“The business model is changing. I would make a comparison to the smartphone world, maybe a company like Apple – they sell these fantastic devices, but the device comes with a world of opportunities. The car is now moving from being just a device to being a device with a world of opportunities. So the business model is everything electronic being downloadable in the future – as much already is today in a Mercedes, but in the future, literally everything. The car can also turn partially into a digital subscription service for driving-assistance systems or any other use case you can think of inside a car. So the business model is changing from just thinking we are selling beautiful hardware with electronic components in it to selling beautiful hardware with a digital ecosystem.”
That is how Ola Kallenius, chairman of the German automotive group Daimler, speaking at Axis Tel Aviv innovation conference last month, sees the automotive business in a decade’s time. Startups from 33 countries attended to get insights into the future of cars and Daimler’s strategy.
In the case of Daimler, it’s a two-pronged strategy of digitization and decarbonization. Its goal is to capture half the market for XEVs, the industry term for 100% electric vehicles with zero emissions, in its market segment.
In an interview with TheMarker at the conference, Kallenius revealed for the first time the exact role of the research and development center Daimler established in Israel in 2018 under the management of Adi Ofek.
“In our network of digital hubs, as we call them, we assign each digital hub with specific main tasks for Mercedes World as a whole. One of those tasks that we assigned to the Israeli office was to think about the infrastructure and technology in and around cybersecurity,” he said. “Without Tel Aviv and our office there we could not execute our software architectures in a cybersafe way.”
“It has fulfilled the hopes that we had for the team and there’s so much more to do,” said Kallenius. “But it’s more than that – it’s almost like a tech scouting outpost where we look at what’s going on in the scene and we create connections between other parts of the company and companies that are active in the Israeli startup (or tech) scene in general.”
Kallenius was born in 1969 in Sweden and got his master’s degree in finance and accounting and served in the Swedish army from age 20 to 22. His first visit to Israel was in 2015, when he formed connections with local companies.
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‘Where the action is’
As well as serving as chairman of Daimler since 2019, he is chairman of Mercedes Benz and chairman of the supervisory board of Daimler Truck. Developing a network of R&D centers like the one in Tel Aviv is part of the company’s transition.
“Needless to say, you need to be where the action is, where the talent is, where innovation is,” he said. “In the United States, on the West Coast, we’ve been in Sunnyvale in Silicon Valley for more than two decades. But we’ve also opened up a few years ago, about the same time, maybe a little earlier than Tel Aviv, our cloud hub in Seattle, the cloud-computing capital of the world, you could argue. We have a huge tech center in Bangalore, the biggest one outside of Germany … For our newest site, in Germany, we chose Berlin. Why Berlin? Berlin is a little like Tel Aviv in terms of being a magnet for young talent and also for startups in Germany. When you walk into the office, you hear I don’t know how many languages – there are [citizens of] 30 nations working there ... I believe we have some Israelis also that have come to work for us there, so not only do we have an Israeli footprint in Tel Aviv but we have it in Berlin, also.”
The global automobile business is undergoing a process of consolidation. Does this pose a risk to your company, or an opportunity, especially in luxury cars? Are you considering cooperating with other automakers?
Kallenius: “What’s the magic of Mercedes Benz, and what is the brand promise of Mercedes Benz? It’s a combination of luxury and tech. We’ve always had this engineering core and pioneering spirit, but it’s always been something more – it’s been the car that you dream of, it says something special. It’s the aesthetics, it’s how it drives and all of those things. Luxury plus tech, I think both those are future trends. I think luxury is here to say and it’s a growing business, and so is tech. We believe in Mercedes as a potential winner in this transformation, but you can’t take anything for granted. When you have an industry that’s going through transformation or disruption, new players come in, some of the incumbents are successful, some struggle. We will have an upheaval in the auto industry over the next 10 years or more. In general, we intend to tackle that challenge on our own, but with partnerships. A major acquisition deal or a merger with another automaker is not planned.”
Car sales in Europe fell sharply in February compared to the same time last year. Will people go back to buying cars, or are government policies that encourage mass transportation putting the future of the industry at risk?
