The most important parts of cars are shifting from mechanical to digital, heralding big changes in the industry’s competitive stakes.

Tomorrow’s cars will be less mechanical, more computerized. As the automotive industry transitions from hardware- to software-defined vehicles, the average software and electronics content per vehicle will more than quadruple. Today, software represents about 10 percent of overall vehicle content for a D-segment car (approximately $1220). That should increase to about 30 percent of overall vehicle content (around $5200) in 2030.

Not surprisingly, players across the digital automotive value chain are attempting to capitalize on this shift (see chart). Software companies and others are attempting to engage automakers as tier-one suppliers. Traditional tier-one suppliers are entering the tech giants’ original feature-and-app turf, and premium automakers are moving further down the technology “stack” to operating systems, hardware abstractions, and signal processing to differentiate themselves.

We believe these strategic moves will shift the current automotive electronics model toward a service-oriented architecture (SOA) based on generalized computing platforms. Tomorrow’s cars will move to a platform of new brand differentiators that include infotainment innovations, autonomous-driving capabilities, and intelligent safety features. Software will move further down the digital technology stack to integrate with hardware in the form of smart sensors. Stacks will become horizontally integrated and gain new layers that transition the architecture into an SOA.

This architecture will emerge due to several game-changing trends. For example, new smart sensors and applications will create a data explosion in the vehicle that requires companies to process and analyze data efficiently to remain competitive. A modularized SOA and over-the-air (OTA) updates will enable new function-on-demand business models. Infotainment and advanced driver-assistance systems (ADAS), will become “appified” as third-party app developers provide vehicle content.

 

Exploring ten hypotheses on future electrical or electronic architecture

While the path forward for both technologies and business models remains uncertain, we have developed ten hypotheses regarding tomorrow’s automotive electrical or electronic architecture and its implications.

  1. Increased electronic control unit (ECU) consolidation: Instead of using many ECUs (the current “add a feature, add a box” model), the industry will move to a consolidated vehicle ECU architecture. The first step, already underway, will center most functionality on consolidated domain controllers, partially replacing distributed ECUs. In the evolution toward autonomous driving, the virtualization of software functionality and abstraction from hardware will become imperative.
  1. A limited number of stacks used with specific hardware. The following four stacks could become commonplace in five to ten years:
  • Time-driven stack: The controller connects directly to a sensor or actuator while the systems support hard real-time requirements and low latency times.
  • Event- and time-driven stack. This hybrid stack combines high-performance safety applications, separating apps and peripherals by operating system.
  • Event-driven stack. This infotainment system approach clearly separates applications from peripherals, and schedules resources using best-effort or event-based scheduling.
  • Cloud-based (off-board) stack. This stack covers and coordinates access to car data and functions from outside the car.
  1. An expanded middleware layer will abstract applications from hardware. Middleware will make it possible to reconfigure cars and enable the installation and upgrade of their software. Operating on top of ECU hardware in the car, the middleware layer will enable abstraction and virtualization, an SOA, and distributed computing.
  1. The number of onboard sensors will spike significantly in the mid-term, then fall. In the next two to three vehicle generations, automakers will install sensors with similar functionalities to ensure that sufficient safety-related redundancies exist. In the long term, the industry will develop specific sensor solutions to reduce sensor counts and costs.
  1. Sensors will become more intelligent. System architectures will require intelligent and integrated sensors to manage the massive amounts of data needed for highly automated driving. While high-level functions will run on centralized computing platforms, preprocessing, filtering, and fast reaction cycles will likely reside in the edge or take place directly in the sensor.
  1. Full power and data-network redundancy will become necessary. Safety-critical and other key applications that require high reliability will utilize fully redundant circles for everything vital to safe maneuvering.
  1. The “automotive Ethernet” will become the backbone of the car. Increased data rates and redundancy requirements for highly automated driving (HAD), safety and security in connected environments, and the need for inter-industry standardized protocols, will most likely drive the emergence of the automotive Ethernet.
  1. OEMs will tightly control data connectivity for functional safety and HAD. Central connectivity gateways transmitting and receiving safety-critical data will connect directly and exclusively to an OEM back end.
  1. Cars will use the cloud to combine onboard information with offboard data. The cloud will increasingly process non-sensitive data to derive additional insights where allowed. As the volumes of data grow, data analytics will become critically important for processing the information into actionable insights.
  1. Cars will feature updateable components that communicate bidirectionally. Onboard test systems will allow cars to check function and integration updates automatically, thus enabling life-cycle management and the enhancement or unlocking of aftersales features.

 

What the future holds

While the trends affecting the automotive industry today are generating major hardware-related uncertainties, the future looks no less disruptive for software and electronic architecture. We see several major strategic pushes:

  • Decouple vehicle and vehicle-functions development cycles. Incumbents need to identify how to develop, offer, and deploy features largely apart from vehicle-development cycles, both from a technical and organizational perspective.
  • Define the target value for software and electronics development: OEMs must identify the differentiating features that can become their control points.
  • Attach a clear price tag to software: Players need to attach a clear business value to their software and system offerings to capture a larger revenue share.
  • Design a specific organizational setup around new electronics architecture: This new “layered” architecture will make it possible to break up current “vertical” setups and introduce new “horizontal” organizational units.
  • Design a business model focused on automotive features as a product: Automakers should analyze which features add real value to the future architecture and devise ways to monetize them.

This new era of automotive software and electronics will drastically change a wide variety of prior industry certainties about business models, customer needs, and the nature of competition. To benefit from the shifts, all players need to rethink and carefully position their value propositions in the new environment.

The full analysis can be found McKinsey Center for Future Mobility’s website www.mckinsey.com/mcfm.