The painful transition of the automotive industry and the adoption of the software-defined vehicle

In the last 2 days, I participated in one of the exciting conferences organized in Romania every year BRAND MINDS 2024. Excited by the line-up, I came with expectations to learn about new trends in business, marketing, and sales, and ideas about how to approach leadership, but without any expectation to learn about the trends in the automotive industry and how the change in the world is actually driving an industry more than 100 years old which was disrupted several times in the history.

Allow me a couple of considerations derived from the speeches at the conference and the industry trends I have observed recently.

Everybody knows that the automotive industry has two major drives for transformation: the adoption of electrical vehicles and the trend coming from global geopolitical transformations (the de-globalization, the rise of the automotive industry in China and the investment of the Chinese government in the automotive industry and supply chain, the consolidation of the Indian economy and its demographic positive trend, the war in Ukraine and the election year all over the world). What does it bring to the table such a complicated picture?

1. The adoption of the electrical vehicles will not stop, but it will slow down due to the significant investments necessary and the lack of political agreements to facilitate these investments. The most important factor in the adoption is definitely the progress in the performance of the batteries and the associated cost of developing a strong power grid that can support the charging of tens of millions of vehicles. As we have seen recently, CATL announced a battery that can last up to 15 years and cover up to 3 millions of kilometers, suitable for buses, but definitely a sound step ahead. The development of the power grids is really costly and has the big challenge to bring high power into very developed areas to support fast charging. Using simple math, if a car takes 10-12 hours to charge for 300-400 kilometers, that means that normally you can charge it for a minimum 2-3 hours per day to cover your mobility needs. That sounds perfectly feasible if you live in a house and you can organize your own charging outlet, but definitely cannot be a realistic option when living in a big city like Bucharest. Fast charging is definitely a better option and this would cover better the needs of the urban areas, but it comes with the need to install more power in the large urban areas. The governments in Europe and the United States do not show too much interest in supporting this, as the economic forecasts are gloomy. In India and other countries that did not reached a strong economic level, these investments are not possible in the short run, especially lacking enough power plants. China invests heavily in nuclear and coal power plants, but this is not sufficient to drive the global transformation. Not to mention that the big competition for power comes from the data centers, which required the United States to re-open a nuclear plant (Three Miles Island) that was put in conservation for the use of Microsoft data centers in the next 20 years.
2. The cost pressure coming from the optimized supply chain developed in China for electrical vehicles will generate another innovation in the automotive industry. The same industry that generated the principles of Lean about 60 years ago, the same industry that introduced very modern supply chains spread over the world. Where the innovation will come from? I believe this time the biggest push will come from China, with its hunger for success and ability to support the de-regulations. China was able to pull an enormous advantage with the creation of the supply chain, but I expect that this will decrease in the upcoming years, as the contenders will find solutions to replicate something similar. For instance, the supply chain for batteries will be most likely supported by the Western economies, doubled by the increase of taxes. The overcapacity of production for China is estimated by various sources from 5 to millions of cars per year. Add to that the overcapacity in Europe and North America driven by taxes and supply chains and this requires immediate action, even unimagined measures like the ones proposed by Volkswagen who are considering closing plants in Germany. All over the world, it is expected to have temporary closing of the production lines. What would be a good countermeasure? Hard to say that magic can happen, but for sure the number of models will decrease and the differentiation will come most likely from software features and not from more comfort features physically implemented.
3. The hyper urbanization will require the continuous adaptation the mobility services. Some analysis predict that in 30 years 80% of the world population will live in about 650 megacities, which will drive hyperconcentration of the population in small areas and limited mobility daily. If you add the trend of returning to the office, you can expect that owning a car in a city like Shanghai, Bucharest or Bangalore will not be very efficient for commuting. This could open the door for several changes: robotaxis, trains and trams, more buses or scooters. In general, we can expect ridesharing in different formats, changing of the parking zones in charging zones, and different payment models. A lot of features are enabled by software and expandable with data and AI-enabled solutions. Imagine that the charging of a car can be charged via OEMs or via the city hall, even if you can use a virtual market. Robotaxi is already present in several cities, especially in China and some of the parking lots are slowly enabled with power outlets.
4. The increased demand of power will demand a re-focus on the mix of powertrain solutions (electric, EREV, hybrid, hydrogen). There are many requirements for electrical power in our daily life, including TVs, washing machines, illumination or cooking devices, from the utilization of electrical cars to the extension of data centers. That means that the existing power plants are not sufficient and the electrical cars could generate a so-called 'range anxiety'. Of course, there are solutions for this like the EREV approach, that can offer cars with up to 1000 km range, but this means a combined availability of power plugs and traditional power supply (gas or diesel). Hydrogen is not mature enough to drive costs down, but there is significant interest in this in the railway, and could be potentially adopted by trucks before commercial vehicles. There is no clear winner, but we can already observe that a transition to EV using plug-in hybrids or EREV would be the solution for the next years. The emergence of EREV could be a likely solution for the long term, as the manufacturing should be less complex than for hybrid.
5. The use of mobile devices and VR will drive the change of the cockpit and utilization with 2 possible opposite trends: more screens or almost no screens.

