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02/25/2019

11:03 AM

Historic partnership

BMW and Daimler put aside rivalry to take on Google and Uber

By: Franz Hubik, Markus Fasse

But the German carmakers' mobility venture is unlikely to challenge the global might of American and Chinese competitors, experts say.

Source: Bloomberg

Did you just say we're in a relationship now? Daimler's Dieter Zetsche (R) with BMW's Harald Krüger.

Source: Bloomberg

They’ve been rivals for years, with both companies trying to take the top spot in the premium auto sector. But at the end of last week, BMW and Daimler – the maker of Mercedes-Benz – announced a new and wide-ranging partnership in mobility services, widely seen as a crucial area for the industry in the future.

Staff at the two companies may have sniped at one another in the past, and in fact, they still do. But the two company heads could not have been more relaxed last week. In recent days, they’ve been dining together regularly – on traditional Bavarian sausage and pasta, they say – and at the end of last week they announced what BMW boss Harald Krüger described as “a total game changer!”

Speed It Up: Auto giants push into mobility services market

Speed It Up

Auto giants push into mobility services market

Undaunted by the muscle of Uber and Google, German startups, backed by auto giants VW, Daimler and BMW, are trying to shape the future of mobility.

“The sky is the limit! Something quite unique,” said Dieter Zetsche, his opposite number at Daimler.

What the two former rivals are talking about is a merger of their existing mobility services operations, in favor of five shared brands, whose offices will be based in a former subway tunnel in the center of Berlin. They include car-sharing (Share Now), ride-sharing (Free Now), parking services (Park Now), charging facilities for electric cars (Charge Now) and a mobility platform which allows easier booking across different transport media (Reach Now).

The deal aims to bundle all Daimler and BMW’s existing mobility services together in a first step toward critical mass for their joint platform. The two companies already have a customer base of around 60 million people but as yet, they haven’t made a great deal of money with their car-sharing services. Now they want to grow that customer base to over 100 million and turn a profit around the idea that, the bigger you are, the more users you will attract.

Critical mass is vital in this game and if one is absolutely honest, Daimler and BMW didn’t really have a choice. They’ve both invested billions but have yet to reap the fruits from these outlays. Currently Daimler and BMW’s joint revenues from mobility services amount to just €3 billion, about 1 percent of their entire revenues. This doesn’t sound like a lot right now, but the market is seen as hugely promising. In 2018, the ride-sharing market in China, the United States, Europe and India was worth around $100 billion, according to analysts at HIS Markit. By 2040, it will have exploded to be worth $1 trillion.

Outlook for 2035 is not bright

There are also the opportunities offered by autonomous vehicles and, for example, self-driving taxis – an area where the German car companies could really advance in Europe, especially if Volkswagen entered this market too.

If Daimler and BMW don’t want US and Chinese ride-sharing platforms like Uber, Lyft and Didi Chuxing, to dominate that market, they need to move.

What's more, the core business is changing. If the sale of cars, car parts and components currently accounts for 99 percent of the sector’s profits, then by 2035, that could have fallen to just 60 percent, according to Boston Consulting. The other 40 percent of profits will come from mobility services, they predict.  

Eyeing Uber: VW expands ride-sharing service to Hamburg

Eyeing Uber

VW expands ride-sharing service to Hamburg

Moia will launch its ride-sharing minibus service in Hamburg, vying for customers who’d otherwise opt for Uber, a taxi or regular bus. If successful, the VW subsidiary could go global.

There are also other competitors to worry about. “The war between carmakers and tech companies is really heating up,” Stefan Bratzel, head of the Center of Automotive Management, told Handelsblatt. “It will be about getting the most customers on your platform in order to be able to get economies of scale going. Otherwise, you won’t have any chance to make a profit.”

This means that BMW and Daimler will not only be competing with other car companies, but with dominant, digital giants competitors like Google and China’s Baidu. But, as BMW’s Krüger says, “we combine hardware and software. That’s our competence.”

As long as we’re not beaming people around the place, human beings will require some mode of transport, Zetsche adds: “And will all respect to the tech companies, that’s our strength.”

Auto industry expert Bratzel is still a bit skeptical. He believes only a handful of the mobility services can survive in the long term. BMW and Daimler are doing well in Europe, but they don’t have a massive presence elsewhere. China is already lost, Bratzel argues, with domestic tech and car companies there likely to continue to dominate. Meanwhile, “in North America, the German services are just one of many and they have to fight to stay in the game,” he concludes.

Franz Hubik covers the auto industry and its relationship to government policy and Markus Fasse covers the automotive and aviation industry from Handelsblatts Munich office. To contact the authors: [email protected], [email protected]

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