The importance of software has never been so high before in the automotive industry. In the earlier phase of automobile software, it was just assistance to mechanical engineering. For example, the engine control unit (ECU) makes simple calculations and operates the engine digitally. The automatic gearbox has its own operating logic and is guided by the software.
Software took over engine management already in the 1990s. Engine technologies such as variable valve timing or variable geometry turbocharger are all operated via ECU. Other safety assistance systems such as electronic stability program (ESP) are also digitally operated. These software applications still center on mechanical components, and the goal is to drive the vehicle efficiently and safely.
In the early 21st century, the software had its first leap as an integrated infotainment system hit the market. The first prominent application was BMW’s iDrive system, which linked together all the onboard functions and entertaining applications with a simple user interface. Though the first iDrive was criticized for its slow reaction and maneuvering difficulties, it triggered the trend of the infotainment system. We saw Mercedes’ COMAND and Audi’s MMI following the step of BMW. A delicately branded and designed system has since become a core feature of the luxury class. As time goes on, the infotainment system includes more functions such as driving mode selection and more assistance systems. The driver could configure all the “hardware” of a car through the central user interface.
The rise of the infotainment system made software an independent feature from the mechanical parts but did not change the business structure behind it. Firms treated on-board software as an add-on to the product and mostly outsourced from third-party suppliers. The core competence of the automotive industry was still traditional engineering.
The game was changed when Tesla introduced the Model S to the world. Model S does not feature complex over-engineering of mechanics (in which German brands are proficient) but features simplicity and software-oriented driving experience, including the famous Autopilot system. Under this structure, a vehicle is just a moving platform for all the apps like a smartphone. Software now aims at providing a comprehensive driving experience rather than merely assisting. As the industry is clearly moving toward electrification and software orientation, Tesla has proven itself as the leader of the revolution in the automotive industry. Mechanics are still important, but not the main competitive advantage anymore.
As a software-oriented firm, Tesla develops over half of the software in-house, while its old German competitors outsource most of the software. Under the competition from and the success of Tesla, German brands are at the edge of business model shifts. Automotive software has evolved from a standardized add-on (e.g. on-board TV and navigation) to a comprehensive driving experience provider (e.g. autonomous driving system and on-board OS). The goal is to make vehicles intellectual and autonomous.
With the development complexity and the legal issue of patents, the software could be difficult to outsource at a commodity price. Traditional manufacturers have to restructure the software sourcing strategy accordingly to develop firm-specific software that differentiates them from competitors. The change implies a re-construction of the organization. An independent software R&D unit may be needed for a pure make-in-house strategy, and a fully authorized software procurement department may be needed if a new relationship with suppliers is to be built. Software is not new to the industry, but this time it is seriously changing it.
