Where is the German Autonomous Car? – Part 2: Reasons

In the first part, we looked at the myths surrounding the question of why there are no autonomous cars from Germany. And these myths are about misunderstanding and little knowledge of the technology, ignorance of the companies and activities in other regions of the world, coupled with a feeling of superiority of one’s own companies and patriotism, which also includes a certain contempt for competitors.

It’s not a healthy mix, which on the one hand makes us humble, but on the other hand forces us to be more urgent. So we are at the forefront, and we don’t need to worry about what the others are doing. That’s the tenor, one would think.

However, other questions arise: if major German manufacturers are remarkably reluctant to develop autonomous cars (and we will go into the reasons why), why are there no German start-ups? Surely they should be able to seize this gap as an opportunity and close it?

Question: Where are the German start-ups?

The California Department of Motor Vehicles (CA DMV) maintains a public list of all organizations that have a license to test autonomous cars on public roads in California. There are currently just under 40, but more than 70 companies have already received such a license. In addition to the major automotive companies, these include well-known names such as Apple and Google. But there are also several dozen start-ups that were only founded a few years ago. While there are – unsurprisingly – many American start-ups among them, there are also some Chinese and even Hungarian start-ups, although none are German.

But there are quite a few German start-ups that are testing in Germany itself, aren’t there? Not so fast, because which ones can we list? Well? I’m waiting? No, Moia and other spin-offs from major manufacturers such as BMW, Mercedes or Audi don’t count as start-ups. And we mustn’t overlook the fact that they often use critical autonomous driving technology from American or Israeli companies, such as Mobileye, or bought in, such as Torc Robotics for autonomous trucks from Daimler Truck. This is not a bad thing in itself, but it shows that this technology does not come from our latitudes.

We only want to include start-ups that are spin-offs from a university or former employees of large German companies, for example, and that have taken the risk and raised venture capital for their own company and are now developing autonomous cars or self-driving technology.

I can only think of Kopernikus Automotive, which started out with high ambitions but had to gradually lower its expectations and is now concentrating on automated parking solutions. The reason for this pivot: a lack of venture capital in Germany.

Vay.io, on the other hand, develops nothing more than “remote-controlled cars” and has nothing really to do with self-driving technology, as a driver still has to lend a hand, just not in the car itself, but behind a desk from a distance.

Why is that? Well, here are a few reasons.

Reason 1: Lack of Ecosystem and Framework

Many have heard that Silicon Valley is not a place, but a mindset. Those who have had the opportunity to visit the San Francisco Bay Area and visit startups, accelerators, venture capitalists, the local universities Stanford and Berkeley, as well as the big digital companies, know what I’m talking about. The way of reacting to new ideas, the optimism, the speed, the we-just-do-it-and-solve-problems-on-the-go mentality, the willingness to help each other, the amounts of venture capital, the willingness to try new things, the diversity of the population and a high tolerance for failure are some of the elements that make this area so innovative.

Having this crazy idea of starting a company that wants to build electric cars with laptop batteries and then giving the founders billions is one such example of where all the pieces come together in Silicon Valley. Let’s not forget, Tesla accumulated a total of 6.66 billion dollars in losses from 2009 to 2019, until the turnaround came in 2020 and almost five times that in profit was flushed back in from 2020 to 2024. And no, the share of carbon certificates is only a fraction of the profit.

Tesla’s annual losses/profits from 2009 to 2023

A German start-up cannot raise this amount of money in Germany or Europe, nor do the founders think big enough or have a mistrust of venture capitalists that causes them to fail in such capital-intensive ventures. Sono Motors is a prime example of this and I have already analyzed this case in more detail here.

Within large companies, on the other hand (as with European start-ups), great attention is paid to early profitability. If it doesn’t fit into the supposed core business AND money can’t be made as quickly as possible, the project is scrapped. It should be clear that traditional key figures for R&D projects that deal with new technologies require other key figures for evaluation. Approaches such as Innovation Options exist, but decision-makers are rarely aware of them. In the case of large companies, a change in management or a single person often decides whether such a project is continued. If it is a project that requires a lot of effort and time and whose outcome is uncertain, then it is particularly vulnerable to cutbacks.

