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Arwed Niestroj, CEO of Mercedes-Benz R&D North America sits down with Alex Kreetzer to discuss the past, present and future of the automotive industry. 

Arwed Niestroj, CEO of Mercedes Benz R&D North America

Daimler has a long term strategy focused on future technology and innovation. The automaker opened its first office in Silicon Valley over 20 years ago, even before companies like Google existed - pretty surprising if you look at the world we live in today. For Daimler, there was an awareness very early on that new technologies were developing, creating a dynamic and agile automotive industry filled with digitalisation and innovation. Fast forward to today and we see even more change; technologies are being rolled out across multiple regions and markets at an alarming rate, impacting the global automotive industry unlike anything we have seen before through the race for connected success.

I speak to Arwed Niestroj, CEO of Mercedes-Benz Research and Development, North America, who tells me that the connect era is completely changing the traditional industry and forcing automakers to prepare for a living, breathing market. “With digitalisation and the realisation that things are changing, we see the awareness to go into automotive technologies and the target to do so has become much more focused on such things as new startups and venture capital funds that are active all over the world.” He believes that these new companies are willing to take more risks than conventional OEMs because they do not share the same traditional business models as the more established players who are used to more linear processes. Typically, the larger the business, the less flexibility a company will have. “The groups coming up with this kind of technology are used to new innovative business models and have the financial support to try new things to see what different approaches end up being the most successful solution,” Niestroj continues. “We have never seen this kind of competition in the automotive industry because, so far, it has only been between automotive OEMs and suppliers.” Yes, it is still incredibly difficult to become an automaker from scratch, however competition has changed thanks to such reliance and demand for technology, introducing companies that have great experience in the technology and software fields.

Through this change, competition is now not just focused on the product side but on the whole disruptive business model that has been introduced in the modern automotive world, stressing the importance of collaborating alongside software companies in order to succeed in the extremely competitive market. “We need to find a way to work with these companies as the industry has become so versatile now, with so many markets that want to immediately benefit from new technologies. It is extremely difficult to handle all of this at once alone, so we will need to see more collaboration with new mobility companies and conventional mobility companies.” We are already seeing this kind of collaboration between two sides of the industry and even amongst rival carmakers. Fundamentally, it all boils down to communication, visibility and standardisation. Everyone is fighting to be the frontrunner, however some processes will need to be standardised if we want to develop the sector. The industry will progress much more quickly and efficiently if there becomes some form of basis that allows players to communicate and collaborate. It has taken so long for many automotive companies to disrupt their business frameworks as they previously took a more linear approach, which is what traditional OEMs were so good at. That is how they did business and that is how it worked. Now it is a different story, they must adapt and evolve in order to compete and succeed in the evolving market.

The Silicon Valley way

Although we know the future is bright for the connected car, we do not entirely know where we are heading and when we will obtain it on a commercial level. Due to this uncertainty, many established OEMs have been reluctant to take the leap into more innovative processes and ideas, which could cause problems for them in the future. A few years before many of its rivals, Daimler looked into innovations such as carsharing with Car2Go, the world's biggest electric carsharing fleet, as it recognised and predicted the way the market was heading. However, Niestroj echoes that it is hard to predict how the market is changing, especially with the range of areas such as major cities and rural areas. “It is hard to be sure that the market is really changing in the way it might be changing. For example, if you live in a certain metropolitan environment you may see ridehailing services frequently and start to become used to it,” he says. “However, this is just a part of the global market, which includes suburban areas which is a very different situation.” In these areas, people may still have to own a car with the lack of ridesharing and other smart mobility services, which means that automakers have to look at different customer situations that are evolving. 

Secondly, the business organisation of these companies is not set up to deal with new processes such as ridesharing and connected car technology, creating a significant disruption in these OEMs’ processes. This is where startups thrive, with most companies obtaining venture capital investments upwards of $100 million, allowing them to do a lot of different things and take every risk they want - something a traditional OEM does not have. “An OEM has to get its money from financial markets and prove profitability and sustainability, which does not allow it to progress quickly enough. There needs to be a change of perception within these companies and this needs to come from the top. Then the change can become effective and have a greater impact,” adds Niestroj. 

