At crossroads of software-defined vehicles (SDV): How to take the right path in a hyper-accelerated ecosystem
This EY study provides an in-depth look at how the SDV ecosystem will evolve and what key capabilities will be required for automakers and suppliers to effectively realize the full value potential.
Stumbling blocks for OEMs in the SDV transition
SDV transformation comes with challenges for OEMs: The industry is lacking standardization and the zig zag course between open source and proprietary software hinders innovation and scalability in automotive software. Additionally, the SDV field is very competitive. The study identifies battles for sweet spots in specific areas in particular: Radar systems and cameras, high-performance systems with special AD (Autonomous Driving) chips, AI and, above all, operating systems for comprehensive control over the user interfaces. Therefore, OEMs need to focus on the right battles. Partnerships and cooperation across the SDV stack are key to deliver the software and hardware capabilities required. Although the ten largest manufacturers and suppliers have realised a total of 630 partnerships in the last decade, more than half of them were rather unsuccessful.
Moving from the “storming” to the “performing” phase
The path forward for both the technology and the business model for the SDV ecosystem is still emerging. But based on extensive research and expert insights, EY has developed hypotheses on what the transition from the "storming" to the "performing" phase could look like in concrete terms?
First, due to underestimated technical complexity, the emergence and development of corresponding value pools for key use cases will not progress as quickly as assumed - and will also be smaller: According to EY's Value Pool Forecaster, in 2030 the value pool for some use cases in autonomous driving will be up to 72 percent smaller than expected in earlier studies.
EY estimates that the average investment per OEM for SDV programmes will be around three to five billion US dollars. Potential investors will prefer those companies that already have software competencies. Such providers will be valued up to 68 per cent higher than their counterparts.
Moreover, Partnerships will also look different: technology transfers will increasingly be replaced by collaborative relationships with the aim of scaling existing capacities and making them profitable.
Three key steps for a successful transformation
Moving to the performing phase is about showing momentum in the implementation, monitoring and governance of SDV transformation programmes. EY identified three key execution enablers.
1. Identifying SDV value pools and capability gaps
The first essential step towards a successful transformation is the identification of SDV-related value pools. This includes an assessment of consumer behaviour, consumer demands and further technical development, as well as a deep understanding of the emerging software value pools along the SDV tech stack: How will digital services evolve in the context of V2X technologies? To what extent will there be a "commoditisation" of functions and features? According to EY's forecaster, the main use case value pools are in the areas of "efficiency", "convenience" and "safety", but also "business and service enablement".
However, before making further investments in market, organisational and technological terms, they need to check their general software business readiness. EY's special Software Capability Fit Framework offers a holistic view through an end-to-end analysis to break down key capabilities into actionable dimensions, providing clarity on challenges, opportunities, imperatives, and economic implications.
2. Preparing People, Organization, Technology and Capital for the transformation
The second step is to mobilize people, organization, technology, and capital around a working business model to unlock the value pools identified. Not only are OEMs and suppliers in the automotive industry new to selling software or hardware-software bundles, but the ecosystem is evolving rapidly and requires many different players to work together. Moving forward requires a deep understanding of customer problems, rapid learning cycles, effective scaling levers, and a roadmap for both monetization and software quality assurance.
3. Continuous monitoring and adjustment of the transformation process
The third step is to keep the transformation manageable by constantly monitoring relevant and agreed-upon transformation KPIs. Whether it is software quality, delivery capability, cost reduction, new digital revenue, increased customer retention, or increased shareholder value, only what is tracked can be acted upon. This in turn requires structures that facilitate rapid decision making.
To sum it up, according to EY's assessment, companies that are now focusing on the future topic of SDV should first initiate the following measures: Reviewing their own big bets in the context of a suitable SDV strategy, taking an honest stock of their own capacities and capabilities, upgrading the non-working areas in the company - and finally clarity about the fact that the road to success can still be long and that this is precisely why a corresponding roadmap including certain checkpoints is needed.
Summary
Underestimating the software-hardware transformation is not an option for suppliers and automakers. However, the window of opportunity is closing, and the entire ecosystem is preparing to move from a more experimental storming phase to a profitable large-scale software business. This process does not happen overnight, and there is not enough capital left to make bad bets. That's why suppliers and OEMs need to assess where they are now, prepare their organizations for the next step, and make sure they don't run out of gas along the way.
