Volkmar Denner, the head of the world's biggest automotive supplier, Bosch, argues that diesel technology remains crucial – to meet emissions targets and give carmakers the time they need to shift to e-mobility.

Bosch CEO Volkmar Denner in a Bosch concept car last year. The company is investing in artificial intelligence and self-driving systems but remains heavily dependent on diesel.

A rift has emerged in German automaking over the future of diesel technology. In an interview with Handelsblatt, the chief executive of auto components giant Bosch, Volkmar Denner, said he was against cutting tax incentives for diesel, a suggestion made a few days ago by Volkswagen CEO Matthias Müller who said the money would be better spend on subsidizing green mobility.

Mr. Denner said that would "accelerate a development that would be difficult for large parts of the automotive industry to cope with." He added: "The transition to electromobility takes time and investment. We will certainly need 10 years to manage the transformation process." Bosch employs some 50,000 people in diesel technology.

The German Federation for Motor Trades and Repairs (ZDK) also criticized Mr. Müller's proposal. "First VW ignites a wildfire with manipulated diesel engines and then its boss pours oil on the flames," said ZDK director Axel Koblitz, referring to the emissions-testing scandal affecting 11 million VW cars worldwide that came to light in 2015.

Handelsblatt interviewed Mr. Denner at Bosch's new campus in Renningen near Stuttgart, where the company is researching artificial intelligence systems, self-driving and low-emission drive systems.

Mr. Denner, now that we have reached the end of the year, what is your assessment of 2017?

I am very satisfied. We expected three to five percent growth and are now well above that figure. Earnings are also on target and have improved once again, compared to the previous year.

Can this pattern be continued in 2018? Then you would achieve sales of €80 billion ($95 billion).

We will continue to grow in 2018, but we are more cautious now.

Why?

China is currently driving our growth. For example, we are benefiting from a truck boom in our diesel business there. But after the People's Congress, we expect the government to implement structural reforms to reduce overcapacity and the high level of debt. Besides, a subsidy program in the passenger car sector is also coming to an end. The boom is unlikely to continue, which will affect our diesel business. So far, we have been able to compensate for significant declines in other markets with demand in China. In Germany, for example, the diesel share of new passenger car registrations is 10 percentage points lower than a year ago. That's why we are cautious for 2018.

The transition to electromobility takes time, time that is being taken away from us by the current debate over diesel and the rapid phase-out of the combustion engine.

In addition, the German car industry faces homemade problems stemming from the diesel scandal. Do you think the scandal is over?

Let me put it this way: The debate over diesel is being conducted with too much emotion and too few facts. Modern diesel technology is extremely innovative. The stricter limit values that will not apply until 2020 can already be met today. With the technology available today, a diesel engine can achieve the same emission values on the road, under real driving conditions, as on the test bench. Without the diesel engine, Germany will probably not achieve its national climate targets for CO2 emissions. Unfortunately, however, facts don't appear to be important in the debate. I find that annoying. Some of the participants in this debate have little expertise and often no facts. Those who speak eloquently usually bear no responsibility for the employees. We have 88,000 people working in combustion technology, with more than 50,000 of them working in diesel. I think a purely emotional discussion is irresponsible.

We would say that, in addition to the facts, it is mainly a question of trust. And the car industry has cheated people a hundred thousand times over. This isn't the fault of environmental lobby groups. Your arguments could be seen as belittling the problem.

Just to be clear: I do not want to whitewash possible misconduct in any way. The procedures in question need to be thoroughly examined. However, it also has to be possible to point out facts in the diesel debate. Starting in 2020, emissions from vehicles on the road may only deviate from the test cycle by a factor determined for measurement inaccuracies. This has already been decided. Our test vehicles demonstrate that we are achieving this goal with modern technology. In fact, we are already developing systems that are well below these limits. That's why, in the debate on diesel, it is high time that we separate misconduct from technology.

We understand. But how exactly do you intend to regain lost trust?

We lead by setting a good example.

How exactly?

In Europe, for example, we have not been accepting any orders for gasoline engines without particulate filters since the middle of the year, and we are doing this without being subject to any legal requirements.

Why are you doing this?

We want to stop basing our actions solely on limits set by the legislator. Our goal is to make the combustion engine as efficient and resource-saving as possible.

Sounds like Greenpeace rhetoric?