Top level executives need to realise the huge potential of the connected car boom and learn how they can take inspiration from new companies in the industry which specialise in software. “You have to help executives identify these changes which is exactly what we have been doing by inviting people to Silicon Valley to show them the readiness to take risk, the amazing amount of financial resources available, the great talent on site and the motivation to turn existing business models upside down,” says Niestroj. Similar to what we have seen in manufacturing, companies need to set up training and education programmes in order to introduce new employees with innovative ways of thinking. There is a very strong business model on education with startups today; in the US, areas like California, Boston and New York, are thriving through automotive technology. However, these areas are very different from the traditional education that is happening in the automotive world. Europe, for example, has a lot of highly qualified automotive engineering, way in front of areas like Silicon Valley. However, these employees are not trained to rethink a business model around the future mobility we are starting to see. This is vital when looking at creating a very dynamic environment in which we see new players already operating, as the vehicle is slowly becoming an extension of someone’s technologically-focused life, rather than just a form of transport. 

The grey area

As we know, automotive technology such as autonomous software and electric vehicles is evolving at an alarming rate, with new developments constantly being showcased to the public at exhibitions and even on our roads. EVs are now recording very positive mileage and we are already starting to see autonomous technology within our cars such as lane assist and braking assist. Yet, this progression is hindered by a lack of infrastructure for EVs and a lack of rules for autonomous vehicles. However, possibly the most difficult issue for automakers at present is customer perception, which has left the automotive industry in a grey area, unsure about what customers want and when they want it.

When it comes to EVs, Niestroj believes that Daimler’s approach has been successful: “Daimler has partnered with a number of companies in Germany to work together on supporting the infrastructure build up and we have also invested in Chargepoint, which is the market leader in the US. We are fully aware of the fact that this is needed and we are also aware that cars will become completely electric,” he says. “This is part of our strategy and our agenda. It is going to take many years, but we will be driving this transition as one of the leaders.” Daimler has also been introducing plug-in EVs which Niestroj believes is the right compromise for many at this point in time: “You can drive electrically when the infrastructure is around you, in a city for example, but you can still rely on conventional gasoline or diesel powertrain when you need it in rural areas.” With the Concept EQ, Mercedes-Benz Cars is presenting a new generation of electric vehicles. More than ten new electric passenger cars are scheduled to be launched by 2022: in all segments from smart to large SUVs, and Niestroj assures me that the automaker will make sure that EV infrastructure develops alongside its future vehicles.

Once again, this shows how difficult the change to an alternative powertrain is, not only a challenge technically but also the business model around the customer. This means that the processes for buying, using, renting and driving a car will restructure. Niestroj says that, as the industry is unable to support this change at the same level as it has with more conventional fuels, businesses need to sit down and find a solution for the entire process. “The challenge is to get the business partners around one table and have them all identify the business potential and sort out who has what role in this new structure,” he states. “The conventional companies that provide liquid fuel do not necessarily have a big role in this, so this new mobility set up will have to be addressed.”

If conventional companies in the industry continue to put all of their eggs in one basket, they will end up falling behind and playing the catch up game for many years to come. On the other hand, this opens the doors to a number of businesses who can capitalise by introducing new technology first. Niestroj argues that, as a luxury car maker, Mercedes-Benz’s customers will want the best technology first and believe that the company will deliver: “We as a company want to define new mobility, rather than follow it.”

Future focus

Automakers like Mercedes-Benz are approaching so many different aspects of new mobility for EV, connected technology and even infotainment, which has completely changed business frameworks and ideologies. I admire Niestroj’s approach to this as without open-mindedness and innovative thinking, the automotive industry will not survive. What’s next? Well, many different players will be looking at different routes to go down in order to develop and expand in the market, focusing on technology and new ways of thinking. 

Niestroj thinks that the focus will go further towards mobility solutions rather than pure car and business models, such as a company producing a car or a supplier just providing a component. “As the focus moves towards mobility; we will move over to digital and software-based technology that creates a new customer experience through how they request and receive mobility. Now it is so important to prepare your company for this change as it will happen on a global scale. In regards to autonomous cars, I think this will happen in a staggered approach, seeing it sooner in metropolitan areas and at slow speeds to start. It is going to be very versatile and very difficult to predict. The future will be connected, autonomous, shared and electric, but is not yet clear what will be the majority in the future.”

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