Software-driven transformation is the future for automotive manufacturers

Software-driven transformation is expected to help original equipment manufacturers (OEMs) in the automotive industry gain 9% higher market share over their peers, as per Capgemini Research Institute report.

The report shows that software-driven change is expected to deliver significant benefits for automotive OEMs in the next five years, such as improving productivity up to 40%, reducing costs by 37%, and improving customer satisfaction by 23%.

Despite this, nearly half (45%) of OEMs currently do not offer any connected services, and only 13% are monetizing connected services to their benefit.

Software-based features and services is projected to be a $640 billion market by 2031.

In addition, on average, the share of new vehicles per OEM to operate on a unified, common software platform is expected to rise from 7% in 2021 to 35% in 2031.

Obstacles to overcome

There are always two sides to a coin and the biggest issue which haunts this shift is maturity in key areas remains low. Almost 71% of OEMs are at the initial stages of their software-driven transformation after realizing it late. Meanwhile 28% have implemented a pilot or proof of concept based on use cases for advancing transformation in specific areas.

Capgemini’s research finds that only 15% of OEMs are considered “frontrunners” after successfully adopting them.

How to successfully adopt it?

Operational areas must be given significant focus to deliver strong outcomes. Frontrunner OEMs believe that software-based revenue will account for 28% of their overall revenue by 2031. It will also require strong architecture, ecosystems, and strategic technology partnerships.

To realize the benefits of software and gain a competitive edge, OEMs will need to transition from legacy architecture. Currently, 93% of OEMs have a traditional vehicle architecture, while only 13% have plans to decouple and separate the tightly integrated hardware and software architecture deployment, Capgemini reported.

It leads to an inefficient mechanism for over-the-air (OTA) software updates and can lower the pace at which OEMs innovate. The automotive executives expect the production of new vehicles supporting connected services and OTA updates to triple from 11% to 36% in the next five years, but only 4% of OEMs currently provide any kind of OTA update.

Is adoption the only problem?

Like any other platform, data ownership and cybersecurity remains at large as OEMs have struggled to collect data and translate it into insights. Less than 10% believe they are well prepared to implement cybersecurity measures, while 60% find it difficult to ensure products from suppliers meet safety and cybersecurity regulations.

The data acquired by the software can be used as “intelligence” to the automotive value chain, yet 47% of the OEMs do not collect or analyze vehicle data.

Can you pull it off amid the unemployment crisis?

OEMs are faced with a skills gap of 40-60% in areas such as software architecture, cloud management expertise, and cybersecurity – the three pillars of software-driven company.

“Software is redefining mobility and disrupting the entire automotive value chain. While the competition for innovation and growth undoubtedly lies within the vehicle, automotive manufacturers must not overlook the need to create a culture of agility and collaboration within the business,” Alexandre Audoin, Group Industry Lead for Automotive at Capgemini, said.

Along with growing consumer base, the expectations OEMs has increased after 97% of executives surveyed by Capgemini believe that within the next five years, as much as 40% of their talent will need to possess the necessary skills.

It will need to focus its attention on new competences, redefine their processes around software, and attract new talent.

Idiot-proof Plan

• Building a software-focused vision and strategy for the organization
• Use software tool chains and methodology for better industry collaboration
• Forging long-term, strategic partnerships with software, technology, and service providers on key software frontiers
• Retain the talent at your disposal
• Tapping into the power of data for smarter vehicles, operations, and intelligent services
• Defining a clear roadmap for next-generation and standardized vehicle software architecture