Reason 2: OEMs’ Business Models

The business model in the automotive industry has proven itself over a hundred years: You sell cars to individuals who drive these vehicles. An entire industry has developed around this, ranging from car dealerships and garages to car financing and leasing models. Company cars or fleets were also sold to companies, which did not have to operate them themselves. The construction and provision of roads and filling stations was carried out by others, and the company only intervened when its own profits were threatened, such as in the case of stricter exhaust emissions or driving bans.

Autonomous cars such as those developed by newcomers like Waymo, however, rely heavily on the operation of robo-taxi or robo-truck fleets, which are made accessible to end users in a sharing system. Individuals are no longer buying and operating cars, but increasingly individual companies. And this changes the customers, the margins, but also which services are required by whom.

Today, automobile clubs live from offering members services such as breakdown services. The members are usually driving license and car owners. But if no one has a driver’s license anymore and no longer becomes a member of the automobile club, what does that mean for them?

Almost half of all insurance premiums come from cars. Autonomous cars, which it is hoped will have 90 percent fewer collisions, will then require almost no insurance. And since private individuals will hardly have cars any more, the customer base will shift from individuals to companies.

So you can see that it’s not just technology that is changing, other areas are also experiencing changes in times of disruption. This involves changes in behavior, and technology innovation goes hand in hand with network, marketing, process or financial innovation, not only enabling new models that can build on this (keyword Robomart), but also increasing the pressure on traditional models. Adapting to the new circumstances is particularly difficult for companies that have been very successful in the past with the now obsolete models. This is why they not only don’t want to adapt, they are also putting up massive resistance. We are already seeing this with the switch from combustion engines to electromobility, which is causing particular internal resistance among traditional manufacturers whose entire expertise and history of success is based on combustion engines.

Reason 3: The Impossibility of a Long-Term Strategy

In German automotive companies, as in most international OEMs and Tier 1 suppliers, it is no longer the founders or founding families who are at the helm, but managers. Their task is to ensure stability and shareholder value. Just don’t make waves, don’t shake the successful business model. This worked relatively well for over a hundred years, because not much has really changed.

But in times of upheaval, it is no longer possible to simply continue old strategies in a linear fashion. Such times are also characterized by the emergence of many new companies. This is clearly noticeable in electromobility, where dozens of new OEMs have emerged, vying for a share of the redistributed pie. Tesla, BYD, Lucid Motors, Nio, Vinfast, Sony, Rivian, Xpeng, Geely and many other new brands and manufacturers are entering the market with electric cars, which is undergoing a disruption.

Another disruption is about to follow with autonomous driving, which will again bring a number of new players into the industry.

The challenge for traditional manufacturers is not that they lack knowledge or skills. After all, many of the new companies include former employees from the industry. Rather, it is the fact that managers are valued differently than company founders. Board members have to increase shareholder value during their term of office, which is usually four years. Their bonuses are often linked to this. And if they fail to do so, they are out of a job immediately.

However, moments of disruption not only often require high investments in new technologies and production processes, which depress the company’s value in the short term, they are also fraught with uncertainty. Just a few years ago, it was not clear to many whether electromobility would really catch on. Investments in the billions seemed risky. Such technology disruptions are also accompanied by the need to switch to personnel with new skills, while the expertise of the core workforce suddenly becomes less in demand or superfluous. And in countries with strong trade unions, management boards shy away from labor disputes like the plague.

So before a management board faces up to these challenges, it would rather try to maintain the status quo for as long as possible. Because if they tackle such a far-reaching change in strategy today, it immediately leads to labor disputes, high investments that reduce short-term company profits, possibly reduce the current shareholder value and thus also the value of their own bonuses, and the risk of being dismissed before the end of the contract increases. The fruits of this change in strategy are then reaped, if at all, by the successor of the successor of the successor, but you yourself, who initiated these changes, gain little from them.

Company founders, on the other hand, think differently and can act differently. They have “skin-in-the-game”, i.e. they have not only founded the company, but have their own money in it. They tend to think more long-term, because even if they are no longer operationally active, they still hold large shares in the company. Short-term share price increases are not important to them, but rather the long-term development of the company.

But this is exactly what is currently happening twice: electromobility and autonomous driving. Two disruptive hammers that only follow each other with a short time lag. If we only look at how hesitantly and inconsistently German manufacturers (but also others, just look at Toyota’s board of directors) are reacting to this, there is little hope that things will be any different with autonomous driving.

