VW, BMW, Stellantis, others shift emphasis to software to fend off Tesla, tech giants

Traditionally car buyers picked a certain model because they liked its physical attributes such as engine power, vehicle design or dynamic response.

In the future, differentiation between models will be "70 to 80 percent" down to software, Volkswagen Group CEO Herbert Diess says.

The "car-as-computer" vision has been largely embraced across the automotive industry as automakers try to entice customers into paying more for services in the fast-evolving electric vehicle era.

Now comes the long journey to turn that vision into a reality.

VW Group already has 4,000 people working within its Cariad software division and plans to hire an additional 1,000 as it prepares to roll out its VW-OS operating system in 2025.

The software created by Cariad would become the "cardiovascular system" for new cars and help carve out that differentiation, Diess told German business newspaper Handlesblatt in May.

VW Group has been one of the most vocal about the need to change as it works to catch up with the capabilities of automotive software pioneer Tesla.

"Only those who change their development processes in a software-oriented manner from the start have the chance to survive on the market," VW brand technical development boss Thomas Ulbrich said last month at a conference in Munich organized by Automotive News Europe sister publication Automobilwoche. "If we don't do it justice, it would inevitably mean the end."

Others are investing just as much.

BMW says it now has 10,000 engineers working in software and IT and has just launched the BMW iX electric SUV with its new OS8 operating system with 5G connectivity.

Daimler plans to hire an additional 1,000 software engineers to work at its new tech center in Sindelfingen, near Stuttgart, while 2,000 more are being recruited globally to work in hubs such as Tel Aviv, Beijing and Bangalore, India.

Stellantis, meanwhile, will outline its plans during its so-called "software day" scheduled for later this autumn, expanding on announcements already made to collaborate with Taiwan's Foxconn on connectivity in a joint venture called Mobile Drive.

The prize for all automakers is a potentially highly profitable combination of data mining and fulfilling customer desires for cars that keep themselves updated with the latest digital technology.

The automotive software market will triple in size over the next 10 years as value added from software-based solutions increases to 252 billion euros in 2030 from 76 billion euros in 2020, consultant Berylls predicts.

The value of software per vehicle will rise to 2,375 euros from 820 euros over the same time frame, with the biggest chunk of that increase coming from ever greater autonomous driving capability, Berylls believes.

"Cars are evolving rapidly from pure hardware to software-on-wheels," Berylls wrote in a report published in September. "Established manufacturers will have to put their foot down to avoid losing the race to Tesla and tech giants such as Google."

The increasing complexity of new cars has thoroughly tested the car companies' software-writing ability. VW, for example, has about 100 million lines of computer code in the current Golf, a 10-fold increase on a car built in 2010.

VW predicts that number will rise to 200 to 300 million lines of code when it launches its Trinity electric sedan in 2026 using the 2.0 version of VW.OS.

VW experienced software problems during the rollout of the 1.1 version of its software in the ID family of electric cars. Owners of the first edition models were initially unable to use some key functions, which are now operational.

The increasing complexity is partly because as technology proliferated, it was divided into domains, with each having its own domain controller.

"This created a lot of duplications across vehicle architectures. As a consequence, a lot of hardware wasn't being used in the best way possible," Michael Wintergerst, head of vehicle and cloud platform at Cariad, told an audience at the recent IAA auto show in Munich.

Computing power can't be shared between domains; therefore, much of the software has to be duplicated.

"All of these duplicates made it very difficult to have a consistent architecture of the entire car environment," Wintergerst added.

The new thinking among VW and other automakers is to design a single platform. In VW's new OS arriving in 2025, just three computing modules host the software: one for vehicle operation, body, motion and energy; another for networking, communication and security; and a third for connectivity.

Mercedes-Benz parent Daimler is going the same way with its MB.OS. It has four central domains, split into powertrain, autonomous driving, infotainment, and body and comfort systems.

"This will become the basis for all future Mercedes-Benz vehicles as a unique and standard software platform," Michael Hafner, head of MB.OS base layer and MBUX, said in an interview published on Daimler's website in September.

This approach mirrors Tesla, which has moved to a single System on Chip (SoC) architecture.

The question for automakers is: Do you develop the software in-house or outsource the task to, for example, Google?

VW has been vocal about integrating software into its whole-vehicle development.