Recent studies show that a person touches in a day more than 2500 times the phone screen. Another study shows that the attention span of a human in such cases is below 9 seconds, which is comparable with the memory of a goldfish.

The launch of the recent BMW iX3 in Bucharest during the @brandminds conference would indicate a larger screen that can display the usual dashboard information together with maps, infotainment, and other applications. The cars brought by Huawei or Xiaomi include many more displays, engineered around a UX that is heavily influenced by the experience in the consumer goods and the ecosystems. Dr. Moritz Neukirchner presented a great summary of the levels of the adoption for the SDV. These levels seem to be influenced by the display of the information, but there is a strong trend to increase safety not only via features from the ADAS world but also to disappear a bit from the view of the driver or passenger. The new concept car presented by BMW included a lot of shy tech and usage of materials that can enable some display, even if it looks like fabrics or wood. Some studies coming from Garmin indicate that less information is better to decrease the cognitive pressure on the driver and improve his focus. The other trend looks at the adoption of autonomous driving level 4 or level 5 which would enable the passenger to use his time in the car for office work or entertainment. Both directions require a connection to the cloud and significant use of the data link. This would bring other competencies and investments from the OEMs and could eventually generate a market for new apps. The real threshold for entering the market will be the length of the cycle of owning a car (minimum 5 years, up to 15 years) compared to phones or computers. The transition of the market can't be as fast as for the phones, which harnessed the last 30 years of development since the invention of the internet in 1994.

6. The geopolitical separations of the internet will generate local markets for vehicles enabled by software functions. Due to the global political changes, we can expect that some of the software services will not be available in the same format all over the world. It is easy to understand this when comparing 3 or 4 regions: the United States considers several restrictions for TikTok and some others are already in place for Alipay or WeChat. European Union has a large number of regulations related to data (GDPR) and does not have a champion in data engineering. Russia closed the internet to the world and restricted Facebook, Whatsapp, Youtube and others. India has already had restrictions on TikTok for years. Imagine a world where the navigation data is restricted in Europe for Japanese cars or where the implementation will be different, due to local data suppliers. Imagine that the partnerships for entertainment will be as today for Netflix very local, connectivity is influenced by the contracts for data with telecom companies. Not only the taxes but also the deals over data will be influenced by governments.

These are my considerations and are influenced by personal experiences, beliefs, and limited pieces of information. I would be happy to hear your opinions and debate the trends.

At Endego , we are ready to support our customers with services to execute brilliantly the development of new products adapted to Software Defined Vehicle and traditional products based on mechanical, optical, electronics and wiring harnesses.

#brandminds2024 #endego #sdv #invention #erev