Who will win the race to the perfect SDV?

The automotive industry is experiencing a major transformation, driven by the integration of advanced software systems into vehicles. As cars become smarter and more connected, Original Equipment Manufacturers (OEMs) are moving away from depending on third-party software suppliers and are looking to build their own in-house software entities. This shift is not just about keeping up with technology, but about gaining control over the most valuable assets in cars: data and the user experience.

But not all OEMs are performing equally in this transformation. Some are leading the charge with their own robust in-house software structures, while others are struggling to make the change. In this blog, we’ll explore the different directions OEMs are taking, and how partnerships and software companies fit into this evolving landscape.

A word of context: a hardware-centric industry

The automotive sector has historically revolved around hardware, establishing a model for success based on performance and reliability. This focus empowered OEMs to build strong reputations and consumer trust, especially during the 20th century. However, as vehicles evolve into software-defined platforms, the complexity of integrating advanced software with traditional hardware has gotten more complicated, and this requires a shift in ways of approaching it.

Integrating hardware and software presents significant hurdles. Integration complexities arise from misalignment between teams, which in turn affects the scalability of software solutions across various models. Moreover, the transition to software-defined vehicles requires the building of new skill sets, posing recruitment and cost challenges. At the same time, complex regulatory and safety demands complicate the introduction of new technologies.

The rise of connected, autonomous, shared, and electric (CASE) vehicles is pushing automakers to focus heavily on software. Cars are no longer simply mechanical machines; they are becoming data platforms with millions of lines of code running everything from infotainment systems to autonomous driving features. 

The driving force behind in-house software development

OEMs realize that controlling the software gives them a strong competitive advantage, allowing them to differentiate their products through unique user interfaces and features. Software also allows them to optimize and control the data generated by the vehicles, enabling better insights for maintenance, performance, and customer experiences. With critical cybersecurity standards being enforced, controlling software updates and patches is becoming mandatory for companies in order to ensure tighter security and faster innovation cycles. With these motivations in mind, OEMs have started to build their own software divisions, but the journey is complex and resource-intensive.

The different OEM approaches to in-house software

Software-defined from the start

Some companies have set out to make software-defined vehicles from the get-go, and Tesla is the primary example. Tesla is the poster child for in-house software success. From day one, Tesla’s vehicles have been designed as computers on wheels, with centralized control over both hardware and software. Tesla’s ability to release over-the-air (OTA) updates has revolutionized the automotive industry, allowing the company to continuously improve the driving experience, patch vulnerabilities, and even enhance vehicle performance post-purchase.

Tesla’s vertically integrated approach—where hardware and software are tightly coupled—has allowed it to innovate faster than traditional OEMs. This control over the software stack has enabled Tesla to lead in autonomous driving features, battery management systems, and infotainment technology. Thanks to this from-scratch approach, Tesla is probably one of the OEMs that are closest to fully achieving a centralized approach, an intrinsic part of SDVs.

Chinese OEMs: leading the software revolution

Chinese automakers have emerged as leaders in the SDV space due to a unique convergence of massive investments, strong government support, high consumer demand for tech-rich vehicles, and a thriving tech ecosystem. Thanks to this, China is now at the forefront of electric and autonomous vehicles with companies like Nio, Xpeng, Geely, and BYD. These OEMs benefit from a robust domestic market where consumers have an appetite for advanced digital and autonomous features, creating a strong pull for innovations in software and smart vehicle technology.

Investment-driven innovation and vertical integration

Chinese OEMs have poured significant resources into building proprietary software platforms, autonomous driving systems, and smart cockpit technologies, often partnering with tech giants like Alibaba and Huawei to advance cloud and AI capabilities. BYD’s vertically integrated approach, for example, gives it full control over both hardware and software, allowing it to innovate rapidly across the entire vehicle lifecycle. This high level of investment and ecosystem integration has enabled Chinese companies to push the boundaries of what software can do in vehicles, from seamless OTA updates to advanced user interfaces.

A strategic path to global influence

China’s automotive companies aren’t just focused on domestic dominance; they have global ambitions, especially in markets like Europe, where they’re setting new standards in SDV capabilities. This push is reshaping the competitive landscape, forcing Western automakers to accelerate their own software efforts. With a tech-savvy approach to vehicle design, Chinese OEMs have transformed from fast followers to trendsetters, defining the future of software-defined vehicles globally.

Unifying vehicles and software platform

For OEMs that have been around longer, investing in centralized software development to drive modernization has been a common approach. Volkswagen (VW) is arguably one of the most ambitious players in the in-house software game. The German auto giant created its software division, CARIAD, to centralize all software development across its brands, including Audi and Porsche. With a goal of producing a unified software platform for all VW Group vehicles, CARIAD has been tasked with developing an automotive OS, a unified infotainment system, and advanced driver assistance systems (ADAS).

In a significant development, CARIAD recently signed a contract with Rivian, the electric vehicle (EV) startup known for its innovative approach to EV design and technology. This partnership aims to leverage Rivian’s strengths in software engineering, which will support Volkswagen’s transition to a more software-driven vehicle lineup. By collaborating with Rivian, CARIAD aims to enhance its development processes and accelerate the delivery of features across VW’s platforms. 

