Automotive Engineering in the Software Era

In the automotive industry, software contributes an ever-increasing amount of value. Yet many OEMs and suppliers still lack important capabilities for tackling the new era’s challenges, and development structures need to be transformed to enable the new software paradigm. In a new study Deloitte identifies the ten most important trends and assesses the industry’s software development readiness.

The automotive sector is under unprecedented pressure to adapt, and software engineering plays a central role in this process. Each of the four overarching automotive mega-trends fundamentally involves digital solutions: connectivity, autonomy, sharing, alternative powertrain (CASA). Accordingly, traditional automotive hardware manufacturers have no choice but to transform into software houses. As the study’s authors point out, modern cars already incorporate as much as 100 million lines of code. For the autonomous vehicles of the near future, the number is expected to increase fivefold.

Advanced development capabilities will be necessary to address other important issues as well. Today, customers and regulators demand from manufacturers a higher degree of responsibility regarding sustainability and security. Software solutions will be critical for OEMs and suppliers if they want to meet such demands. But how well are organizations prepared for these challenges? In order to analyze development trends and assess the industry’s software development readiness, Deloitte conducted twenty in-depth interviews with expert professionals in the field and established a readiness assessment framework. The study identifies capability gaps, provides additional context and offers practical implementation guidelines.

Automotive software development trends

Which aspects of product development are most important for the sector right now when it comes to software? The study discusses the top ten software trends, ranked according to their relevance:

Source: Deloitte expert interviews, Deloitte research

Interview participants were asked to assess the strategic relevance of each trend as well as their organization’s respective development readiness. Analyzing the results, the study identifies core capabilities necessary to address readiness gaps. These are discussed in five categories:

R&D strategy, product & platform, development process, organization & people, compliance & regulation.

One finding that is particularly striking: suppliers are ahead of OEMs in several areas of software development readiness, likely due to OEMs’ history of outsourcing – including trends such as OTA SW updates, connected services, and cloud ecosystems.

Five Core Capabilities to Address Readiness Gaps

R&D strategy

By providing strategic options in response to market developments, R&D strategy helps to shape the overall corporate strategy and drive its implementation. The findings of our readiness assessment show that suppliers, on average, are a bit more advanced in terms of their internal R&D strategy and exhibit greater readiness to respond to software market developments than OEMs. The biggest gap in readiness between OEMs and suppliers in terms of making a business case based on a holistic view of the vehicle lifecycle. OEMs urgently need to transcend traditional vehicle cost based business cases and open up to the new digital era financially.

Other important areas for improvement are partnership management, followed by technology portfolio management and sustainability strategies.

Product & platform

Automotive companies have been largely successful in adapting to the requirements of their customers in recent years and have tailored their products and platforms accordingly for hardware-driven products. However, as software features become more dominant, automotive players and especially OEMs find it hard to adapt and embrace changing product and platform requirements. Possible measures include automated analysis of customer requirements and regular OTA feature rollout. Even more pressing is the need to separate hardware and software architectures, and the introduction of a modular software approach. Furthermore, software-specific quality management needs to extend beyond SOP and cover the whole vehicle lifecycle.

Development process

This category contains the most serious OEM readiness gaps. They underperform above all in the adoption of agile methods, which are essential for the continuous development, production and maintenance of modern software. Transcending the traditional domain-dependent development approach through SW/HW development decoupling represents another major challenge for OEMs. Further important areas include the introduction of unified toolchains and process assurance.

Organization & people

Automotive companies are facing major resource shortages, but it is more than just a supply chain issue. To cope with staff shortages, they must fight for scarce SW talent and scale in-house training programs at the same time to insulate them from market volatility. Therefore, forward-looking talent resource planning and internal training programs are crucial tools for making the workforce fit for the challenges of the software era.

Compliance & regulation

Automotive players are under massive pressure to showcase rapid advancements in new technology, but the slow compliance process within the current regulatory framework often holds them back. Of the five areas of expertise assessed in our framework, compliance and regulation is the one area in which OEMs exhibit the highest level of internal readiness. Particularly in the area of technical regulation, which will be of major importance going forward. Both OEMs and suppliers are still managing quite well with data governance. The topic of environmental regulation should be of particular concern for suppliers, as they significantly underperform OEMs in readiness.

Getting ready for the advent of software

Even though some OEMs and suppliers have already started to invest heavily in software capabilities, computing architecture and partnerships, a lot remains to be done according to the study results. OEMs and suppliers must act quickly to identify their core strengths, set the mid to long-term goals, and map out the action plans to stay competitive. The future is bright for software-driven automotive R&D.