How software-driven revolution will redefine the automotive industry

Shifting technology landscape

To overcome these challenges, OEMs have significantly increased their budget allocation towards R&D for automotive software, starting with a consolidated and centralized E/E architecture. A consolidated E/E architecture is characterized by a centralized high processing computing unit (HPCU) managing domain-specific and function-specific ECUs connected via high-speed automotive ethernet. This architecture is better suited to cater to cross-functional features that require close integration of components, such as advanced driver systems, vehicle connectivity, and Over-the-Air (OTA) updates.

Consolidated E/E architecture will also allow the development of centralized software platforms. Software platforms allow horizontal integration and abstraction of lower hardware-dependent software layers, enabling development of high-level application software independent of the hardware that it is running on. With the next-generation consolidated vehicle architectures and software platforms, OEMs can also leverage true connectivity, allowing for real-time vehicle connections with surrounding infrastructure (V2I), other vehicles (V2V), cloud computing, faster software updates, etc. 

Since there are reduced entry points of attack with a consolidated E/E architecture, cybersecurity risks are minimized. Additionally, a centralized architecture enables an easier rollout of timely security updates to patch vulnerabilities while also allowing for easier implementation of fail-safes and redundancies, further alleviating cybersecurity concerns.

Resulting shift in the automotive value chain

The transition to SDVs will disrupt the automotive industry across the value chain. With redefined software architectures, the hardware is abstracted away, reducing the barrier to entry for new entrants and disrupting the current value chain. 

Traditionally, the relationship of OEM with suppliers is straightforward and hierarchical, with OEMs sourcing and interacting with Tier 1s directly, and Tier 1s acquiring raw material/subcomponents from Tier 2s and 3s. Tier 1s would play the role of integrators. However, with software becoming independent and a key cost driver, OEMs have the option to bypass Tier 1s and directly engage Tier 2s, or pure play software players. To maintain relevance, Tier 1s are repositioning themselves in the value chain by transitioning to Tier 0.5s, who work collaboratively with OEMs, acting as innovation partners across the development lifecycle of a vehicle.

Key takeaways for OEMs and automotive suppliers

To meet consumer demands and capitalize on the software-driven opportunity, OEMs need to invest in developing a consolidated and scalable E/E architectures which would be a key enabler for centralized software platforms, high-speed connectivity, and increased cybersecurity solutions. 

With shifting OEM strategies, suppliers and automobile software companies should consolidate their capabilities for in-vehicle software and computing to offer cross-functional products and services that suit SDVs. Overhauling their existing business models, where they manufacture and sell hardware and software products, suppliers will need to closely collaborate with OEMs and provide specialized software engineering management services. To quickly ramp up and scale software capabilities, suppliers must evaluate partnerships, tie-ups, and acquisitions of other companies.