picture of the peak-car era. Recently, BMW and Daimler announced to pour more than €1 billion into ShareNow, their car-sharing and ride-hailing businesses. Volkswagen opens up its MEB electrical construction kit to external manufacturers. All the car manufacturers are trying to reposition themselves as tech/software companies.

We live in exciting times, to say the least.

The convergence of three major trends

What makes the car industry so interesting is the convergence of three major trends: digitisation, electrification, and autonomous driving, the latter driven by artificial intelligence and machine learning. This paves the way for platform business models, for a shift from hardware/product to software/service (e.g. from car ownership to mobility service), and thus for better integration with the mobility ecosystem.

Today, car manufacturers probably aim to become the Apple of automotive: strong brands with profitable hardware products and a growing software/service business on top of that. But they might end up being more like the OEMs of the PC era, providing commoditised hardware for other companies' lucrative software businesses.

There is one company that played an important rule during the PC era and later ditched their PC hardware business to focus on higher-value, more profitable markets: IBM. It is hard to imagine Volkswagen oder Daimler spinning off their car factories and focussing on mobility services. But in a peak-car world, that might be an attractive option.

Value creation shifts away from the classical car industry

The reasons for the decline in automobile usage are manifold, and not all of them may prove valid in the long term. And another, closely related summit reminds us to be careful about these kind of predictions: peak oil. Last year saw another record high for global oil production. So, maybe we are at peak oil right now. Or maybe not.

Only in hindsight we'll see whether we reached peak car in the second decade of the twenty-first century or not. But whenever we enter the peak-car world, the consequences will be dire. Since value creation shifts away from the classical car industry, jobs will be lost. Look at Detroit to get a glimpse of what could happen.

Parts of Germany have been hit hard by economic decline in the past. However, the decentralised setup of the German automotive industry poses a significant difference to the Rust Belt. The gods of the German industry aren't colocated in a single hall, unlike the gods in Wagner's drama.

And instead of fighting each other, the car guys already cooperate when it comes to digital value creation: Besides ShareNow (BMW, Daimler), there's also HERE (Audi, BMW, Daimler), the mapping and location data service provider. And furthermore, Volkswagen now targets micromobility, another market that can eat away market share from the incumbents.

To be sure, that won't be enough to survive in the long run. But we haven't yet reached the final act.