Industry’s old school moves to introduce technology to rival Silicon-Valley competitors
e up to the threat posed by emerging competitors Google Inc. and Apple Inc., look no further than Audi AG ’s R8.
On the first day of the Geneva Motor Show, Europe’s annual lovefest for the automobile, German luxury car maker Audi rolled out a souped-up electric sports car called the R8 that demonstrates why auto executives think they can withstand an onslaught by Silicon Valley that threatens to upend the 129-year-old industry.
The R8 has a sleek body of lightweight aluminum and carbon fiber that gets up to 450 kilometers (280 miles) on a single charge. Audi has run the R8 on autopilot at more than 200 km/h around Germany’s Hockenheim Formula One racetrack and packed it with futuristic laser headlights that shine brighter and further than current lights, illustrating where automotive technology ends today.
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The car is meant to show that the industry can do now what tech companies like Google say will one day be possible. “Our goal was to bring all new technologies into the car,” said Heinz Hollerweger, head of Audi’s performance unit Quattro GmbH, which developed the R8.
As the auto industry battles with sluggish growth in Europe, the collapse of the Russian economy, volatile currencies and political instability in some parts of the world, car executives are growing concerned that a turbulent storm is approaching, as technology giants like Apple and Google take aim at their industry.
In a story of disruption to the status quo that has been told in many industries in the past, car makers are now scrambling to make sure that they remain in control of the industry they have built.
“There is tremendous opportunity from the convergence of the West Coast technology and the auto industry with its huge technology depth,” said Dieter Zetsche, Chairman of Daimler AG , whose founder patented the first automobile in 1886. Daimler owns the Mercedes-Benz luxury car brand. “We are not afraid. We are confident about our own strength.”
Dieter Zetsche, Chairman of Daimler AG and Head of Mercedes-Benz Cars sees “a tremendous opportunity from the convergence of the West Coast technology and the auto industry.” PHOTO: JACOB KEPLER FOR THE WALL STREET JOURNAL
Neither Apple nor Google have exhibited vehicles at the Geneva show, but their presence was felt in closed-door briefings and news conferences with industry executives. Google has developed a prototype car that can drive itself. Earlier this year, the company said it hopes to have one on the road in five years.
Renault SA Chief Executive Carlos Ghosn doubts Google’s timeline. “We don’t think it’s feasible,” said Mr. Ghosn of the tech giant’s forecast to have its cars ready by 2020. “It’s in the 10 years-plus horizon,” he said, citing the slow pace of technological improvements and government regulation.
Apple has several hundred employees working on designs for an Apple-branded electric car in a project code-named Titan, people familiar with the situation have told the The Wall Street Journal. The project has progressed enough that Apple employees are taking meetings with contract manufacturers that specialize in high-end autos, though production of an Apple car remains a long way off, if it ever actually arrives.
Martin Winterkorn, Chairman of Volkswagen AG, sees his company bringing together the digital and automotive worlds. PHOTO: ASSOCIATED PRESS
One reason why auto executives are concerned about confronting Silicon Valley is that they might be bringing a knife to a financial gunfight. Apple alone has a war chest of nearly $178 billion in cash, and its market capitalization of $750 billion is more than double the combined value of Volkswagen AG , Renault, PSA Peugeot Citroën, Daimler AG, BMW AG, and Fiat Chrysler Automobiles NV.
“I’m concerned about somebody of that caliber playing the disrupter role,” said Sergio Marchionne , chief executive of Fiat Chrysler. “Apple has credibility and much more capacity to finance itself than any car producer.”
The tech challenge from the newcomers arrives amid a mixed global economic outlook. Last year Europe posted moderate growth in car sales, buoyed in part by the European Central Bank’s low interest rates that have made car loans cheaper. But the pace of Europe’s recovery has weakened, dulled by political crisis in Ukraine and the collapse of the Russian economy as a result of Western sanctions and the decline of the ruble.
‘Apple has credibility and much more capacity to finance itself than any car producer.’
The U.S. car market is growing fast again, supported by falling unemployment, continued economic growth and low gasoline prices that is fueling demand for light trucks and sport-utility vehicles.
China also continues to grow, underpinning the profits of many western car makers. “China will be the generator of growth and the U.S. is a very strong region,” said Hakan Samuelsson, Chief Executive of Volvo. “Europe needs to keep up but it won’t be a big source of growth.”
The threat that companies like Apple and Google could end up controlling key technologies in the car, such as systems to connect vehicles with each other on the road or autopilot systems, is spurring the industry to accelerate its own development of these technologies. That is demonstrated by Audi’s R8 and the deployment of new technology in more mainstream cars.
“If these two companies intend to solely produce electric vehicles, it could go fast,” said Volkswagen CEO Martin Winterkorn . “We are also very interested in the technologies of Google and Apple, and I think that we, as the Volkswagen company, can bring together the digital and mobile world.”
Sergio Marchionne, CEO of Fiat Chrysler Automobiles, says he is concerned about companies with the financial heft and caliber of an Apple playing a disrupter role in the automotive industry. PHOTO: ASSOCIATED PRESS
Many in the industry doubt that Google or Apple actually want to build cars. Both companies are eager to follow their customers wherever they are using their products in the course of the day—at work, at home and in the car. The tech companies see the automobile as the third space where people spend a lot of time, several car executives said.
It is unlikely that either Google or Apple could produce a car as sophisticated as Audi’s R8 in the near future. One thing is sure: the automotive industry is being shaken up by new technologies such as electrification and the Internet. Who the winners and losers will be, though, remains uncertain.
The arrival of Google and Apple to the car market “is a good thing, but when you’re the guy whose life is getting disrupted you won’t necessarily look forward to the event,” said Mr. Marchionne. “You may feel better after the event, but while you are going through the event it isn’t a good thing.”
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