Volkswagen’s heavy investment in CARIAD—billions of dollars and thousands of software engineers—is expected to soon pay off. In late 2023, VW announced that their software platform would be standard in most vehicles by 2025. Though there have been some delays and difficulties, particularly around autonomous driving development, VW’s holistic approach has positioned it as a leader investing in the software space.

A modular approach 

Other OEMs have opted for a more modular strategy. General Motors (GM) took an interesting modular approach with its Ultifi software platform, for instance. GM envisioned a software layer that decouples the vehicle’s hardware from its software, allowing for frequent updates, new features, and enhanced services through OTA updates.

This approach was particularly notable because GM was not only looking at internal development but was also building an ecosystem where third-party developers could create apps and services for GM vehicles. By backing an app marketplace called SDVerse, GM is opening up new revenue streams while ensuring it maintains control over the core software systems.

Whether the approach will be successful or not remains to be seen, as organizations like GM struggle to balance investments in software and electric vehicles.

Common challenges OEMs face in building software capabilities

Software-related capabilities

Traditional automakers face several common challenges in their shift to software-defined vehicles, primarily due to the cultural and technical transition required. One key difficulty lies in software-related capabilities, such as implementing reliable OTA updates. Many have experienced delays in this area, and issues with software reliability and user interface have been prevalent across OEMs, slowing their ability to deliver seamless digital experiences to customers.

Building and integrating in-house teams

Another major hurdle is building and integrating an effective in-house software team. OEMs continue to grapple with merging software and hardware cultures within the same organization. This often results in operational friction and slows down the pace of innovation. Establishing a cohesive software division within a company historically focused on hardware requires significant structural changes and ongoing investments, something Ford’s CEO has publicly acknowledged for instance.

Balancing in-house development and strategic partnerships

Finally, OEMs struggle to balance in-house development with strategic partnerships. Toyota, for instance, has taken a cautious approach, relying on collaborations with NVIDIA and Aurora for autonomous driving technology rather than building a dedicated internal software entity. While this conservative strategy minimizes risks, it can also jeopardize progress in a rapidly moving industry. Many OEMs are now reevaluating their approach, either by accelerating internal investments or deepening partnerships with tech firms to remain competitive.

The role of software companies and partnerships

Even as OEMs try to bring software development in-house, partnerships with established tech firms and software companies remain critical. Few automakers can build everything from scratch, especially when it comes to complex systems like autonomous driving, cloud services, or artificial intelligence. 

Several key tools and building blocks are instrumental in the development of SDVs. Each OEM has chosen a different combination of partners and tools based on their specific needs and strategies.

The importance of partnerships in the automotive ecosystem

The complexity of automotive software development has led many OEMs to pursue partnerships with technology companies. These partnerships serve various purposes, including enhancing the customer experience, optimizing vehicle development, and sharing production costs.

Many OEMs are focusing on improving digital cockpit experiences and user interfaces, leading to partnerships with companies like Google, Amazon, and Bosch to enhance their software capabilities. Collaborative ventures help share the burden of R&D costs, vehicle development and also offer platform sharing.

Joint ventures, like the one between Rivian and VW, allow companies to leverage each other’s strengths in developing electric vehicle technologies and architectures. As regulations evolve, partnerships help OEMs navigate compliance in various markets, ensuring that their technologies meet local standards. By collaborating with established tech companies, OEMs can scale their offerings faster and more efficiently, allowing them to adapt to changing consumer demands and technological advancements.

How open source fits into the picture

At Canonical, we believe open source software will play a transformative role in the automotive industry. Linux-based distributions like Ubuntu offer OEMs a flexible, secure, and highly scalable foundation for developing robust automotive operating systems that support continuous updates, security patches, and performance optimizations. Ubuntu’s proven scalability is critical for managing the complex and diverse requirements of SDVs, ensuring a consistent and reliable experience across different models and hardware setups.

Leveraging open source cloud solutions can also be helpful for OEMs in creating seamless connections between vehicles and cloud platforms, facilitating OTA updates and data management.

Open source’s flexibility and transparency enable OEMs to customize software for specific purposes, such as user interfaces and digital cockpits, creating unique, branded experiences that enhance user satisfaction. By building on open source, OEMs can focus on their core competencies, while relying on a community-driven, tested software foundation. Finally, open source allows OEMs to contribute to and shape relevant projects, promoting industry-wide innovation and accelerating the deployment of new features.

A long history of innovation

As the automotive industry continues its shift towards software-defined vehicles, OEMs face both opportunities and challenges in building their in-house software structures. Some companies are paving the way, while others are still grappling with the complexities of this transformation.

Partnerships with technology firms and software companies are vital for success in this rapidly evolving landscape. As OEMs navigate the challenges of in-house software development, the role of established software companies becomes increasingly important, offering solutions and collaboration opportunities that can drive innovation in the automotive sector.

As the race for automotive software market share intensifies, the automotive landscape will continue to evolve, redefining how we experience mobility in the years to come.

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