Kallenius: “COVID was obviously an unwelcome black swan, and I can’t see many positive things about it, to be totally honest. But it gave us perhaps also an opportunity to pause and reflect and to think as a company about where we are going … One of those reflections has been how important your personal space is, the personal space that you have. If we’re looking at personal space in terms of moving from A to B, it is the car – it’s self-determined, individual freedom. You can go anywhere you want when you want to do it … I don’t think that is going to go away. In a strange kind of way, COVID has reminded us how important that gift that we’ve taken for granted is.”
Noting that in 1885 Carl Friedrich Benz invented the first car with an internal combustion engine, with three wheels, and a year later, Gottlieb Daimler unveiled the first four-wheeled car with a four-stroke engine, Kallenius said the goal was now to take their “gift” of automotive transportation a step further. “Now we have to make the gift without side effects – take away the CO2 and make the product smarter. I believe that COVID may, in a strange way, help us as a business to grow.”
Everyone’s rushing in
The electric car revolution is here. Have you set a target for market share? At the moment Tesla is leading the market. Does it have any vulnerabilities? What are Daimler’s strengths versus Tesla?
“Everyone is rushing in right now – established players and new players. We’re launching four fully-battery electric vehicles this year in the passenger-car side alone … I think the competitive intensity in the market is going to increase. We, as an established player, not only take our established competitors very seriously – the ones that we have been competing against for decades – but we also take the new players very seriously. We have to focus on fulfilling the Mercedes brand promise, coming luxury feeling with superior tech. If we do that right, there is going to be a very nice place for us also post-transformation.
“I don’t want to pass judgment on the other competitors on how successful or unsuccessful they will be, but we’re going to try carve out our home turf in luxury mobility, CO2-free.”
During his presentation, Kallenius pointed to trucks as one of the areas in which Daimler aspires to lead the market. The company makes trucks and businesses weighing up to 40 tons, for which electric batteries are impractical. To address the challenge, Daimler has formed a partnership with a competitor to develop fuel-cell technology.
Looking further to the future, what will be the next big technology to power vehicles after electricity? Someone asked me whether solar power would be it.
“One should never underestimate the creativity and ingenuity of engineers. They always surprise you, and that’s why the general attitude has to be open-minded toward new technology and not dogmatic. But if I look at what’s happening in the market right now and what we foresee for the next 10 years, we believe that the battery-electric vehicle is going to be the main trend of the passenger-car side.
“The fuel cell comes into its own where you need a lot of energy, so if you want to take a 40-ton truck 1,000 kilometers in a day, yes you could do that with a battery, though probably the battery would weigh seven tons or something. You come to a point where you ask, does that make sense? Or should we maybe go to another energy-storage conversion solution? That’s why we’ve let out that second horse in the race as well, because you can do the same thing with much less packaging space and a higher energy density through liquid hydrogen.
“But who knows? If there is an unbelievable breakthrough on the battery side, doubling energy density beyond what we know today, it could swing in the other direction.”
As to solar power, he said, “Solar power could complement the energy if you put solar cells on the roof [of the vehicle], but if you look at the amount of energy that you can absorb per kilometer, it’s not so much. Could you drive a car just with solar? Not yet.”
Kallenius noted that five years ago, many predicted that by 2021 self-driving cars would be plying the streets in big cities. It didn’t happen, although major advances in technology have taken place in the meantime.
Kallenius: “Autonomous driving is coming, and it’s coming step by step. I think it’s going to be a while before the whole world and every vehicle is autonomous. That’s a few years away, but it’s going to come more and more.”
He points to the truck segment. “If you could on the highways or interstates of the United States have hub-to-hub autonomous trucks driving, it would significantly lower the cost of that kind of transportation and increase the safety of it. Those are things that we’re working on, and I believe this will come.
“If we are talking about robo-taxis, I believe it is a little farther away, but we will have more and more situations where the car takes over. We’re not going to get rid of the steering wheel quite yet, so you will be able to drive for many years to come. But I can think of situations where it’s fun to drive, but maybe you’ve had a very long day at the office and you really just want to push a button and relax on the way home. Then, you’d be very happy if the car can drive autonomously. So, it will be a mix. Complete autonomous driving for everything – I think it’s a little farther away.”