The Future of the Automotive Industry | Deloitte US has been saved
The past 20 years have generally been good for carmakers, but the next 20 years will likely be very different as software begins to control and shape a vehicle’s experience and development more visibly. A key element of software-defined vehicles (SDVs) is the ability for users to fine-tune various levels of personalization, such as comfort, convenience, safety, and performance. Consequently, our future cars will be able to adapt and improve post-sale, retaining or even increasing in value over time, as opposed to remaining a traditionally depreciating hardware asset.
Every automotive original equipment manufacturer (OEM) is somewhere on its SDV journey with interesting offerings found in digital cockpits, driver assist, and electric vehicle (EV) features. Each is running a major cultural and organizational transformation to become a fast-paced technology company that can challenge the conventions of a century-plus-old industry and expand to unfamiliar business models.
In particular, the automotive product-development ecosystem (research and development [R&D], advanced technologies, IT, and engineering) must pivot in unison to a software-led mindset. It must excel at building software-driven features that redefine the brand and not allow hardware to limit the experience. Ultimately, the goal is to create a vehicle with the capacity for continuous upgradability.
On-the-ground incumbent carmakers are “climbing a mountain” as they invest in a long-haul software-driven transformation.1 Most notably, revenue is hardware-based; so product definition, R&D, manufacturing, and supply chain still live in a world of parts and components. Incumbents are also saddled with legacy organizational structures that make scaling decisions across multiple brands costly and complex. Finally, for safety reasons, the automotive sector has an entrenched mindset that shipping software post-production is in direct opposition to a stable product.
Nevertheless, car brands have put into motion ambitions and strategies that emphasize a need to dominate and gain control over their SDV destiny. For example, some automakers have elected to create separate software R&D entities to accelerate the transition. Others are in the midst of digital transformations that span manufacturing to engineering and direct-to-consumer sales models. Each journey will differ depending on collaboration with existing suppliers and an open marketplace ecosystem, encompassing software, silicon, and a diverse range of technology partnerships.
While all OEMs have outlined their desired positions in the automotive software landscape by 2030, current economic conditions have affected most of the action plans. There is also genuine uncertainty concerning the willingness of different customer segments to pay for one-time or recurring software features. That being said, regardless of the scope or pace of the transformation, becoming a prominent player in the SDV arena is recognized as a prerequisite for achieving competitive success. One should also not discount the fact that vehicle self-awareness is about not only revenue generation but also self-healing, as over-the-air (OTA) updates also target preventive fixes significantly reducing cost of quality.
We have seen four priorities emerge from our conversations with OEMs, tier 1 suppliers, and technology companies as they work to not only get ready for a significant SDV push but also compete with a new class of product—one that must conform to unique schedule, scope, and resource constraints.
Software-led product development mindset
Simultaneously achieving the adaptability of a software or technology startup, combined with the opportunities and influence of a global OEM, and delivering robust software capabilities, represent the complexities faced by incumbents in the automotive industry. While there won’t be a single path to achieving these objectives, we have identified a common set of success factors for OEMs, tier 1 suppliers, and technology companies:
Quality needs to guide the ongoing transformation
In the context of an automotive OEM or tier 1 supplier, customers have high expectations regarding the availability, predictability, and reliability of functions and services. Quality management and software bug resolution become even more crucial due to the safety-critical mandate that must be upheld. Utilizing virtual environments for verification and validation, along with phase-specific software key performance indicators, can aid in preventing recalls, enhancing code coverage, and minimizing the blast radius. Other quality-related factors contributing to success include the following:
Platform simplification and evolution to software
The major difference between hardware and software is that while hardware generally requires minimal maintenance, software often requires ongoing updates and fixes. So, an upgraded vehicle’s electrical and electronic architecture will be the foundation of an SDV that allows for feature upgradability and reduced hardware component count (e.g., from 60–150 ECUs2 in a lower-to-luxury-tier car to a few high-performance domain controllers in an SDV). Some of the necessary prerequisites for a scalable car software platform and operating system include the following:
Controlled pivot to cloud-based environments—vehicle onboard and offboard
One of the key advantages of SDVs is the accelerated transformation of the automotive product development workflow to incorporate the efficiency benefits of a cloud native from vehicle onboard system to offboard and cloud. This involves establishing a consistent platform for in-vehicle operating system (OS), containers, DevOps, and micro services to promote a “build once and deploy anywhere” approach. However, this can be easier said than done, due to the necessity for engineering platforms (e.g., APICE, requirements and systems engineering, product life cycle management, safety code, testing) that meet automotive-grade standards. Some critical elements of a cloud-centric approach for both vehicle onboard and offboard include the following:
Becoming a league player in SDV
Over the next 20 years, the factors that distinguish winners and leaders from laggards in the automotive industry will largely depend on the SDV capabilities of their product portfolio and their ability to transition product development to a customer-relevant and software-driven mindset. The cost and number of cars produced used to be key factors of commercial success, but now it will be the ability to create a scalable organization that follows a similar growth pattern to a technology company.
As software becomes the primary factor in a vehicle’s value proposition and drives new business models, there is a need for streamlined and agile end-to-end automotive product development workflow. OEMs should design their organizations with the understanding that the ecosystem is ever-changing and there will be a continuous evolution of high-performance computing and more open software platforms.
Endnotes
1 Nathan Eddy “Continental sees software as Everest of challenges,” Automotive News, March 11, 2023.
2 Dr. Harald Proff and Philipp Wolf, “Software is transforming the automotive world,” Deloitte Insights, June 18, 2020; Dr. Harald Proff, Thomas Pottebaum, and Philipp Wolf, Autonomous driving: Moonshot project with quantum leap from hardware to software & AI focus, Deloitte, 2019; Christoph Hammerschmidt, “Number of automotive ECUs continues to rise,” eeNews Europe, May 15, 2019.
Authors
Walid Negm Managing Director Deloitte Consulting LLP wnegm@deloitte.com | Philipp Wolf Senior Manager Deloitte Consulting LLP phiwolf@deloitte.com | Jim Heaton Specialist Leader Deloitte Consulting LLP jiheaton@deloitte.com | Stavros Stefanis Principal Deloitte Consulting LLP sstefanis@deloitte.com |