Delivering cars at the speed of consumer electronics.
A major message to big-name automakers at the Automobil Elektronik Kongress 2022 was, “You old-time car guys don’t get it. We have to deliver a smartphone experience in a vehicle. If not, we will be out of our jobs, and someone else will.”
I thought that the most interesting presentation was by Riclef Schmidt-Clausen of CARIAD. CARIAD is a spinout from Volkswagen (VW) of their software group, and it is wholly owned by VW. His presentation was titled “Defining the Future Cockpit Architecture,” but I would describe it more as hard truths about the future of automotive.
As software people, CARIAD perhaps has a more realistic view of the challenges of the software-defined car than the pure automobile companies. Riclef started off by pointing out that the change in the industry is profound. In fact, so profound that:
Will we be here again in 5 to 10 years? Will our companies be here? We don’t know. That’s what I’m going to talk about. It’s our jobs at stake here.
He started by going back to car radios, the first electronics put into cars, and since then there has been increasing value creation in electronics and software:
The tier-1s started to produce radios. They delivered a fully integrated subsystem we could put into the car. So a big chunk of the value chain was at the tier-1s. After the financial crisis, that started changing. Because car makers realized that if they go from one tier-1 to another, they have to pay the development costs over again. Tier-1s started to worry about whether they needed their own features like maps, and so specialized companies for things like maps sprung up, and tier-1s did a lot of integration. At the same time, the OEMs started to build up their own software competence to create a unique customer experience.
But the world around us doesn’t wait: Covid, semiconductor shortage, geopolitics. What we are sure about is that there is another paradigm change taking place right now and the window of opportunity to react is closing. How are we reacting? There are a lot of buzzwords going around. We are talking about decoupling software and hardware. But PowerPoint is easy, change is hard. Of course, we need standards and cooperation, but we need more than PowerPoint.
Agility? In come a lot of consultants who say, “things in the car are so much more complex so let’s make it agile since it’s new and hip,” and you all have new names, new titles. It’s like a religion since they use different words. It’s easily said, but execution is really hard.
Consultants? A lot of consultants come in, they may help a little bit, but they won’t solve the problems. The substantive problem is rising complexity. So don’t fight complexity by making things even more complex. Instead, look at what can be simplified.
Our jobs are at stake.
The user experience consists of the driver, which gets better at driving, and the digital experience, being able to make productive use of the extra time in the vehicle. From a customer’s point of view, they already have a smartphone, a tablet, and their own ecosystem. So it is owned devices versus OEM integrated subsystems (do you need a separate mapping system in the car from the ones already on your phone?).
Google and Apple are showing us how much legacy you can forget about and still have a good user experience. Look at Carplay. It has maybe 30% of the functionality of an OEM navigation system. Why? Many customers don’t understand how to properly use our navigation. Google and Apple are showing simple basic functionality that users can and do use. Simplicity is key.
OEM startups are getting into the field, and they are really good. This is our competition. We have to show our customers that our systems are evolving faster and are more innovative. Competition is not just from China. Rivian from the US is not perfect, but the user experience is great. But the old guard is going to change.
The new players are showing that the key to change is ownership of IP and software competence, Riclef pointed out.
We need vertical integration to tackle complexity. I’m convinced it is the only way to go ahead, otherwise the costs will kill us. Then we can have a valid proposition versus competition coming in from China and US.
So that’s a switch from the left on the diagram above to the right. It’s the same switch the smartphone manufacturers made. But, as he pointed out, a car is not as simple as a smartphone, more like a bunch of smartphones all put together.
Two examples: Tesla has just one display. And Tesla is putting the same software in all their cars.
Second example: Nokia. Lots of different user experiences. When you bought a new phone, you had to learn how to use it. Is that the future of the car? The phone industry today is a big screen, apps that you start, and the user experience between Apple and Android is very similar. It’s very easy to know how to use it. So what is going to happen in the car?
Riclef pointed out that everyone experiences this when they rent a car. It takes time to familiarize yourself since it’s all different. Or with Carplay you just connect your phone, and you know how to operate it. “They are showing us how to do it better.”
His last slide had just a few bullet points:
Christian Sobottka of HARMAN presented “Consumer Experience. Automotive Grade.” His opening sentence was punchier than his title:
The consumers are ready. Are you?
He then moved on to the mockup ad for a “software-defined mobile phone” and the vox pop of asking students about “software-defined cars.”
They don’t get it. And these are our future customers, our future employees. “Smartphone” sounds much better. Here’s the challenge for all of us, we should talk much more about what the software-defined car offers than how it works. New entrants to the automotive industry look at this from a different perspective.
What is the consumer perspective? What are their expectations? They don’t care about electronic architecture, they care about the experience in the car. Their expectations are demanding. What they had on the phone yesterday they want in the car tomorrow. Today, the auto industry still has to prove it can deliver on these expectations.
Christian moved on to what the title of his talk meant:
We need to deliver at the speed of consumer electronics, but with all the automotive value too. That means 6 months, not 24 months, for hardware and for software. Perhaps faster, with quarterly release cycles.
However, it is still too slow with time to market being at least twelve months.
The OEM organizations (car companies) are perfectly built for the products of the past. They mostly sell vehicles today, but in the future there will be lots on the digital side.
Instead, OEMs need to think about owning the control points that catch the profit pools. Compare Amazon and Tesla to the incumbent car companies.
Umlaut has identified 7+1 transformation tasks that are key for mastering the software-defined vehicle.
And the plus one is bringing it all together. Along with an ad for Umlaut and Accenture as the team to help make your transformation successful. Since, as I said at the start of this post, these seven transformation points are not competencies of today’s automotive ecosystem of companies.
The real summary is whether this is a Kodak moment for many companies in the automobile industry. Or a Nokia/Blackberry/Palm moment. When major transitions come along, not all companies make the transition, at least as significant players. As it happens, Blackberry is no longer a player in smartphones, but its QNX is the operating system used in many automotive stacks. Another blind spot are the Chinese automotive companies, which are below the radar since, for now, they have stuck to the Chinese market. But #1 there is BYD with nearly 30% market share and then SGMW with 10% share (compared to Tesla, with 6.5% at #3).
I don’t know the automotive market well enough to make any solid predictions, so we’ll just have to watch as the story unfolds over the coming years.
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