Especially with autonomous driving, the disruption is significantly different than it was with electric cars. While, to put it simply, “only” the powertrain was different here, autonomous driving is shaking up the basic principles of the automotive industry. It is no longer the human who is the driver, but the computer. But who do you sell a car to? People. And who do car companies hire? People who like driving.

And what will be important for autonomous driving in development and production? No longer the best metal bending, but the best computer programming. The digital world is moving in, and companies have had little experience or focus on this up to now.

For all these reasons, it is so serious that no start-ups are coming from Germany and no companies have been founded to develop autonomous driving. This means that no one from Germany is following in the footsteps of the potentially doomed German OEMs.

Reason 4: Compliant Henchmen

Many of these myths are spread by German experts and the media, who on the one hand bring in dubious experts such as the “engine pope” Franz Indra, for example, who are now seeing their area of expertise being consigned to a museum and cannot cope with this and do not understand either electromobility or autonomous driving, and on the other hand pounce like vultures on negative reports about new technologies such as autonomous driving, such as the aforementioned case of the accelerating Tesla in China. One example of this was an article by Stephan Scheuer from the German economic daily Handelsblatt, who had completed a dozen trips with Waymo in San Francisco in the summer of 2023 and devoted the first 80 percent of his article to supposed faults or problems with the robotaxi. Only at the end does he report that everything actually ran smoothly and safely anyway. The current reporting on Tesla’s decline in profits in 2023 has already led to alarmist media reports that are now talking about the end of the company. Or the exaggerated reporting on alleged fires involving electric cars. This signals to their readers that this technology is a long way from being ready for the market and therefore poses no urgency or threat to domestic companies. This is a disservice to domestic companies, because if things turn out differently and they have relied on the future predictions of these henchmen, they will once again be too late with their own technology and strategy and yet another industry will leave Germany.

Then there are those specialists who tell German companies how great they are and how far ahead the industry is in the new technologies. Or that Tesla & Co. would primarily use technology from Germany, so what would come from Tesla or the Chinese themselves? These are consultants who are hoping for new orders if they can flatter their clients well enough. But the opposite is the case. We should finally talk straight and stop fooling ourselves. We are far behind. If we were so great, we’d have our home-grown Waymo and local Tesla (or SpaceX or Google or Apple or Uber or Facebook). But we don’t have any of that.

Another group is made up of legal experts who, on the one hand, warn of the alleged lack of a legal framework, but also blow up questions that have actually been resolved into an elephant. One of these is the question of liability. Who should be liable in the event of an accident involving a self-driving car? This is being elevated to an insurmountable and almost insoluble obstacle, as if the legal issue were the actual rocket technology and not autonomous driving itself. Yet it has long been solved and solvable. If an algorithm error is to blame for the accident, then manufacturer liability comes into play. If the accident happened because of a defective or poorly maintained sensor, then operator liability applies.

A special place in hell should be reserved for long-haired (and alleged) philosophers who raise ethical or moral questions but have spent centuries wriggling out of answering the questions themselves and drawing up clear guidelines. And now they are publicly demanding solutions from engineers, whom they accuse of being inconsiderate and clueless, without wanting to contribute solutions and suggestions themselves.

One term for this type of compliant henchman, deniers and deflectors is the moral entrepreneur. A person who sees the downfall of civilization coming thanks to a new technology and demands radical changes, but has no knowledge or experience of it himself and certainly has no practical and realistic solutions to supposed problems. Moral entrepreneurs are quite easy to spot: they are often long-haired, male, dazzle with philosophical terms, technical terminology or interpretations of supposedly historical statements by some philosopher, and are passed around from talk show to conference to sell their books and collect speaking fees. Who they might be comes immediately to mind for each and every one of us. This very person, for example.

Reason 5: Non-Compete Clause and Other Peculiarities

In California, non-compete clauses are considered invalid. They prohibit employees from working for another company or for themselves in this field for a certain period of time after leaving the company. California has always seen this as a problem because it would be tantamount to a temporary ban on work, which would deprive the Californian state of tax revenue and burden the unemployment fund.

This attitude means that former Google employees, for example, have already founded a handful of autonomous driving companies (Kodiak, Aurora) or are now working for others (Zoox, Cruise). In Silicon Valley, there are also a number of other factors that make it quite easy to set up companies. Venture capital, talent and the ecosystem of universities, research institutes and other companies promote new companies.

