How Qualcomm made itself essential to the industry

One supplier at this year's CES in Las Vegas linked all the major car brands that used the show to bolster their tech credentials: Qualcomm.

But unlike the hundreds of suppliers that work with automotive companies, Qualcomm is one of the select few that automakers proudly mention by name as a partner.

CES 2023 participants BMW, Mercedes-Benz, Stellantis, General Motors, Volvo, Volkswagen Group software division Cariad, and Sony-Honda's new brand, Afeela, all have established a relationship with the California-based company. Some used CES to stage joint events with Qualcomm.

Qualcomm, along with semiconductor specialists Nvidia and Intel's Mobileye, have positioned themselves to provide the power -- and increasingly the brains -- behind the "software-defined car."

Automakers have responded by signing deals with them that they hope will unlock new revenue streams from functions such as autonomous driving and updatable software features that require the huge processing power and intelligent networks these companies provide.

"The worst kept secret in the industry is that OEMs are not very good at software development," Martin Kristensson, head of product definition and partner management at Volvo Cars, told journalists at CES at an event co-hosted by Qualcomm. "We need partners to be able to do this."

$30 billion in orders

Of the three competing tech firms, Qualcomm has the biggest momentum. At an investor conference in September, it announced a $30 billion pipeline of signed automotive contracts, up from $19 billion in July. Based on those contracts Qualcomm estimates its annual automotive-related revenue will be $9 billion in 2030.

That amount of revenue would propel Qualcomm to 28th place on the 2022 Automotive News ranking of the world's 100 largest auto suppliers, ahead of giants such as Schaeffler or Autoliv.

Although Qualcomm doesn't appear on the current list, its automotive division's 2022 fiscal year revenue of $1.37 billion, which was up 41 percent on the year before, would have placed it at No. 94.

Mobileye is a bigger player in the automotive space right now with a forecast revenue of between $2.19 billion and $2.28 billion for 2023. However, earlier this month founder and CEO Amnon Shashua said Mobileye has a revenue pipeline of more than $17 billion through 2030 for its core advanced driver-assistance system (ADAS) products.

The automotive piece of Qualcomm's overall revenue is currently tiny -- just 3.6 percent -- and even at $9 billion it would still be much smaller than its revenue from supplying chips powering Android mobile phones.

However, that is part of the appeal for automakers. Qualcomm has helped to transform mobile phones from a simple communication device into powerful minicomputers generating billions in subscription revenue. Might they be able to do same for cars?

"The industry is going through a once-in-a-lifetime transition in various ways and the technologies we have in phones become extremely relevant to the auto industry," Qualcomm Chief Financial Officer Akash Palkhiwala said at the Barclays Global Technology conference in December.

Software-derived revenue

Tesla's success in creating a car that not only generates income on sales but also throughout the ownership cycle sharpened the minds of automakers as they started to overhaul a decades-old development process.

"Software is going to be the main revenue growth driver for carmakers," Pedro Pacheco, who is senior research director at consultant Gartner, told Automotive News Europe. "And you can only truly be good at software when you have great hardware."

But first they needed to overhaul their supplier relationship. The all-important "system-on-chip," the car's most powerful computer, was buried in PCP boards within modules supplied by Tier 1 integrators such as Continental, Harman or Robert Bosch.

"Chipmakers were Tier 2, 3 or even 4. Carmakers weren't even talking to them," Pacheco said.

That's changing fast. Companies such as Qualcomm, Mobileye and Nvidia are becoming embedded in the automaker development process and in some cases are establishing partnerships.

Qualcomm is even investing in Renault's new Ampere electric vehicle unit ahead of the launch of Renault's software-defined cars from 2026, broadening an existing relationship.

"You now see a senior level engagement," Qualcomm CEO Cristiano Amon told investors in September. "They have to make the right choice on the platform and then build on top of the platform. And that's very different than how the industry used to be."

Three crucial pieces

The software puzzle has three main pieces that tech suppliers want to stitch together for automakers: connectivity, digital cockpit (infotainment) and assisted/autonomous driving.

Qualcomm got its start in automotive with the first piece, supplying modems to automakers, beginning with GM in 2002.

The digital cockpit is the second piece that Qualcomm has targeted with its Snapdragon Digital Chassis product. It now has "most automakers on our platform," Qualcomm Senior Vice President and General Manager, Automotive Nakul Duggal said at the Arete Tech Conference in December.

Snapdragon Digital Chassis is already running in two Stellantis models, the new Opel/Vauxhall Astra and Peugeot 308, as well as the Renault Megane E-Tech. Later this year it will be available in the Volvo EX90 electric SUV and related Polestar 3.

But Qualcomm told investors that the assisted/autonomous driving piece ultimately will be the biggest revenue driver for its automotive division. However, that is where it is playing catch-up.