Outsourcing to Google would be a mistake, Cariad CEO Dirk Hilgenberg told Automobilwoche in a recent interview.

"Google is taking a hard line on data and demanding access to customer data. It also then sets up the value-added services," he said. "But that is exactly what the Volkswagen Group sees as a future business area."

Hilgenberg admitted that the IT giant has the lead in two specific areas in digital for automotive.

"Google scores above all with the voice assistant and the map. We have to show other strengths," he said.

This lead is what persuaded both Renault and Volvo to link with Google's car specific platform, Google Automotive Services.

"It's a big step forward. The ability to use Google apps, Google maps, Play Store, Assistant -- that is really going to simplify things for a lot of people," Renault group design head Laurens van den Acker told Automotive News Europe. "By not trying to be a better navigation integrator than Google, we hopefully will reduce our potential complaints."

Google's Android Automotive OS goes deeper than just the Android Auto smartphone mirror and can integrate elements such as climate control and onboard cameras.

It allows Volvo (as well as its Polestar subsidiary) and Renault to update the system over the air as well offering a proven and reliable setup.

"Why not work with them if it means we will have a better navigation system and better voice control?" Volvo Cars CEO Hakan Samuelsson told Automotive News Europe sister publication Automotive News. "You have to be humble enough to admit that some things you should not try to develop in-house."

Tough field to enter

The complexity of modern car software means there is still plenty of opportunity for software companies to work with automakers, although the barriers to entry are high.

Security is uniquely complex and meeting automotive-grade risk classifications can be incredibly time-consuming and expensive, consultancy Deloitte wrote in a 2020 report.

Devising a fair pricing structure for the work is also complex. On mobile platforms for example developers retain intellectual property and are paid based on the product's popularity.

This is trickier in the closed world of automotive, where suppliers are paid per unit in the bill of material.

This is changing, however. Software suppliers such as Harman, owned by Samsung, are negotiating a percentage of revenue if a customer pays to download an upgrade, for example, to its in-car audio system.

Still though, "strong financial stamina is required as an automotive software supplier," Deloitte noted.

What is needed is a common automotive software platform that developers can easily plug into, argues Michael Huelsewies, head of architecture and software at Continental.

Automotive is where the mobile phone industry was 10-15 years ago, he said. "They had a dozen different systems. Now it boils down to iOS and Android," Huelsewies told Automotive News Europe.

Continental believes it can help develop that platform and has already linked with cloud-specialist Amazon Web Services (AWS) to create Continental Automotive Edge (CAEdge) -- a modular hardware and software platform that's cloud-connectable and updateable over the air.

Continental wants to play a key role in what it calls the "nondifferentiating" building blocks of software, leaving automakers to focus on the flashier applications that lure customers (although Continental says it can help here, too).

The key is collaboration, Huelsewies believes.

"If we want to deploy applications similarly to what we see in the Android world or iOS world, we need to have one standardized platform," he said. "We need to make that happen; bring everybody to one table with the right mindset, one that's says, 'Let's forget about the legacy and let's forget about kingdom building'."

BMW is another one convinced it needs software that stays adaptable. "It's a mistake when everyone develops their own operating system, that's a dead end!" BMW head of development Frank Weber told the Süddeutsche Zeitung in September.

Weber's argument is that unique operating systems lose compatibility to shared parts, hurting suppliers (and presumably making parts more expensive).

An open platform would benefit automakers and potentially free them from having to use solutions from the likes of Google.

Learning from its own data is key to VW's OS plans. The operating system connects to VW.AC, what the company has said will be the world's largest automotive cloud when it launches in 2023.

The two connect to form the Big Loop, which analyses data from VW's entire fleet of connected cars to help it develop new features.

These can be uploaded to the car and "shadow tested" in the background to check the algorithms are behaving as expected before offering it to the customer.

VW CEO Diess said that developing the ability to store and use this data within the company is paramount.

"If Europe loses data sovereignty in the car then we make ourselves completely dependent on high-tech companies from the USA or China," he told Germany's Der Spiegel in September.

He said VW was open to sharing its platform with other automakers, including BMW and Daimler.

Just as Europe is fighting to develop its own battery industry in the face of stiff competition from Asian suppliers, the region is waging a similar battle over automotive software against competitors from both Asia and the U.S.

As the modern car becomes more about the software than traditional European strengths such as vehicle dynamics, the need to find the right path is becoming more important than ever.