{"id":8621,"date":"2020-08-18T09:49:55","date_gmt":"2020-08-18T16:49:55","guid":{"rendered":"https:\/\/www.qad.com\/blog\/?p=8621"},"modified":"2020-08-18T09:49:55","modified_gmt":"2020-08-18T16:49:55","slug":"software-not-hardware-will-drive-the-future-of-automotive","status":"publish","type":"post","link":"https:\/\/www.qad.com\/blog\/2020\/08\/software-not-hardware-will-drive-the-future-of-automotive","title":{"rendered":"Software, Not Hardware, Will Drive the Future of Automotive"},"content":{"rendered":"

[vc_row][vc_column][vc_single_image image=”8625″ img_size=”full”][vc_column_text]As we continue to navigate the tumult of a <\/span>global pandemic<\/span><\/a>, we are still keeping an eye on the widespread, irreversible impact electrification, autonomy, and connectedness will have on the automotive industry. In line with continuous automotive innovation, it\u2019s becoming increasingly clear that such a change is no longer happening in hardware. If they aren\u2019t already, suppliers and other companies in the automotive space must be forming strategies around this reality \u2013 that software is going to be the great differentiator among vehicles of the near future.<\/span><\/p>\n

The Vehicles of the Future are Almost Here<\/span><\/h2>\n

For many, the future has already arrived; cars today contain around 125 million lines of code compared to an F-22 fighter jet\u2019s two million, a Boeing 787\u2019s 15 million, and Facebook\u2019s 62 million. This is impressive when you consider that these vehicles have basic, standard Advanced Driver Assistance Systems (ADAS) that allow them to autonomously parallel park and maintain safe speeds while on cruise control.\u00a0<\/span><\/p>\n

What\u2019s even more impressive is the expectation that <\/span>fully autonomous vehicles<\/span><\/a> will have somewhere between 300-500 million lines of code. This fact alone means that new cars will likely contain the most sophisticated software systems on the planet in the next five years. This spells some clear writing on the wall: what sets cars apart will no longer be the engine\u2019s number of cylinders.\u00a0<\/span><\/p>\n

Some automotive suppliers recognized this and began their <\/span>transition into the software sector<\/span><\/a> years ago; some are jumping in. For those organizations considering this shift, they raise the question, how do you get paid for software? How do OEMs pay for software that goes on thousands of vehicles when their purchasing model is fixated on the supply of components? As we study the evolving automotive software business models, we see four significant methods evolving: technology sales, software licenses, contracted services and subscriptions.<\/span><\/p>\n

The First Piece of the Pie: Technology Sales\u00a0<\/span><\/h2>\n

One-time technology sales have already begun rolling out as a tried-and-tested model; it is the only model of all four that involves a unique transaction. <\/span>APTIV<\/span><\/a> is an excellent example of a supplier making good use of such a model and using incredible hindsight. Over 15 years ago, APTIV was solely in the hardware manufacturing space but started to evolve into the software market, developing engine control units. When they began to see where the industry was headed, they made a strategic transition into software development, and they shifted towards ADAS systems.<\/span><\/p>\n

APTIV now has a considerable team of thousands of software engineers helping them refine a catalog of software-heavy products \u2013 such as camera systems, RADAR and LIDAR, which can be as much as 50% software. These systems are sold to automakers for use in autonomous vehicles.\u00a0<\/span><\/p>\n

It is worth noting the strategic prowess of APTIV as a supplier; by making this transition so long ago. By continuing to strengthen their vision with various acquisitions and investments, they\u2019ve more than ensured their seat at the table in the future of automotive.<\/span><\/p>\n

Software Licensing: Mobileye Establishes the Model<\/span><\/h2>\n

Creating software so critical to the operation and differentiation of a vehicle that automakers have no choice but to include is the name of this game. <\/span>Mobileye<\/span><\/a> is an example of a company that has almost perfected this model, having started 20 years ago with this singular goal in mind. Mobileye develops camera algorithms that identify and classify items surrounding a vehicle, allowing the system to differentiate between people, other cars, and other obstacles in the roadway.\u00a0<\/span><\/p>\n

Mobileye supplies its software on a chip to its customers, called the EyeQ. The software is provided with a license on the chip and delivered to the camera producer, such as APTIV, Magna, or ZF. The camera producer then provides the end camera to the OEM for installation.<\/span><\/p>\n

To contextualize just how successful Mobileye has been using this licensing model, in 2010, when I was running Magna Electronics, we estimated Mobileye\u2019s worth was around $400 million. Three years later, they went public and raised $4 billion. Then in 2017, they were acquired by Intel for $15.2 billion. They \u2013 and Intel, for that matter \u2013 prove that suppliers can find solid footing in this changing market.<\/span><\/p>\n

Developing Solutions with Contracted Services<\/span><\/h2>\n

Companies that offer software development services on a contract basis allow automakers and other suppliers to introduce new products to the market without reinventing their structures. <\/span>Elektrobit<\/span><\/a> is an excellent example of this model in action; they offer a myriad of contracted software services that support ADAS, infotainment systems, and some of the most critical components of modern and evolving vehicles.\u00a0<\/span><\/p>\n

In this model, companies like Elektrobit or KPIT, are contracted by OEMs to develop critical software for the carmaker. Think about the software to run the climate control system in a vehicle. There is a lot of code to produce such a system, a system used across most vehicle lines. In this case, these organizations get a $30 million contract to develop this software system on this contracted basis. OEMs are not paying for hardware or a license; they outsource the software to an external organization with a large engineering staff available.<\/span><\/p>\n

