Mike Thoeny explores several key trends to achieve the promise of next-generation mobility
Rapid technological advancements in electrification and software-defined vehicles are transforming the automotive industry at the fastest rate in 100 years. At CES in January 2024, companies demonstrated innovative leaps in automotive— from the integration of generative artificial intelligence (AI) in vehicles to next-generation digital dashboards. These displays underscored the rapid strides automakers are making to deliver on the billions that have been invested in the industry in recent years.
Shifting business models to scale software-defined vehicles
From new features and capabilities to predictive maintenance, consumers now expect vehicles to improve and adapt throughout their lifecycles through real-time software updates. These over-the-air (OTA) updates—ranging from driver assistance features to onboard infotainment upgrades to digitally-enabled services—seamlessly deliver upgrades that improve safety, enhance the driving experience, and reduce consumer visits to dealerships.
Simultaneously, automakers have much to gain from the advantages that software-defined vehicles offer compared to the distributed vehicle architecture connecting 100+ electronic control units (ECUs) in the past. The rise of software-defined vehicles is charting the path for the future of mobility, with unprecedented market opportunities likely to grow over time. A recent report from McKinsey & Company projects that the automotive software market will more than double in size from US$31bn in 2018 to US$80bn in 2030.
As the industry transitions to software-defined vehicles, these are huge opportunities. One of the biggest is in simplified vehicle architectures. A key benefit of this new software-based approach is the simplicity that comes with the vehicle architectures required to support it. Legacy vehicles with hundreds of discrete ECUs have limitations in computing power and require significant wiring infrastructure in areas where space is often severely limited. Conversely, software-defined vehicles utilise centralised vehicle architectures with fewer, but more powerful scalable computing solutions. This enables faster, updatable, and more fully-featured software while greatly reducing vehicle wiring and overall system component counts.
In addition, the software-defined vehicle provides more opportunity for automakers to deliver differentiated experiences and build long-term brand loyalty with customers. OTA updates can deliver not only repairs that previously required a trip to the dealership, but they can also provide new digital content. According to Boston Consulting Group, customers tend to stick with brands once they adopt digital services and customised software, promising significant upside for automakers.
The commercial model of consumer payment for software innovations is evolving, with new revenue opportunities emerging for automakers such as monthly and annual subscriptions. This enables OEMs and other software providers to monetise their significant investments. Boston Consulting Group predicts that revenue from these services is set to rise to US$248bn by 2030, with consumer-facing applications contributing the majority at US$209bn.
For years, automotive industry leaders have said cars are transforming into “smartphones on wheels” to meet evolving consumer expectations. This is evident in how software-defined vehicles are becoming the most powerful computers that consumers interact with daily. But the complexity of the software-defined vehicle dwarfs even the most advanced smartphone: Apple’s latest A17 Pro chip is estimated to manage up to an impressive 35 trillion operations per second (TOPS), whereas Nvidia’s Drive Orin platform for self-driving cars far outperforms it at 508 TOPS. The difference in scale is staggering.
To capitalise on these opportunities and scale software-defined vehicles, automakers must build their competencies to deliver exceptional automotive technology, software, and content to create brand-defining experiences. Which is why many are expanding their software and systems integration capabilities to create unique intellectual property that differentiates their products and services. Creating an interesting crossroad across different players as automakers and their networks of suppliers work together to achieve seamless systems integration.
To successfully scale software-defined vehicles, automakers must reconfigure existing business models and take a more collaborative approach so that the industry can meet the complexities and capabilities that the software transition journey demands. Players must nurture a more collaborative automotive ecosystem underpinned by close partnerships to develop and scale complete systems and solutions.
Expanding automotive semiconductor capacity
The shift towards the software-defined vehicle also means that the wider industry must shore up its semiconductor pipeline. Ongoing semiconductor shortages have challenged the automotive sector, with AutoForecast Solutions estimating that almost 18 million vehicles have been removed from production plans since the chip shortage began.
While the automotive industry is still recovering from these disruptions, the automotive technology and advancements enabling software-defined vehicles and EVs are creating transformational opportunities for both the automotive industry and semiconductor suppliers. KPMG’s global semiconductor industry outlook for 2024 shows that semiconductor leaders rate automotive as the most important application driving company revenue. The time is now for the semiconductor industry to invest in automotive capacity. Investing today will build a more resilient supply chain in this fast-growing market while creating significant opportunities.
Next-generation mobility is only achievable with the chips and hardware to support it, which includes high-end system-on-chip devices, processors, sensors, power electronics, and other enabling electronic components. By collaborating directly with semiconductor partners and involving them early in the product development process, automakers can secure supply and accelerate innovation cycles. Semiconductors are essential for next-generation mobility, and the innovations driving the automotive industry’s transformation will also be essential to the future of the semiconductor industry.
Cross- and inter-industry collaboration
The industry must accelerate the openness of the automotive ecosystem to scale software-defined vehicles and achieve the promise of next-generation mobility. Technology and value chain trends are transcending across multiple industries, from automotive, industrial, and cloud to healthcare and consumer. It’s time for the automotive industry to adopt new business models enabling automakers and suppliers to work together.
Partnerships and potential shared building blocks will empower automakers to respond faster to shifting market conditions
To accelerate innovation and optimise engineering resources, automakers are collaborating on automotive technology and non-differentiating features such as middleware platforms. According to S&P Global Mobility, software research and development spend is forecasted to grow to US$47bn by 2028, with only half of spend today allocated to true differentiating features such as OTA software and AI software frameworks.
This presents an opportunity for the automotive industry to embrace cross- and inter-industry partnerships that enable automakers to move faster and focus their investments on unique, brand-defining customer experiences instead of duplicating time and resources on parallel tracks of non-differentiating feature development. Partnerships and potential shared building blocks will empower automakers to respond faster to shifting market conditions, crucial for a quickly-transforming investment landscape.
Partnering with the entire automotive ecosystem, including key global semiconductor partners, encourages a transparent and innovative approach to delivering automotive computing platforms and next-generation power electronics. By sharing investments with these partners, aligning technology roadmaps, and leveraging shared capabilities, players can co-develop innovative products together with greater agility and efficiency. Benefits for automotive customers are already visible, including lower investment hurdles, which allows automakers to accelerate time-to-market and reduce costs without sacrificing safety or quality.
With automakers expected to invest an average of US$3-5bn each in software-defined vehicle programmes, it becomes an industry imperative to pool resources, co-innovate, and recognise that there is more than enough market opportunity and growth for all of us driving the future of mobility.
About the author: Mike Thoeny is President, Automotive Business Group, Flex