Software to become profitability growth driver for automakers, says Gartner - MIDA | Malaysian Investment Development Authority
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Software to become profitability growth driver for automakers, says Gartner

Software to become profitability growth driver for automakers, says Gartner

18 Feb 2022

Chief investment officers need to consider five technology trends for 2022 to better prepare for the software, hardware and digital transformations occurring within the automotive sector.

In a statement on Thursday (Feb 17), technology and consulting firm Gartner Inc senior research director Pedro Pacheco said that for the last 100 years, automakers had focused on the mechanical side of car development and had mostly left software to other parties.

“As digital technology becomes the differentiator in the car, software will become the main profitability growth driver for automakers.

“Ultimately, the goal for original equipment manufacturers (OEMs) will be to turn into tech or software companies,” he said.

Hardware sourcing

Gartner said automakers were re-evaluating their long-held inventory strategy following the just-in-time (JIT) principle, which has led OEMs and Tier 1 suppliers to have no buffer inventory to fall back on amid various chip shortages.

It said as a result, automakers were reviewing how they deal with chip manufacturers and considering designing their own chips.

Gartner predicted that by 2025, 50% of the top 10 automotive OEMs would design their own chips and establish direct, strategic, long-term working relations with chip companies, while giving up JIT inventory management practice.

Digital giants

Gartner said 2022 would see digital giants, such as Amazon Web Services, Google, Alibaba or Tencent, continuously expand their footprint in vehicle technology.

Pacheco said these tech companies were bringing the car closer to their respective ecosystem, which, in turn, would open new vehicle-connected services.

He said Gartner predicted that by 2028, 70% of vehicles sold would utilise Android Automotive operating system, up from today’s less than 1%.

“As developing technology and software on their own is difficult, car companies can either partner with digital giants to succeed in turning software into a main moneymaker or build vast in-house resources to achieve it mostly on their own,” said Pacheco.

Open data and open source

Gartner said that in 2021, several tech companies created open-source vehicle architecture operating systems and open electric vehicle platform.

It said this approach of adopting new partnership models in the automotive sector would increase in 2022.

In addition, automotive companies would increasingly look at data in a similar way to that of the tech world.

Pacheco said their aim was not to sell data, but to build or integrate ecosystems that would allow them to access a broader diversity of data, with the purpose of developing more compelling features or digital services.

Over-the-air software

Gartner said last year saw major changes in the automotive over-the-air software market when several car manufacturers began to offer software updates.

It said as most automakers had updated the hardware on the vehicles to enable software updates, they would now begin to shift to a revenue model that was based on services rather than the sale of the asset.

Gartner predicted that by 2023, half of the top 10 automakers would offer unlocks and capability upgrades through software updates that could be purchased after the sale of the vehicle.

Autonomous vehicles

Gartner said despite sensing technologies improving, perception algorithms becoming more sophisticated and regulations and standards progressing, developers of autonomous vehicles continued to struggle to scale autonomous operations to new cities or geographies.

It said automakers had begun to announce Level 3 autonomous driving cars and were working on the deployment of Level 4 self-driving trucks and commercial robo-taxis.

However, it said proving the safety and effectiveness of autonomous technology was taking a long time and extensive simulation and real-world testing were making commercialisation slow and expensive.

In addition, issues such as liability in the event of an accident, associated legal and societal considerations, such as how human-driven vehicles would interact with an artificial-intelligence-driven vehicle, were adding to the challenge.

Gartner predicted that by 2030, there would be four times as many Level 4 autonomous robo-taxis operating globally than there were taxis in 2022.

Source: The Edge Markets