Toyota and VW are at a disadvantage in the software race – 09/30/2024 – Market

Global automakers have lagged behind in developing fundamental automotive software. This threatens companies’ ability to profit in the electric vehicle era.

Gartner consultancy shows that only three traditional automakers — Ford, GM and BMW — are among the top ten in this area. The segment is dominated by the Chinese companies Nio, Xpeng and BYD and by Americans such as Tesla, Rivian and Lucid.

“It’s a difficult transition that requires both a change in mindset and technology,” said Anders Bells, director of engineering and technology at Volvo. The Swedish company, which today belongs to the Chinese Geely, has just launched the EX90 electric SUV, which is equipped with Nvidia software and chips.

However, delays and failures faced by Volvo in developing a computing system resulted in the absence of features available in many electric cars, such as the Apple CarPlay system and smart battery charging. These items should be added in future remote updates.

Previously, car manufacturers relied on their own engineers to develop software. However, they are now looking for talent in startups and large technology groups, such as Apple and Google, which causes cultural clashes and internal tensions.

In June, Volkswagen resorted to a US$5 billion (R$27.6 billion) partnership with Rivian after problems at Cariad, the German automaker’s software unit. Toyota has also struggled with its own company, Woven, where net losses totaled US$888 million (R$4.9 billion) over the past two years, according to people close to the company.

The Japanese automaker’s subsidiary wants to make the brand’s vehicles smarter, but a major management restructuring took place last year. Former Google executive James Kuffner has resigned as CEO of Woven to become the group’s senior advisor.

Toyota said it is on track to launch its new software, called Arene, next year, and attributed some of the losses to one-off factors.

Pedro Pacheco, an analyst at Gartner, said major automakers failed to use resources efficiently to make the transition. “They need to review their approach to software, because if you don’t think and act on this, it will be tremendously difficult to catch up to the rivals that are leading the industry.”

In addition to improving basic vehicle functions, automakers have been attracted to computing’s potential to generate more revenue through user data collection and subscription service offerings — which come with a monthly fee for insurance, maintenance and repairs. .

Digital services generate around US$300 million (R$1.6 billion), or 3%, of automakers’ global revenues, according to Accenture. However, the consultancy projects that this could expand to US$3.5 trillion (R$19.3 trillion) by 2040, representing almost 40% of revenue generated by the automotive industry.

Stellantis, which brings together brands such as Jeep, Peugeot and Fiat, expects to generate US$22.4 billion (R$124 billion) in annual revenue from software and subscription services.

Ford has recruited executives from Apple and Tesla in recent years, including Doug Field, who previously led the iPhone maker’s car project.

However, the continued decline of traditional manufacturers in Gartner’s index is evidence that they may not be able to capitalize on projected growth.

Kota Yuzawa, an analyst at Goldman Sachs, estimated that the cost of developing an operating system for vehicles is at least US$11 billion (R$60 billion) for any manufacturer.

“Monetization is very difficult. There are talks about doing monthly subscription models, but the reality is that, while we use smartphones every day, the use of privately owned vehicles is only 5%”, he assesses.

Vehicle software is expensive to develop and requires new skills and talent for manufacturers. On the other hand, they have the potential to reduce the cost of repairs, as repairs can be done digitally, as well as increasing customer loyalty.

Volvo’s Bell is convinced that the initial costs and development difficulties will be worth it, as the safety and performance of its vehicles can be continually improved even after they are sold to consumers.

Development costs for future models will also decrease once a common computing architecture is established. “We have to really learn to embrace software. If you can’t keep up with the general speed of technology in society, you will fall behind,” Bell said.