"We see Mobileye as the incumbent clearly in ADAS. They have been doing this for a period of time. We are the new entrant in the area," Qualcomm CFO Palkhiwala said in December.

Qualcomm had the chips but not the intelligence that Mobileye has established. Therefore, Qualcomm bought Veoneer's Arriver autonomous software business, bringing on board a perception and driving policy (a set of rules) software stack along with 1,100 employees.

That purchase, which was completed last April, has allowed Qualcomm to pitch its Ride Flex platform as a rival to products from Mobileye and Nvidia.

Key win over Mobileye

Qualcomm's ability to span both the digital cockpit and ADAS is already helping it win business from Mobileye.

At CES Dirk Hilgenberg, CEO of Volkswagen Group's software arm, Cariad, outlined Qualcomm's role in supplying silicon for the group's forthcoming Unified electric vehicle architecture, which will eventually replace both the MEB and the PPE architectures.

That move would oust Mobileye as the provider of the keystone chip currently embedded in MEB cars.

VW's original agreement with Mobileye was a double win for the Intel subsidiary because it was also allowed to harvest data from MEB cars for its trademarked Road Experience Management (REM) high-definition mapping function. This would help Mobileye further strengthen its autonomous driving package.

VW, however, realized giving up the data would hamper its ability to create its own software stack.

"That is why Cariad was founded, because we are lacking access [to this data]," Hilgenberg said.

VW's desire to build up its own databank of knowledge to feed into its autonomous driving system led to the Qualcomm deal.

"We think that the functionality is dependent on the amount of corner cases you actually can secure, harden and validate," Hilgenberg said. "That requires a big fleet, high-performance power and a good partnership. That's why we partnered with Qualcomm."

VW also confirmed it was a customer for Qualcomm's new Ride Flex chip that can handle both the digital cockpit and the assisted/autonomous driving functions.

Mixing and matching chips

Automakers are also mixing and matching chips. Volvo, for example, uses the Snapdragon chip to power its Android Automotive-based infotainment software system, but also takes silicon from Nvidia that powers the car's driver-assistance features.

However, as the development process moves away from the physical car and at a pace more in line with smartphones, that might not last.

"A question is: Will we switch from Nvidia to Qualcomm for our drive computer? I can't say. It's a fast-moving space," Volvo's Kristensson said.

BMW is another automaker switching to Qualcomm from Mobileye to power its Neue Klasse platform due 2025. Once again, the partnership is far more collaborative than a traditional supplier/automaker relationship. BMW and Qualcomm will develop an assisted driving stack up to Level 3 capability (which allows hands-free driving in in select locations such as a stretch of highway) and then market it to other automakers.

Ultimately, the prize for Qualcomm is about $2,000 to $3,000 of content per car, according to CFO Palkhiwala. The company is banking on automakers spending more to insert higher spec chips that will future-proof cars to be able to accept upgrades for several years.

New Sony-Honda electric brand Afeela, for example, plans to use a Qualcomm Snapdragon chip capable of 800 trillion operations per second (TOPS) for its first car, which is scheduled to debut in 2026. By contrast, the Qualcomm chip in the new Volvo EX90 can perform 10 TOPS. With that much more processing power, Sony-Honda is targeting leases of up to 10 years because the car will be able to receive upgrades that will ensure is on par technologically with rival models.

Qualcomm's tactic has been to be as accommodating as possible with automakers when it comes to existing agreements for software and hardware. It creates digital "containers" for the different software pieces, overlaying a "hypervisor" to ensure they can talk to each other.

The risk: cheaper, in-sourced chips

Qualcomm needs to embed itself deeply in the development process as well as the software. If it doesn't it faces the problem that automakers will go with a cheaper chip to run platforms that aren't built around a specific piece of silicon.

Toyota, for example, has said its Arene software platform will be chip agnostic. That means Qualcomm could be hurt by the same automaker impetus to go it alone that allowed it to replace Mobileye at VW.

"Insourcing ADAS is possibly the biggest threat, on a very long-term, 10-to-20-year view," investment bank Evercore ISI wrote in a recent report assessing Mobileye's future opportunities. "OEMs are looking to get increasingly vertically integrated." It cited Tesla as the "primary insource example" as well as Rivian and other startups.

But for now, Qualcomm is in the right space at the right time for automakers looking for help. Cariad's Hilgenberg reeled off a list of reasons why VW Group's software division went with the company for its future chips: "Technical experience, professional engineering organization, scalability, power consumption and low price points."

Qualcomm is enabling car companies to build out their own software capability at a time when they are realizing that doing so is crucial to their survival.

For the industry, the weight given to companies such as Qualcomm within the automotive space at CES was evident. Alain Visser, CEO of Geely-owned Lynk & CO, was one of those witnessing this from the sidelines in Las Vegas. "Car development used to be mechanical and the software was little more than decoration," he told Automotive News Europe. "Now the software is almost more important."