One of the four PACE megatrends we highlight in the Roland Berger Automotive Outlook 2040 is that the automotive world is becoming more connected. This greater connectivity is due to the spread of what are known as software-defined vehicles (SDVs), which use software rather than hardware to enable vehicle functionalities. We believe that the SDV approach will be employed universally by 2040 as it offers significant benefits for both drivers and manufacturers. For example, as soon as new features and functionalities are developed, they can be integrated into the vehicle through software updates. Indeed, it is likely that software-enabled factors such as safety features, personalized functionalities or improved connectivity options will become key purchasing criteria for customers, potentially even outdoing hardware-related features such as the speed or acceleration of the vehicle in terms of importance.
In a very real sense, SDVs redefine the customer experience. They can be seamlessly integrated with the other digital services and platforms that drivers know and use, such as voice assistants, music and video streaming, and smart home devices. They are designed to be connected with other vehicles, surrounding infrastructure and the cloud, opening the door to real-time traffic updates, remote diagnostics, over-the-air software updates and integration into smart city networks. They also offer advantages in the area of personalization: The vehicle can be customized to meet individual drivers' preferences, from infotainment to navigation. Furthermore, they incorporate ADAS (advanced driver assistance systems) and autonomous driving capabilities that use sensors, cameras and AI (artificial intelligence) algorithms to assist with tasks such as lane-keeping, adaptive cruise control and automated parking.
But the SDV approach is not just advantageous for customers. It also offers major advantages for automakers, such as a better time to market, material cost advantages, lower development costs, scalability to all vehicle segments – and also over-the-air updatability and upgradability, which are significant drivers of vehicle residual value. In the area of software, it cuts overall spend by 26 percent compared to the traditional approach: Although the cost of the software is higher, major savings arise from the reduced cost of testing, integration and maintenance. Consequently, we expect to see OEMs switching completely to an SDV approach by 2030, albeit with different players following different transition paths.
Our analysis shows that vehicle manufacturers will likely continue to focus on in-house development of proprietary E/E (electrical/electronic) and software architectures. At the moment, no cross-OEM standards or ecosystems for vehicle software exist, complicating the integration process and forcing car manufacturers to make major upfront investments. Ecosystems could help address these issues and might lead to greater standardization. We foresee three different pathways for how such ecosystems might develop. The first involves the development of semiconductor-driven ecosystems, in which semiconductor suppliers complement their hardware solutions with corresponding middleware. The second involves tech player-driven ecosystems, where tech players extend their automotive business to create synergies with their core business. The third and final pathway is via OEM-driven ecosystems, in which automakers strive to overcome their dependency on third parties. In each scenario, the end result is the same: an industry-wide hardware-agnostic standard.
The switch to the SDV approach will cause a major shift in the value chain for vehicle electronics. If cross-OEM ecosystems emerge, the savings for OEMs would be highly significant but the multi-billion investments in proprietary platforms they have already made or are currently planning would have been wasted. For Tier-1 E/E suppliers, pressure is likely to increase on all sides as new entrants try to capture a greater share of the market, potentially forcing Tier-1s to reinvent their business. And semiconductor suppliers will become more important in the E/E value chains as they begin developing reference designs and software rather than just supplying components – although the potential emergence of OEM-driven ecosystems may make it increasingly difficult for them to sustain this favorable market position through 2040.
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