Revolutionizing the Automotive Industry with Software: A Look into the Future/

The emergence of autonomous vehicles marks a significant shift in the mobility industry. While Tesla, Uber, and Alphabet’s Waymo initially led the way, traditional automakers are now joining the race to secure a spot in the autonomous vehicles (AV) market. General Motors acquired Cruise Automation for $1 billion in 2016 and bought out another investor’s stake for $2.1 billion in 2022. Meanwhile, Hyundai is investing $5 billion in US self-driving technology and robotics by 2025, including testing robot axis on public roads with Motional. Volkswagen’s vehicle software unit, Cariad, is also collaborating with China’s Horizon Robotics to develop autonomous driving chips for the Chinese market.

The market value of the connected mobility marketplace is estimated to exceed $550 billion by 2035, and autonomous or semi-autonomous vehicle sales penetration could reach 25% by the same year. With such projections, how can incumbents react? In this article, we analyze the radical shift in consumer behavior and the strategies that automobile companies can adopt to remain relevant in the long term.

A Radical Shift in Consumer Behavior

As autonomous technology advances, consumers will experience a significant shift in behavior that will alter the revenue model and value chain of the mobility industry.

More Time Spent in Vehicles, Without Having to Concentrate on Driving

With the advent of autonomous vehicles, the time people spend in their cars is likely to increase. Those who have historically had limited or no engagement with driving, such as the elderly, people with disabilities, and those who don’t feel confident behind the wheel, will no longer be constrained. Additionally, as the travel experience becomes more pleasant, consumers will be willing to spend more time in their vehicles. Studies show that AV technology could lead to increases in vehicle miles traveled of up to 20%.

As a result, there will also be an increased amount of idle time spent in vehicles. With cars becoming self-driving entities, humans will have more time to do other things while traveling. By 2030, self-driving technology could free up 1.9 trillion minutes of idle time for passengers, according to AT Kearney.

To remain relevant in the autonomous era, automobile companies need to evolve into a software-first sector. Developing advanced technologies such as AV requires a deep understanding of software development and data analysis, as well as the ability to integrate with other industries such as telecommunications, infrastructure, and energy. Companies should also adopt a flexible business model that enables them to pivot and adapt to changes in the market.

The Rise of Mobility-as-a-Service

Autonomous vehicles will catalyze the rise of mobility-as-a-service, which refers to a shift away from personally owned vehicles toward the use of mobility solutions on an on-demand basis. This trend is driven by changing sentiments among younger demographics, who perceive car ownership as a utility rather than a status symbol. On-demand ride services like Uber and Lyft and car-sharing services like Zipcar have already grown rapidly, blurring the lines between these services. Traditional OEMs have also pushed into this space, recognizing the trend. As drivers are removed from the picture, Uber and Zipcar will become essentially the same service, and the confluence of all these factors will continue to drive the MaaS trend going forward.

A New Value Chain

The rise of MaaS will lead to a profound shift in the value chain. The industry will evolve from an OEM-dominated value chain to a “technology stack” that resembles what we have seen occur in the PC industry. The industry will be divided into three main categories: hardware companies, vehicle software layer, and application layer. The vehicle software layer provides the intelligence that runs the cars, and the application layer leverages the lower parts of the stack to provide consumers with services and content related to their transportation needs and experience. The value of a car will migrate toward the higher parts of the stack, with software and applications layers collectively accounting for 60% of the value of a self-driving car, according to a 2013 report from Morgan Stanley Research.

How to Pivot Toward the Future

To stay relevant in the industry of tomorrow, industry incumbents must enter new layers of the value chain (software and/or applications). Two important considerations to keep in mind include adapting business models to accommodate new technology and investing in research and development to stay ahead of the competition. As the industry continues to evolve, those who recognize and adapt to the unfolding shift will be better positioned to flourish in the new era of mobility.

Control of the Software Stack

As the software stack becomes increasingly important, the question of who will control it arises. Will it be the original equipment manufacturers (OEMs), a collection of partners, or open-source applications? Will the vehicle software be proprietary to a specific hardware chassis or universal to many chassis across brands and companies? Decisions made in the coming months and years will shape how vehicles receive over-the-air updates and other software integrations like third-party apps being allowed to ride alongside proprietary software.

Data Volume Challenges

Data volume presents a significant challenge for the industry. Self-driving vehicles generate between 3 and 6 terabytes of raw data per hour, which could exceed the capacity of the fastest 5G networks for cloud storage across millions of vehicles. The cost of connectivity and storage at this level would be about $1,200 per vehicle per year.

Commercialization

Maintaining current levels of innovation, staffing, and costs without achieving economies of scale requires a long-term commitment. Companies must get creative about rolling out AV advancements through interim driver-assisted models. The industry is betting on consumers wanting driver-assisted vehicles in which they don’t have to actively control the pedals and steering wheels. Car makers will push to roll this out in the next two to three years, offering subscription models for software enablement or increasing the price of the vehicles.

Sourcing the Right Talent

Effective talent sourcing and management will be critical for success in the automotive industry. The players that attract the best talent, structure their organizations to maximize innovation, actively plan and manage costs and investments, and commercialize in stages to reduce capital pressure will be the winners in this space. The competition for high-quality engineers, security experts, machine learning specialists, and other tech talent is intense and will not relent. Mobility players must be strategic in their staffing and hiring strategies to emerge on top.

Conclusion

In conclusion, the emergence of autonomous vehicles is a game-changer for the mobility industry. Traditional automakers are now racing to secure a spot in the autonomous vehicle market, with market value projections reaching over $550 billion by 2035. The shift in consumer behavior is categorized into two main buckets: more time spent in vehicles, without having to concentrate on driving, and the rise of mobility-as-a-service. This trend is driving the value chain from an OEM-dominated value chain towards a “technology stack” that resembles what we have seen occur in the PC industry. As the industry continues to evolve, those who recognize and adapt to the unfolding shift will be better positioned to flourish in the new era of mobility. Effective talent sourcing and management will be critical for success in the automotive industry, and companies must be strategic in their staffing and hiring strategies to emerge on top. Overall, the autonomous era requires automakers to evolve into a software-first sector, and developing advanced technologies such as AV requires a deep understanding of software development and data analysis, as well as the ability to integrate with other industries such as telecommunications, infrastructure, and energy.