All Together Now

As is well known by now, the automotive industry is currently undergoing a profound transformation. Once acting purely as a manufacturer of motor vehicles, OEMs (Original Equipment Manufacturers) are now forced to adapt their business models as a result of market challenges. A driving force behind this transformation is increasing digitalisation and thus also the growing importance of software solutions in the automotive industry. This is not only about futuristic infotainment systems, but also and above all about the preliminary stages of autonomous driving. OEMs are thus changing from pure manufacturers to mobility providers and software companies, which consequently have to compete with the latter.

Currently, German manufacturers are still lagging behind tech mobility giants like Tesla or the Chinese electric giant BYD, which together are responsible for more than a third of the seven million battery electric vehicles sold worldwide in 2022. In the past, they were mainly focused on the production of hardware and the optimisation of production processes; for this reason, among others, they have less experience and competences in the field of digital technologies and software development. Some of the companies that are currently setting the pace on the market were only founded in the course of the digitalisation wave and accordingly have a high level of expertise. Prof. Stefan Bratzel, founder and director of the Center of Automotive Management (CAM), sums up this development in our interview when he emphasises that Tesla "put the car on the software", while the established OEMs had to integrate the software into the car. Moreover, the industry is changing rapidly: in the last ten years alone, the focus has shifted from pure hardware products to software-based vehicle architectures. One of the biggest challenges for the industry now is to accurately identify the critical factors within this software-driven value chain and to harness and develop them with a clear view to the future.Connectivity, autonomous driving, shared mobility and electrification (CASE) are all based on innovative software technologies and require manufacturers to create agile structures. According to the study, innovations in these fields have tripled in the last ten years. Vigilant competition from Asia and Silicon Valley is increasing the pressure to innovate, as are the expectations of potential customers who are already at home in the digital world in other areas and expect a similar user experience in the car as on the smartphone or tablet.

Thus, on-board technology is increasingly becoming a distinguishing feature of the individual brands. A study by the consulting firm Capgemini confirms this and formulates it drastically: German carmakers are in danger of losing touch. It is expected that those companies that can distinguish themselves through software-based services will achieve a higher market share than their competitors. Accordingly, the credo is: software first. In order to be able to make up for the development shortfalls, many German OEMs have therefore joined forces in recent years with software companies that specialise, for example, in driver assistance systems, on-board electronics or connectivity solutions.

The example of Volkswagen, for example, illustrates the difficulties in the digital market quite accurately and "certainly represents the industry as a whole to some extent", as Prof. Stefan Bratzel puts it. In mid-2019, the Wolfsburg-based group took software development into its own hands and founded the so-called Car.Software organization, which has been operating since 2021 under the name CARIAD - an acronym for "Car, I am digital". CARIAD is intended to function as a kind of software base camp from which the main group and subsidiaries can draw when it comes to setting up on-board technology. However, the start has been rather bumpy so far: In addition to conflicts between the subsidiaries, development has not run smoothly. At the end of 2022, delays in operations again became public, which for example delayed the market launch of vehicles that had already been planned for a long time and, according to media reports, even jeopardized the goal of completely electrifying the British luxury subsidiary Bentley by 2030. As things stand, the launch of the electric Audi Artemis has been pushed back by around three years and is now not scheduled to take place until 2027. Nevertheless, Volkswagen remains the world's most innovative group in the connected car sector, ahead of Mercedes-Benz and Tesla, which form the field of so-called "high performers". Overall, Germany accounts for 30% of global innovation strength and thus remains in first place, ahead of China and the USA.

In order to join forces and shake off the initial problems, CARIAD has entered into a number of cooperative ventures in recent years. In order not to be left out of the Chinese market, for example, the company joined forces with Horizon Robotics, a software and chip specialist based there. The joint venture is intended to accelerate the pace of development in the field of autonomous driving through specialized microchips and increase the attractiveness of German vehicles on the Asian markets, i.e. where the competition is particularly fierce. For example, the global cooperation agreement between CARIAD and navigation specialist TomTom, which is intended to revolutionize VW's on-board display, is not valid in China, however - systems developed in-house are to be implemented there.

CARIAD has also put out feelers in the area of research and development, initiating a German-German partnership with Bosch that was recently approved by the German Federal Cartel Office. One of the projects the companies will work on is the development of 360° video perception software that will combine signals from cameras, radars and other sensors and process them via AI. It will also be available to other manufacturers and, in the long term, may help eliminate coordination problems between different approaches to autonomous driving. Tesla, for example, works with cameras, while many other manufacturers rely on radar and lidar technologies.In order to optimize customer service based on the software problems of the VW.OS operating system, CARIAD is planning a personnel offensive: At the end of February, the acquisition of the "Mobility Services Platform" from Hexad was announced, which means that 75 additional software developers will join CARIAD. The software company already has a long-standing partnership with VW and is to drive forward the development of cloud services. Among other things, it will then be possible to use AI-based predictive maintenance to signal customers to drive to the workshop even before potential damage occurs. The acquisition of Hexad is expected to be completed in the summer of 2023. But the staffing offensive is not just to be carried out through alliances, but on a much larger scale: CARIAD is looking for more than 1,700 software talents worldwide in 2023 alone.

Ford is also cooperating with established suppliers in the competition for state-of-the-art software development. Together with Mobileye, a subsidiary of the Intel Group, modern driver assistance systems are to be developed for the global product range of the US OEM. Camera-based vision sensing technology and vision processing software for autonomy levels 1 and 2 are to be used in Ford models worldwide. Thus, for the first time, Ford is using Mobileye technologies across the entire lifecycle of future models. In addition, Google maps and cloud services have already been installed in Mustang & Co. since 2021 to benefit from the Internet giant's market position and keep the technology up to date.

French carmaker Renault has been working with Israeli start-up Otonomo, which specializes in developing solutions for the Internet of Things (IoT) and smart fleet management, since late 2022. The aim is to develop a platform for managing data from connected vehicles that will enable Renault to improve the performance and reliability of its vehicles. The vehicle data collected in this way can be used, for example, in the further development of autonomous driving.

Even if the cooperation between OEMs and software companies is not without challenges and certain risks - for example, the different ways of working or the financial supremacy of the OEMs within the cooperation - and even if the legal issues have not yet been completely clarified, such models harbor the opportunity for both parties to benefit from each other in equal measure: On the one hand, the software companies gain access to a customer base built up over decades and a renowned brand; on the other hand, the OEMs' market position in international competition improves. The future will show whether the established players will be able to take on the new competition in the long term and what market dynamics will still result from this in the long term. In any case, Prof. Stefan Bratzel agrees that the innovative strength of the established players should not be underestimated.