Elektrobit is also an example of a company utilizing this model in the automotive industry; five years ago, they were acquired by Continental. This was a critical step for the Continental organization to start to shift their competencies towards software, giving them the stability and flexibility they need to continue competing with companies like APTIV as the nature of the industry changes.<\/span><\/p>\n

Subscription Business Models Continue to Evolve<\/span><\/h2>\n

Similarly, to the draw of contracted services, the subscription model offers clients <\/span>access to data<\/span><\/a> and software critical to the real-time driving environment. This model covers a myriad of services, but one of the more visible and consumer-facing is navigation. Nokia\u2019s brand HERE exemplifies this by offering its high definition mapping systems to consumers on a subscription basis. This way, the vehicle has real-time updates on driving conditions, road-closing, and construction updates, to name a few. These real-time updates are critical in all driving situations (rain, snow, fog) to understand the safe driving environment and potential obstacles.\u00a0\u00a0<\/span><\/p>\n

HERE is another success story involving a company making long-sighted strategic shifts to gain a competitive edge. Once it became clear that they had lost their corner in the mobile phone market, Nokia shifted its software engineers and developed HERE HD Map capabilities.<\/span><\/p>\n

Software is Not to Be Taken Lightly<\/span><\/h2>\n

With software gradually taking up more and more modern vehicles\u2019 content, it would be unwise to ignore the writing on the wall. The industry has already been moving towards a fundamentally shifted future with the advent of <\/span>electrification, autonomy, and connectedness<\/span><\/a>; the pandemic and all its requisite shutdowns have only placed pressure on everyone within the automotive space to move more quickly towards this future.\u00a0<\/span><\/p>\n

Automotive<\/span><\/a> companies need to take a serious look at how they can invest in the growing software market, whether it\u2019s in technology sales, software licenses, contracted services, or subscription services. More and more automotive companies there are <\/span>funneling investment into the software<\/span><\/a>. Software alone will differentiate future cars and the companies that manufacture them; this fact must be acknowledged and acted upon sooner rather than later.<\/span>[\/vc_column_text][\/vc_column][\/vc_row][vc_row][vc_column][\/vc_column][\/vc_row]<\/p>\n","protected":false},"excerpt":{"rendered":"

[vc_row][vc_column][vc_single_image image=”8625″ img_size=”full”][vc_column_text]As we continue to navigate the tumult of a global pandemic, we are still keeping an eye on the widespread, irreversible impact electrification, autonomy, and connectedness will have on the automotive industry. In line with continuous automotive innovation, it\u2019s becoming increasingly clear that such a change is no longer happening in hardware. If […]<\/p>\n","protected":false},"author":60,"featured_media":8625,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[182,199],"tags":[7,127,237,746,495,1303,24,1305,163,1304],"class_list":["post-8621","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-featured","category-manufacturing-trends","tag-automotive","tag-automotive-suppliers","tag-autonomous-vehicles","tag-connectivity","tag-electrification","tag-hardware","tag-manufacturing","tag-real-time-driving","tag-software","tag-subscription-model"],"yoast_head":"\nSoftware, Not Hardware, Will Drive the Future of Automotive | QAD Blog<\/title>\n<meta name=\"description\" content=\"Automotive manufacturers need to invest in a growing software market to survive as future vehicles\/services become smarter and more connected.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, 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Eichenberg","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/www.qad.com\/blog\/wp-content\/uploads\/2018\/04\/Paul-Eichenberg_avatar-96x96.jpg","url":"https:\/\/www.qad.com\/blog\/wp-content\/uploads\/2018\/04\/Paul-Eichenberg_avatar-96x96.jpg","contentUrl":"https:\/\/www.qad.com\/blog\/wp-content\/uploads\/2018\/04\/Paul-Eichenberg_avatar-96x96.jpg","caption":"Paul Eichenberg"},"description":"Paul Eichenberg has had 25 years working with Fortune 500 automotive suppliers, most notably eight years as the global VP of Corporate Development and Strategy for Magna Powertrain & Magna Electronics. As the Chief Strategist, Paul oversaw all strategic planning, product management and merger and acquisition activities. During his tenure at Magna, Paul successfully repositioned the business to focus on technologies for the optimization of the internal combustion engine, EV\/Hybrid technologies, ADAS, and autonomous vehicles. Paul manages his own automotive consulting firm called Paul Eichenberg Strategic Consulting. Paul\u2019s clients include hedge funds, investment banks, private equity investors and automotive suppliers.","sameAs":["https:\/\/chief-strategist.com\/"],"url":"https:\/\/www.qad.com\/blog\/author\/paul-eichenberg"}]}},"_links":{"self":[{"href":"https:\/\/www.qad.com\/blog\/wp-json\/wp\/v2\/posts\/8621","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.qad.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.qad.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.qad.com\/blog\/wp-json\/wp\/v2\/users\/60"}],"replies":[{"embeddable":true,"href":"https:\/\/www.qad.com\/blog\/wp-json\/wp\/v2\/comments?post=8621"}],"version-history":[{"count":3,"href":"https:\/\/www.qad.com\/blog\/wp-json\/wp\/v2\/posts\/8621\/revisions"}],"predecessor-version":[{"id":8626,"href":"https:\/\/www.qad.com\/blog\/wp-json\/wp\/v2\/posts\/8621\/revisions\/8626"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.qad.com\/blog\/wp-json\/wp\/v2\/media\/8625"}],"wp:attachment":[{"href":"https:\/\/www.qad.com\/blog\/wp-json\/wp\/v2\/media?parent=8621"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.qad.com\/blog\/wp-json\/wp\/v2\/categories?post=8621"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.qad.com\/blog\/wp-json\/wp\/v2\/tags?post=8621"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}