Decades in the making, the digital car is right around the corner. Where hardware—in the forms of stronger engines, silkier transmissions, and smoother suspensions—once ruled, software is becoming the industry’s core enabler. Today, software is driving most of the key automotive breakthroughs in autonomous driving, connectivity, electrification, and smart mobility (ACES) and thus increasingly becoming a differentiating factor. It is also attracting investors: private investments in companies that develop technology for connected and autonomous vehicles totaled more than $9.5 billion through the third quarter of 2018.1
As a result, automotive OEMs face several challenges associated with software, from building a profoundly different electrical/electronic (E/E) architecture to adopting the processes and best practices to support efficient software development (Exhibit 1).
The stakes are high for automakers, since a lack of critical software capabilities represents a vital risk (perhaps best exemplified by the rising prevalence of start-of-production (SOP) delays and budget overruns). Even more troubling, software issues can lead to massive recalls and—in the case of hacking attacks—potential casualties.
OEMs must deal with the exponential increase in software content while attempting to reach software-development speeds typical of digital-native companies. They also must change their operating models to develop hardware and complex software side by side. Beyond these tactical issues, automakers need to focus on strategic topics like where to play along the technology stack and how to identify their unique value propositions in the software domain.
After working closely with OEMs and other players in the automotive industry and conducting extensive interviews with technology experts, we believe OEMs need to rethink their approach to software and E/E architecture. Success will depend on how well they navigate expected changes in software and electronics across three dimensions: strategy and technology, processes, and the organization.
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SOURCE: McKinsey & Company