To put it simply, in the future gasoline and diesel engines will only be allowed to exhale what they breathe in. This is why we are working on combustion engines whose emissions, with the exception of CO2, will be virtually indistinguishable from the intake air in the future.

Bosch has 88,000 working on combustion engine systems, of which 50,000 work on diesel technology.

Then we could do away with the tax advantages for diesel in Germany - couldn't we?

No. That would accelerate a development that would be difficult for large parts of the automotive industry to cope with.

Why?

The transition to electromobility takes time and investment. We will certainly need 10 years to manage the transformation process. This applies to both employment and production. In our factories, we are currently investing billions of euros in machines, tools and systems, especially for diesel and gasoline engines. These investments will become worthless because they cannot be used for electromobility.

But this is now beginning to sound very backwards and not like shaping the future, but rather preserving the past.

Of course, we are actively involved in shaping the future, and we have been investing large sums of money in the development of electromobility for years. But the transition to electromobility simply takes time, time that is being taken away from us by the current debate over diesel and the rapid phase-out of the combustion engine some participants in the debate are demanding.

14 p5 Bosch in numbers 1-01

Yes, but also because you're not taking the decision to invest even more in electric drives and/or building a battery factory.

I don't know of any other company that is working on electromobility as broadly as Bosch, from bicycles to trucks. We have been investing massively in electromobility for years. We will decide in 2018 whether we should begin producing battery cells.

And?

It's too early to comment. You need to be patient.

That doesn't sound very convincing.

Bosch is the innovation leader in all fields in which we operate. This is an essential part of our strategy. A leading position in battery cells would mean about a 20-percent market share. We assume that approximately 1,000 gigawatt hours of battery capacity will be needed by 2030. This means that we would have to develop around 200 gigawatt hours of capacity by 2030, at a cost of roughly €20 billion. Although this investment is not a problem for Bosch financially, it's a decision that needs to be carefully considered from an entrepreneurial point of view. There are many risks involved. And as far as battery technology is concerned, it makes no sense for us to start with the current technology anyway. We are researching the next generation of solid state cells.

But the competition is really picking up the pace...

We won't let ourselves be pushed. It's important to take the necessary time to make such an important decision.

In the case of diesel, you already risk being stuck with your investments, because it's suffering double-digit declines. Is that making you reluctant to take the risk of venturing into batteries on your own? Are you seeking strategic partners?

As I said, the decision will be made in 2018.

Bosch is the world's biggest automotive supplier ahead of German rival Continental.

The emissions scandal, which also affected Bosch because software you supplied to the car manufacturers could have been misused, is far from over. What have you done to prevent this from happening again?

A lot. Change is a personal concern of mine. I have drafted a so-called product development code for Bosch myself. I see this as a matter that should be addressed at the highest level.

Product development code sounds a little cumbersome.

But it's not. The code contains three crystal-clear principles: First, legality and Bosch values take precedence over customer requirements. Second, the installation of functions for cycle or test detection is prohibited. This prevents products from recognizing whether they are in test mode or in normal operation. And third, the industry is well aware of how and what is being tested by government agencies in the case of product approvals, for example. Optimization on these tests is also not allowed. With our products, we want to improve people's quality of life and protect natural resources as effectively as possible.

It sounds as if you were constantly dealing with unethical requests or orders from car manufacturers?

Let's put it this way: Our product development code provides us and our developers with clear guidelines on how and with whom Bosch intends to do business.

This means that you may end up foregoing business and rejecting orders.

Yes, because the goal of protecting the company's reputation and credibility is more important.

How are you implementing this?

We are training all of our 60,000 product developers as part of the largest training program in the company's history. The developers in the powertrain division have already completed the training. There is also sensitization training that is repeated on a regular basis. I myself attend these events. The product development code is also part of our compliance policy.

Bosch is not bourse-listed. It is 92 percent owned by the Robert Bosch Foundation.

Has this reached your customers in the automotive industry by now?

We promote the code aggressively and no longer accept any other business. Our customers know that.

At the same time, you want to make Bosch a model company in the field of artificial intelligence (AI) and are investing €300 million in the coming years. How do your conventional departments benefit from this?

In 10 years, hardly any Bosch product will be conceivable without artificial intelligence. AI is also making our injection systems even more efficient. We have established our own AI center, with a team consisting of 100 specialists, and we are continuing to build on that.

Handelsblatt deputy editor-in-chief Peter Brors and correspondent Martin Buchenau conducted the interview. To contact the authors: [email protected],[email protected]