Another Innovator’s Dilemma: How the German Car Industry Became a Loser

Success breeds complacency. This is a challenge well articulated by Harvard Business School professor Clayton Christensen in his famous work, 'The Innovator's Dilemma.' The theory explores how established market leaders, often at the height of their success, can falter when faced with disruptive innovations. To illustrate this, let's delve into the German car industry. BMW, Mercedes, Volkswagen, were once all dominant players in the automotive world, and how they grappled with the rise of electric vehicles (EVs). In the meanwhile they got off-track and lost.

Understanding 'The Innovator's Dilemma'

The Innovator's Dilemma states that successful companies can become victims of their own achievements. When a new, disruptive technology emerges, these industry leaders may be hesitant to adopt it due to concerns about potential risks and impacts on existing profitable products. However, this reluctance can open the door for more agile competitors, leading to a loss of market share.

The Delayed German Entry into the Electric Vehicle Arena

Historically, German car manufacturers BMW, Volkswagen, and Mercedes—were synonymous with innovation and quality in the automotive sector. However, their hesitancy to fully embrace electric vehicles allowed Tesla, and notably Chinese car makers, to seize the reins of the rapidly growing EV market.

In 2006, Elon Musk outlined his mission for becoming the market leader with electric cars. He started with luxury cars to generate revenue, then introduced high-quality mid-range vehicles and finally brought a vehicle onto the market at a particularly low price that no other could match. Tesla plans to increase production capacity in Berlin to one million cars per year in the future and will soon bring a €25,000 electric vehicle onto the market, which will be a game changer.

While Tesla aggressively pursued electric vehicle technology, German automakers initially hesitated, focusing on their successful lines of internal combustion engine vehicles. This delay, in part, was influenced by concerns about the feasibility of EVs, charging infrastructure, and potential cannibalization of their existing profitable products. But above all it gad to do with taking risks.

I like to quote the CEO of BMW AG, the German luxury car producer, Dr.-Ing. Norbert Reithofer, from an article exactly ten years ago. When asked why BMW started the risky E-car project with the BMWi-3 and i-8 he responded very honest: "Because doing nothing was a bigger risk ..." [Autoweek 41-2013].

The Consequences: Market Share Erosion

As the world witnessed a paradigm shift towards sustainable mobility, Tesla and Chinese EV manufacturers surged ahead, capturing market share and establishing themselves as leaders in the electric vehicle space. Recent data reveals a significant disparity in electric vehicle sales, with Tesla dominating the global market, and Chinese brands making substantial inroads. In Germany, the ramp-up of e-mobility is slowing down - and China is increasingly dominating with brands like NIO, BYD, Geely, XPeng Motors, Li Auto and GWM.

The Chinese are already leading the way as you can see below

Global Electric Vehicle Sales (2022):

• Chinese EV Brands: 38.4%
• Tesla: 16.2%
• BMW: 7.6%
• Volkswagen: 5.9%
• Mercedes: 4.2%

(Data source: International Energy Agency, 2022)

Lessons Learned

The German automotive giants' experience serves as a cautionary tale. To navigate 'The Innovator's Dilemma,' you must be proactive in embracing disruptive innovations, even if it means challenging their existing successful paradigms and taking risks. In the rapidly evolving landscape of electric vehicles, early adoption and innovation proved to be decisive factors in building market leadership. Are you proactive in innovation in the markets which you are leading for a long time …?

Innovative regards,

Gijs van Wulfen

Global Speaker on Innovation, Founder FORTH innovation method, LinkedIn Influencer 300.000+, Author of Management Book of the Year, Milano, Italy 🇮🇹

#innovation #cultureofinnovation #carmarket