As long as there is a large, diversified automotive industry, there will be disruptors from all over the globe, attempting not only to evolve vehicles but also the services and business models that the industry has leveraged for a century. These disruptors are coming from China, Europe, and Silicon Valley, and their aim is to use small, agile, customer-focused organizations to unseat the incumbents and their profitable businesses.
The biggest issue today with the industry’s “traditional” automakers is the ongoing challenge they have to flex their large organizations to adapt the agile, software-first culture brought forth by these disruptors who aim to take their business and reinvent the industry.
These century-old, large, multi-billion-dollar companies have the resources to build a new, fully electric, product line-up. They can create a software framework that is capable of being updated over the air. They can build a car that can drive itself. Yet, time after time, and case after case, the big automotive players seem to get in their own way, stifling innovation via siloed organizations and a hefty ecosystem of “key” suppliers.
Many decades ago, electronics innovations were a central function within OEMs. This was back before Delphi split from General Motors and before Visteon spun off from Ford. However, at the time, vehicle electronics were viewed as a component of a vehicle. These systems – radios, basic ECUs, fuse boxes, and the like – were just add-ons to what was then a very mechanically-operated vehicle.
However, in today’s modern vehicles, software and silicon are more critical than the mechanical components that make up the rest of the car. Surely this is the case with electric vehicles (EVs), but it remains true in a standard, internal combustion engine (ICE) car or SUV as well.
Auto manufacturers have scaled engines and transmissions across all sorts of vehicle segments and democratized the small, turbocharged, 4-cylinder engine. It is quite shocking how uniform the powertrain options have become, even between competitive brands and segments.
What sets apart today’s automobiles from one another is how a vehicle’s software and hardware operate the powertrain, comfort, infotainment, and safety domains – and NOT the specific mechanical components that comprise them. Yet, OEMs continue to consider their “platforms” and “programs” on a vehicular level, not on an electronic one. Herein lies the issue.
Success in the future of mobility comes with a fundamental shift to this mentality. A software-first culture will remove the concept of model years and program refreshes. It will allow an OEM to continually upgrade its products after sale, providing the customer with a better experience and the OEM a few additional revenue opportunities.
In addition, it will lengthen the lifecycle of the mechanical platforms that sit atop the electronic ones. A vehicle that might have previously been refreshed every 3-5 years at a cost of billions of dollars to do so, will now be able to exist for 10 or more before a new iteration is deployed.
Evidence of this shift can be seen in some specific examples of OEM investment. Many global automakers are now taking on increasing electronics and software expertise, be it through a long organic buildout process or a short, inorganic acquisition of hundreds or thousands of engineers.
Sure, talent acquisition is important, but as mentioned earlier, if the platform is a vehicle, these engineers are doomed to moving at the glacial pace the industry is accustomed to. Or, worse yet, they could be forced to rush and cobble together a minimum viable product, before a strategy can be developed to support its success.
Building a competent, centralized electronics hardware platform, and an equally competent and abstracted software platform is the key to success here. There have been, and continue to be, several highly publicized launch failures for new connected car platforms because the automaker tries to deploy an immature software platform into a vehicle launch. In most of these situations, the automakers could have launched the vehicle with a less complete or older infotainment version, but they would have lost a competitive edge for the product. Instead, they end up with a feature-complete vehicle, with bugs and problems and a public relations debacle.
Building these platforms is important, not only so an OEM can scale them across its vehicles, but also so an OEM can own the most critical components of their vehicles. It would be concerning to invest in a company that is reliant upon another firm for its most critical components. Yet, this is what traditional automakers do.
Mainstream vehicles today have a slew of tier-one suppliers who have the responsibility to integrate all of the semiconductors, software, and other subcomponents into a vehicle. But, if these are the very electronics platforms that operate the powertrain, comfort, infotainment, and safety domains, why trust third parties with this responsibility? Sure, contract suppliers for tires, seats, windshields, and airbags, but the very heart of a vehicle should be owned, developed, and integrated by the manufacturer itself – not a supplier.
It is not only about securing intellectual property against your known competition but also so that your suppliers do not become competent enough to beat you at your own game. What is there to stop Samsung or Panasonic from developing a vehicle today? They already have all the electric powertrain, battery, software, and electronics capabilities to pull it off, thanks to the engagements they have with automakers today. Add some wheels and tires into a scalable chassis, and you have a competitive offering.
It is blatantly obvious that the automotive industry is changing. The pace of innovation has never been faster, and the pure definition of a vehicle has completely shifted from mechanics to electronics. What has not shifted yet is the culture and organizational structures in these legacy firms to adapt their operations to the new product and business model demands. It is a disruptor’s game they are playing today, with the tools and culture of a 100-year-old industry.
About the author:
Mark C. Boyadjis is the global technology leader for the automotive advisory practice at IHS Markit. He is a respected thought-leader on automotive technologies, innovations, and the future of mobility. Automotive solutions from IHS Markit leverage technology and data science to provide unique insights, forecasts, and advisory services spanning every major market and the entire automotive value chain—from product planning to marketing, sales, and the aftermarket.