This also has advantages for society as a whole. On the one hand, many different approaches to the development of this technology are pursued, giving them a greater chance of success, and on the other hand, it is not just one company or sometimes even just one person who decides whether this technology is developed further or not. If 10 companies are working on it and one stops the development, there are still 9 others here to continue. One of them will then be successful and provide society with a new technology.

The practice of who owns the intellectual property of an idea is also different in Silicon Valley. Stanford University, for example, did not retain the intellectual property (IP) to the idea, Pagerank, of its two doctoral students Larry Page and Sergey Brin for providing the premises and network access for their search engine Google, but took a share of over ten percent in the young start-up. The situation is different at MIT or the Fraunhofer Institutes. There, the intellectual property remains with the university or institute, which makes spin-offs more difficult. Who wants to invest in a startup that doesn’t even own its own IP but has to pay license fees regardless of the company’s results?

Finally, I would like to mention stock options, which allow start-ups to hire exceptional talent even at lower salaries. Because these shares in the company can be worth millions if the startup is successful. And motivated talents are betting that they can earn a lot of money with their own work in a startup with a promising idea. However, this requires an appropriate legal framework, which is in place in the USA, as well as the ambition of talented people who are already willing to take such a risk. These are all elements that seem to be in short supply in Germany. And I have forgotten a whole series of them. But in my book Future Angst, I go into more of these framework conditions and also try to put them into a historical context and show what we could do to counteract this.

Reason 6: The Joy of Being Driven?

A few years ago, during a factory visit to the French manufacturer of autonomous shuttle buses Navya, an employee’s statement was an eye-opener for me. He mentioned in passing that only 40 of the 220 employees had a driver’s license.

Compare this with traditional car manufacturers, where almost every employee has a driver’s license, and in some companies a driver’s license is even a prerequisite for employment. Navya employees are building a solution for themselves, one that does not require them to drive or have a driver’s license. This is also true for other companies working on self-driving technology, such as Google/Waymo.

Car companies, on the other hand, traditionally attracted potential employees who enjoyed driving themselves. They built a solution for themselves. Just as you wouldn’t expect Harley to suddenly develop quiet electric scooters instead of rattling and bubbling motorcycles. In the same way, you don’t start with a company whose motto for years has been “The joy of driving”. “Joy of riding” and not “Joy of being driven”.

In other words, there is no desire to develop such a technology because it contradicts their own preferences.

Reason 7: Is Germany Too Stupid?

Do we have too little brainpower? Definitely not, as German engineers are highly sought-after by new manufacturers, where they are often in a leading position, and they also demonstrate their skills in impressive ways. In January 2024, for example, the TU Munich team once again won the Robocar racing competition in Las Vegas. TU Munich teams also won the Hyperloop competition with almost uncanny regularity. So there is no shortage of brainpower.

But the highest IQ doesn’t help if you don’t want to. If you tell yourself that it’s not needed, that it can never work, that the law doesn’t allow it and that the Chinese and Americans can’t hold a candle to us. So if you use your mental power to talk something down instead of using it to tackle the challenges of the future in an innovative way.

Or if these successes are not reported on. In the USA, the winners are passed around and invited from one interview to the next show. Not only that: some companies also make offers to the winning teams that they cannot resist. IBM, for example, made a job offer to students at Carnegie Mellon University after they had attracted attention with their chess computer at tournaments. So why don’t Siemens, Mercedes-Benz or other big names in German industry come and compete for the winning talents from TU Munich? I don’t know. The fact that they don’t do it is pretty stupid.

Finally, fitting to this segment a little anecdote: a Tesla employee friend of mine in Fremont had made an Audi employee who wanted to change careers an offer to move from Ingolstadt to start at the factory in Berlin-Grünheide. Everything was settled until the Audi employee came back with a query. He had discussed the move and the new job with his family, and he just wanted to make sure that he wouldn’t have to work past 6 p.m. but could finish work on time. Given the fact that he had to work with his colleagues in Fremont in a different time zone (6pm in Germany is 9am in California), this was a guarantee that Tesla could not give him. My friend then withdrew the offer. The ambition of the potential new employee was not there, the familiar company culture and work expectations were not compatible with the new ones.

This article was also published in German.

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