In this digital age, the automotive industry is undergoing an incredible transformation, with software and electronics playing a key role. Discover key insights and strategies to be a first mover in this rapidly evolving business environment.Â
table of contents
Where will the unprecedented growth in the market come from?
Impact on the value chain
â‘ The relationship between automakers and major suppliers will changeÂ
â‘¡ Separation of hardware and software is leading to a new procurement modelÂ
3) New partnerships and cooperation models are being formed. Especially software and electronic aspectsÂ
How should stakeholders prepare for future market developments?
OEMÂ
Tier-1 supplierÂ
Tier-2 supplierÂ
semiconductor companiesÂ
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Where will the unprecedented growth in the market come from?
Over the next decade, the automotive industry will undergo major changes. These changes are primarily driven by four interrelated trends (ACES trends): autonomous, connected, electric, and car sharing.Â
The impact of these ACES trends will result in significant growth in the automotive electronics and software market. The overall global automotive market is expected to grow at approximately 3% per year to $3800 billion from $2755 billion in 2020, while software and electronic components will experience higher growth rates at approximately 7% per year. To do. In other words, the market size will expand from approximately $238 billion to approximately $469 billion (excluding battery cells).Â
 As a result of these trends, we expect user behavior and travel preferences to change, the distribution of value to change, new innovative business models to be introduced, and new players to enter the automotive industry. These changes, made possible by advances in electronics and software-related technology, will have a significant impact on the automotive electronics and software market.Â
Impact on the value chain
â‘ The relationship between automakers and major suppliers will changeÂ
Traditionally, automobile manufacturers (OEMs) would order the required features of auto parts from their suppliers, and the primary suppliers (Tier-1) would provide integrated systems based on those requirements.Â
However, with the increasing demand for more advanced and comprehensive systems, no single supplier can offer competitive technology. This has created an opportunity for new players, such as software companies, to enter the market and collaborate in different ways. The increasing complexity of automotive software and electronics has made it imperative for OEMs and partners to collaborate early in the development process.Â
As a result, OEMs and Tier-1 suppliers jointly develop these systems and are closely linked during the project. While retaining some independence, we may choose to involve other providers in the production of the systems we develop. This is a practice known as dual sourcing.Â
â‘¡ Separation of hardware and software is leading to a new procurement modelÂ
Traditionally, both hardware and software were obtained as an integrated package from Tier-1 suppliers. However, new approaches are emerging that separate hardware and software procurement.Â
This change is advantageous for OEMs in several ways. First of all, it reduces complexity by freeing you from relying on an integrated system provider. Second, it allows for a standardized software platform, which facilitates the integration of different components, which may foster further competition and reduce costs.Â
Research and development (R&D) costs are enormous in software development. Therefore, strategic partnerships are important. Elements such as seamless toolchain integration and good development practices are also key.Â
Additionally, as software lifecycles extend beyond the start of production (SOP) for more than 10 years, adopt an optimized procurement approach to ensure efficient expense management and timely delivery to customers. That is essential.Â
3) New partnerships and cooperation models are being formed. Especially software and electronic aspectsÂ
As features such as driver assistance and connectivity improve, vehicle-related software has become very complex and expensive to develop. To manage these expenses and speed up the development process, automakers are working together. Surprisingly, even competitors collaborate to share development costs. For example, BMW and Daimler, and GM and Honda, although competitors have formed a partnership.Â
OEMs also have strategic partnerships with Tier-2 suppliers and tech companies. This gives you access to critical components and the intellectual property rights you need to stay competitive.Â
In addition, an ecosystem of multiple players along the value chain is forming. These ecosystems are jointly developing advanced driver platforms, bringing together the expertise and resources of each company. These new forms of cooperation represent a shift from traditional relationships between OEMs and suppliers and suggest how important cooperation has become when dealing with complex technology areas.Â
How should stakeholders prepare for future market developments?
OEMÂ
OEMs need to find strategies to reduce development costs. This includes creating economies of scale through partnerships with other OEMs, leveraging supplier components for undifferentiated areas, increasing software reusability across platforms, and simplifying the electronic) architecture.Â
OEMS must strengthen their in-house software capabilities to develop software that differentiates vehicles from other vehicles. You can accomplish this by hiring software experts, creating a team dedicated to software development, and investing in development and validation tools.Â
Additionally, OEMs need to improve their knowledge of middleware, operating systems, hardware abstraction layers, and cloud computing. This makes it easier to separate hardware and software and select the best components from different sources.Â
Additionally, by removing barriers between different domains within the enterprise and centralizing software decision-making authority, OEMs can define new architectures and accelerate procurement decisions. This allows us to bring new products to market faster.Â
Tier-1 supplierÂ
Tier-1 suppliers must adapt to OEMs’ evolving needs and procurement practices.Â
To this end, it is important to work closely with OEMs to co-design and set requirements for future E/E architectures. This collaboration can be achieved by forming new partnerships or becoming part of an existing ecosystem.Â
To take advantage of the growth potential of software development and integration, Tier-1 suppliers must invest in software capabilities. This allows them to play an important role in this area. To be successful, it is also essential to focus on attracting top talent and creating professional development tools.Â
To remain competitive and agile in providing solutions in different areas, Tier-1 suppliers should remove barriers between different departments within the company and create a cross-functional organization. This allows us to respond effectively to the changing technology needs of our customers.Â
Tier-2 supplierÂ
For Tier-2 suppliers, moving to a more centralized system may seem advantageous for large Tier-1 suppliers. However, growth opportunities still exist by acting strategically. To be successful, you need to find a unique and attractive niche and expand it. This is important because many electronic components are becoming standardized, increasing competitive pressure on profit margins.Â
Tier-2 suppliers can also develop specialized software capabilities in areas such as functional safety, artificial intelligence, or security features. This also allows us to improve our offering to large Tier-1 suppliers. This opens two possibilities: supplying directly to the OEM or ensuring that Tier-1 suppliers use their components according to the OEM’s requirements.Â
semiconductor companiesÂ
For semiconductor companies, changing technology and changing customer demands present challenges and opportunities. To be successful, you need to look beyond your direct customers and understand how technology shifts impact your overall market strategic position.Â
It’s also important for engineering and software development service providers and technology companies outside of the automotive industry to be aware of the blurring lines between automotive and consumer electronics.Â
Are you looking for an IT partner to improve your business growth?
CMC Japan is the Japanese subsidiary of CMC Group, Vietnam’s second-largest ICT group. We support our customers’ projects and development systems with the technical capabilities and know-how that the CMC Group has cultivated over 30 years.Â
Leveraging the latest technology and an experienced team, we help automotive companies make data-driven decisions that lead to cost efficiencies, process efficiencies, and improved performance. Check out our successful development stories here.Â
