Why Porsche's CFO calls Germany's digital infrastructure a 'catastrophe'
Porsche fears that Germany's slow roll out of fifth-generation mobile phone technology could threaten the domestic auto industry's competitiveness and profitability in the next decade.
In an attempt to offset a drop in car sales and revenues resulting from a shift to full-electric, self-driving vehicles, the sports-car maker is investing heavily to develop new digital business models that rely on constant connectivity.
“The digital infrastructure is an absolute catastrophe. I go crazy when I hear that 5G fiber optic networks are not a certainty [in Germany] by 2025,” Porsche Chief Financial Officer and IT head Lutz Meschke told me. “If we do not have blanket coverage that is reliable and in place by 2021 at the latest, then we will not be able to play a role in autonomous driving."
Self-driving cars are expected to communicate in real-time with other vehicles and the surrounding transport infrastructure, uploading and downloading information to the cloud via mobile networks. If the data transfer rates are too slow, it could disrupt traffic and pose safety issues.
Porsche and other automakers are also counting on robust connectivity so that they can offer over-the-air updates, a critical feature that also opens the door for functions on demand. These micro-transactions allow customers to temporarily purchase things such as dynamic front headlights to improve safety during night driving or a sports package that would provide more horsepower and a stiffer suspension when at a racetrack.
“IT used to be seen a cost position that needed to be reduced as much as possible, whereas today it's a competitive differentiator,” Meschke said. “But if I as head of IT set a target that 30 percent of our revenue in the midterm should come from digital business models, then our IT spending has to be in a certain relation to our development budget,” he said.
That means if Porsche's expenditure to engineer new models and derivatives is somewhere between 2 billion to 2.5 billion euros a year, IT spending will have to be anywhere between 700 million to as much as 1 billion euros a year.
After Porsche had earmarked about 300 million euros for investments in its IT systems two years ago, it is now on pace to approach 450 million annually.
You can reach Christiaan Hetzner at email@example.com.