Navigating the Future: 4 Key Drivers of Automotive Innovation
The automotive industry will undergo huge changes in the next 10 years, mainly due to 4 trends: autonomous, connected, electric, and shared (ACES) vehicles. These will change how people use and value cars, create new business models and players, and increase the demand for electrical and electronic (E/E) components and automotive software (SW) in automotive. However, the market growth and impact of these trends will vary across different components, depending on factors like AV penetration, powertrain distribution, and car production. A bottom-up model from Mckinsey can help you understand and measure the effects of the ACES trends on the market dynamics. We will describe these trends in this newsletter.?
The software and electronics architecture in vehicles will see a major evolution?
The future of E/E architectures will see a shift from distributed systems with specific electronic control units (ECUs) and tight hardware (HW) -software (SW) coupling, to more centralized systems with domain controllers (4th gen) and eventually virtual domains (5th gen) that run functions or services from different domains on one unit (e.g., infotainment and body). This will also enable a clear separation of SW and HW, resulting in a layered architecture with abstraction points at OS and middleware levels. Infotainment and driving assistance are likely to lead this transformation, as they have high performance and/or low safety or latency requirements that make centralization easier and/or more beneficial.?
Software: the global automotive software market will show dynamic growth
According to Mckinsey research, the automotive software market will grow twofold by 2030, reaching around USD 84 billion, propelled by factors such as enhanced connectivity, autonomous vehicle development, and electrification.
Software development for ICE powertrains and chassis will see moderate growth, while functions in domains like AD, connected services, energy, and infotainment will become more complex. Operating systems and middleware development, essential for autonomous driving, are key areas. However, this niche will likely consolidate around a few options, limiting its size and expansion. The overall software development process, which includes customization, validation, verification, integration, and maintenance, adds significant costs beyond basic function development.
The automotive software market is set to experience substantial growth until 2030, driven by increasing software complexity and the deployment of functions in a broader range of vehicle platforms. Three main factors contribute to this growth: the rise in software complexity due to ACES (Autonomous, Connected, Electric, Shared) trends, the effort needed for customizing software across diverse platforms, and growing labor costs for software developers. As vehicles become more connected and incorporate advanced functionalities such as autonomous driving and energy management, software development and testing efforts become crucial
Electronic control units/domain control units: convergence of Electronic control units will open up a new market for domain controllers
The automotive sector is witnessing a significant shift in electronic control units (ECUs) towards domain control units (DCUs) as the industry embraces advanced vehicle technologies. This transition is primarily driven by the rise of electric vehicles (EVs) and the integration of complex functions.
Additionally, the infotainment domain is transitioning rapidly to DCUs. The industry's shift from numerous separate ECUs to streamlined architectures with central DCUs is driven by reduced complexity, lower software validation costs, simplified upgradability, and overall cost savings. This transformation is accelerated by the adoption of higher SAE AV levels, positioning DCUs as a substantial market share by 2030, reaching about 43% and potentially increasing to 54% in the accelerated adoption scenario. This change reflects the automotive industry's evolution towards more centralized and efficient control systems.
Sensors: autonomous driving will be the primary trigger for sensor demand
The demand for automotive sensors, primarily fueled by the advancement of Autonomous Driving (AD) technology, is growing significantly and requires more and more advanced sensors for higher levels of autonomy. Sensors that are related to ADAS/AD are expected to grow at an annual rate of 8 percent, while other sensors will follow the general automotive market trend. The growth in ADAS/AD sensors will be especially significant for SAE AV Level 3 and above, where the system has almost full control of the vehicle and needs more reliable and costly sensors with redundancies. Here is a summary of how different sensor categories will contribute to the overall growth of automotive sensors.
Powertrain sensors
Powertrain sensor saffect the engine, transmission, and alternator. Their costs depend on the engine type (e.g., BEV, HEV, ICE, PHEV) and decrease with more electric engines. Electrification and commoditization of sensors will reduce the market size and growth. The market CAGR is expected to be -1 percent from 2020 to 2030.
Chassis sensors
Chassis sensors check braking, steering, and suspension functions. They have low innovation and face price pressure. They are also part of ADAS/AD safety features for SAE AV Level 3 vehicles. This makes them grow faster than the vehicle market at 4 percent CAGR.
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Body sensors
Body sensors monitor the vehicle's condition for safety and comfort. They detect door/roof status, seat occupancy, and weather conditions and trigger alerts and actions accordingly. This sensor type will grow at 5 percent CAGR due to market expansion and higher safety standards for SAE AV Level 4 to 5 vehicles.
ADAS/AD sensors
ADAS/AD sensors are devices like cameras, LiDAR, and radar that enable autonomous driving. They vary in cost and function depending on the SAE AV level. For Level 1 to 2, cameras and radars are mainly used for safety features such as emergency braking. For Level 3 and up, LiDAR is essential but expensive, and more sensors are needed for redundancy. The market for these sensors is growing at 12 percent CAGR, driven by safety regulations and tests for Level 1+ vehicles and by robotaxis/shuttles for Level 4 to 5 vehicles. Other ADAS/AD sensors, such as airbag, tire pressure, and ultrasonic sensors, have a 6-percent CAGR.
Power electronics and harnesses: transition to EVs will enable the formation of a new market
Power electronics in cars depend on xEV sales, which are affected by battery costs, technology, and regulations. More EVs, especially self-driving ones at SAE AV Level 4 to 5 like robotaxis, will boost power electronics. Products like inverters will become cheaper and more standardized.
Automotive harnesses face contrasting trends: the introduction of EV platforms will drive growth in high-voltage (HV) harnesses connecting EV components efficiently, while low-voltage (LV) harnesses are expected to shrink due to reduced ASP and increased automation in production. Overall, the market is anticipated to grow at a modest rate due to these opposing factors.
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We hope the insights on the automotive sector's evolving landscape have been valuable for your software and electronics strategy. Stay tuned for more updates and insights in our next edition.
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