The Growing Tech Dependence of Automakers mirrors Smartphone

The $3 trillion global auto industry is undergoing a technology transformation. Read on to see how legacy large auto manufacturers are faring.

If you notice the last number in the infographic above, you will see that of the 80 million cars sold in 2023, over 16 percent of them were electric vehicles. The demand for EVs is rising on a yearly basis. Their sales have increased from 6 million in 2021 to 10 million in 2022 and 13.6 million last year.?

China and Europe account for majority of these sales. As for the electric vehicle manufacturing landscape, it is currently led by both 比亚迪 and Tesla . Both companies began production in 2003 and have become major players in the industry.

This brings us to the most imminent question. How are the legacy automakers playing catch up? The answer is a different approach to auto manufacturing that is changing the driving or the car experience for the people.

And therein, lies an opportunity for automobile Engineering Research and Design (ER&D) which is supporting an entire industry that is attempting to juggle a large tech transformation.

No other industry is undergoing as rapid technological change as the auto industry. This is driven by the need to address impending, evermore stringent CO2 and criteria emission regulations, while sustaining unprecedented rate of progress with development of automation and infotainment, and meeting the customer expectations regarding performance, comfort, and utility.

Zoran Filipi, Chair of the Department of Automotive Engineering at Clemson University’s International Center for Automotive Research.

It is not just hardware, the #software is eating the car as well. The features that were once seen only in premium cars are becoming ubiquitous. The improvements in safety and emission control are now being driven by innovative embedded systems.?

A modern car in 2021 was known to have ~150 million lines of code. In terms of cost, software and electronics made up 22% of a car’s bill of materials (BOM)* in 2000 but this figure is expected to shoot up 2x to 50% by 2030. That means 50% of the cost of manufacturing the car will be spent on software. (Source: Institute of Electrical and Electronics Engineers magazine Spectrum, June 2021)

When faced with a complexity like the one above, it creates a challenge for automakers. These challenges like physical networking, integration, testing and software bugs are similar to those faced by a large-scale embedded system.

And there is no room for errors. Any “edge” case that is not tested can result in loss of life.?

Now, the auto industry operates on multi year model cycles. It means research and design for a particular model or a car is frozen before the start of production. But this is far from possible from a software standpoint where updates happen often! They can be either monthly with major overhauls, perhaps every year.?

When speaking of such technological evolutions, we hear of the cell phone analogy where a simple boxy device went on to become a smartphone. But, the evolution of the car is much more complex.

Counting Challenges

Lower entry barriers for new entrants

Since World War II, no new car brands made it to roads across the globe except state supported ones like Hyundai Motor Company (?????) . But in the past 15 years, we have seen the emergence of multiple new companies like BYD, Tesla, NIO蔚来 , Rivian , Lucid Motors and VINFAST .?

Although time will tell how many of these new entrants will survive the industry and flourish, the relative simplicity of batteries and electric motors has knocked down entry barriers. These automakers no longer need $2 billion to design an internal combustion engine (ICE)** and ramp up production.?

Supply chains are in a flux

Historically, large automakers have grown by progressively outsourcing the car components while keeping the integration and engine in house. This model, however, is no longer enough as the vehicle platform is undergoing a transformation with shortened development and update cycles.

The well established Tier 1 > 2 > 3 supply chain is in a flux with erstwhile chip suppliers i.e. Tier 4 like 英伟达 is becoming de-facto Tier 1/2 suppliers. Several technologies that were not readily available to the automakers from their existing vendors are forcing them to look outside.?

The Software Defined Vehicle (SDV)

Software will account for 90% of future innovations in the car.

Former Volkswagen Chairman Herbert Dies at VW press conference in 2019

Back in the day, innovation in car making meant improving mechanical or hardware features like designing a better engine, improving the quality of the build, increasing the number of airbags in a car, better horsepower, etc. But, now it is different. The innovation parameters for a car have seen a steady shift towards features like cruise control, smart lighting, intelligent safety, touchscreen(s) and more.

What differentiates automakers now is the driving experience which is delivered more by the software than the hardware. As advancements in autonomous driving happen, this differentiation will only increase with time. This evolution underlines the big challenge that legacy automakers face: re-orienting their strategies to build software capabilities along with mechanical engineering excellence.

Carmakers are now appointing chief software officers, presenting strategy at “software days” and setting up software divisions. A new seven-storey building at the Mercedes-Benz AG plant in Sindelfingen, built at a cost of €200 mn, will house a third of the firm’s 3,000 software engineers. CARIAD , the software unit created by VW in 2020, has a large site in Ingolstadt, not far away, for its 6,000 software employees. Stellantis aims to have 4,500 software engineers by 2024. 通用汽车 had planned to hire 8,500 techies in 2022.?

The Economist, April 2023, Article: Everything about carmaking is changing at once

In the face of large simultaneous disruptions like electrification, connectivity, automation and software, legacy automakers and their suppliers cannot just buy a new solution from their trusted vendor. They have to turn to #startups for partnerships and investments to acquire and? co-develop capabilities in new tech and it will also help them identify new suppliers.?

The graphic below highlights some of these partnerships. Anecdotally, it appears BMW has been the most active with over 60 investments in recent years.

*BOM: Bill of Materials

**ICE: In the context of cars upstarts, ICE refers to the traditional gasoline or diesel-powered engines that have been the dominant technology in cars for over a century