Rapid technological advancements in electrification and software-defined vehicles are transforming the automotive industry at the fastest rate in 100 years. At the recent Consumer Electronics Show (CES), companies demonstrated innovative leaps in automotive — from the integration of generative artificial intelligence (AI) in vehicles to next-generation digital dashboards. What we saw underscored the rapid strides automakers are making to deliver on the billions that have been invested in the industry over recent years.
Following CES, I reflected on three crucial trends that underpin the industry’s path to continue delivering return-on-investment and achieving the promise of next-generation mobility.
Crucial trends to achieve the promise of next-generation mobility
1. Shifting automakers’ business models to scale software-defined vehicles
From new features and capabilities to predictive maintenance, consumers now expect their 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.
At the same time, automakers have much to gain from advantages that software-defined vehicles offer compared to the distributed vehicle architecture connecting 100+ electronic control units (ECUs) of the past. The rise of software-defined vehicles is charting the path for the future of mobility, with unprecedented market opportunities that will only grow over time. A recent report from McKinsey & Company projects that the automotive software market will more than double in size from $31 billion in 2018 to $80 billion in 2030.
As the industry transitions to software-defined vehicles, these are the biggest opportunities for automakers:
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. Software-defined vehicles, on the other hand, utilize centralized vehicle architectures with fewer, but much more powerful scalable computing solutions. This enables faster, updatable, and more fully-featured software while greatly reducing vehicle wiring and overall system component counts.
Increased customer satisfaction
The software-defined vehicle provides more opportunity than ever before 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 customized software, promising significant upside for automakers.
New revenue streams
The commercial model of how consumers are paying for these 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 monetize their significant investments. Boston Consulting Group predicts that revenue from these services is set to rise to $248 Billion by 2030, with consumer-facing applications contributing the majority at $209 Billion.
For several years, automotive industry leaders have said cars are transforming into “smartphones on wheels” to meet evolving consumer expectations. We see this in how software-defined vehicles are becoming the most powerful computers that consumers interact with on a daily basis. 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 between the two is staggering.
To capitalize on these opportunities and scale software-defined vehicles, automakers must build up their competencies to deliver the level of automotive technology, software, and content needed to create brand-defining experiences. That is why many are expanding their software and systems integration capabilities to create their own intellectual property that differentiate their products and services. This has created an interesting crossroads 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 level of complexity and capabilities that the software transition journey demands. We must nurture a more collaborative automotive ecosystem underpinned by close partnerships to develop and scale complete systems and solutions.
2. The necessity of expanding automotive semiconductor capacity
At the Global Semiconductor Alliance’s recent European Executive Forum, I highlighted how the shift towards the software-defined vehicle also means that, as an industry, we must shore up our semiconductor pipeline. The 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. In fact, 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 our fast-growing market while creating significant opportunity for everyone.
Next-generation mobility can only be achieved if we have 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.
3. Accelerating cross- and inter-industry collaboration
I touched on the importance of collaboration earlier, but it bears repeating — our industry must accelerate the openness of the automotive ecosystem to scale software-defined vehicles and achieve the promise of next-generation mobility. At Flex, we see technology and value chain trends transcend across multiple industries — from automotive, industrial, and cloud, to healthcare and consumer. That is why we believe that it’s time for the automotive industry to take a page out of the tech industry’s playbook and adopt new business models in how automakers and suppliers work together. No one can go it alone.
To accelerate innovation and optimize engineering resources, automakers must identify synergies and begin 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 $47 billion by 2028, with only half of spend today allocated to true differentiating features such as OTA software and AI software frameworks.1
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. Focusing on partnerships and potential shared building blocks will empower automakers to respond faster to shifting market conditions, which is crucial in a quickly-transforming investment landscape.
At Flex, we partner with the entire automotive ecosystem, including key global semiconductor partners, to encourage 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, we are able to co-develop innovative products together with greater agility and efficiency. We are already seeing early benefits for our automotive customers, including lower investment hurdles, which in turn allows automakers to accelerate time-to-market and reduce costs without sacrificing safety or quality.
I’ve spoken before about how to ensure that our industry is delivering on investments and exceeding customers’ expectations — both today and in the future. With automakers expected to invest an average of $3-5 billion each in software-defined vehicle programs, it becomes an industry imperative to pool resources, co-innovate, and recognize that there is more than enough market opportunity and growth for all of us driving the future of mobility.
- S&P Global Mobility 2023 Spring Client Briefing – Detroit, 22 March 2023