Software engineering in the european automotive industry achievements and challenges

Customer expectations are also shifting. Next-generation customers are expecting, for example, a connected, smartphone-like user experience. A McKinsey study shows that 36 percent of customers would willingly change brands for better digital and connected services. Another important point to mention is that flexible ownership and mobility services will likely replace traditional car ownership.

For example, Tesla has a master plan to dominate the automotive world with robotaxis, and an army of startups are raising money to join the battle for future mobility. The rise of the mobility industry with buzzing Mobility as a Service MaaS might even make cars a commodity in the future. Automotive is a capital-intensive and small-margin business.

What does capital-intense mean in this case? So, the market is tough as a consequence. No wonder the industry is aiming for a continuous revenue stream rather than a one-time sale.

Connected car services, features on-demand, and upcoming automated driving subscriptions are examples of additional revenue sources. This provides new EV entrants a lower barrier to enter the industry. Most automotive industry players face distinct challenges caused by the ongoing changes.

Here are the major challenges and struggles that key players experience in product development today. The development process in the automotive industry is still hardware-driven, resulting in a two- to six-year development cycle. To increase profitability and achieve a competitive advantage, OEMs are speeding up the development cycle. Because of the increasing number of features defined by software, this hardware-driven development process reaches its limitations.

Well-publicised examples can be found in the area of autonomous driving, where many major OEMs have invested enormous resources to build in-house capabilities in recent years. On the one hand, pure-play software companies can share best practices for effective organisation design, drive performance in agile development settings or offer operational tools for software development adapted to automotive needs. Such business models are typically service based for performance improvement of software development operations or license based for development tools.

On the other hand, the prospect of network effects e. Potential automotive clients are seeking opportunities to increase the flexibility of their workforce growing without hiring new internal employees or to gradually reduce using their own resources for tasks that add little value.

New pure-play software companies have the chance to secure the low-hanging fruit of this market with their well-trained and substantial software development talent — especially while traditional engineering service providers struggle to build size and capability in relevant areas.

However, as mentioned above, such time-and-material—based business models might offer scant business advantage as compared to, for example, business-to-consumer ventures, in which development resources might be allocated more profitably.

Commodity low strategic value and low OEM capabilities :. Examples naturally, OEM specific may include software for payment services, for subscription management, or for weather, news or real-time traffic information. A key advantage for pure-play software companies in this regard is that, in many cases, necessary investments in automotive-specific product adaptations are not too high.

Capability development high strategic value and low OEM capabilities :. Potential automotive clients have an urgent need to build new capabilities quickly, ensuring future vehicles remain attractive and unique in their markets.

This is generally a favourable situation for pure-play software companies with the necessary skills and assets. However, not only large, industry-shaping partnerships fall under this category. Technology scouting among smaller, even start-up—stage software companies has become a standard process for many OEMs. Considering all the above pathways for entry to the automotive industries, there remains no question about the existence of business opportunities for pure-play software companies.

The race for future business claims is not yet decided, but automotive software markets are tough to thrive in, especially with missing architecture and interface standards. Traditional automotive giants will not be able to achieve the transition to becoming data-driven technology companies by themselves, meaning their future success in furthering technology integration could very well lie in the hands of pure-play software companies. And the success of those pure-play companies will, in turn, depend on how well they can surmount the four major challenges described above.

However, this is a trend affecting not just the automotive industry. Insurance, healthcare, energy, media and manufacturing in general are among the others going through their own digital transformations, which naturally brings the need for increased software capabilities. Still, there are fundamental challenges similar to those in the automotive industry: coping with entry barriers in highly competitive markets and finding the right spot in established supply chains and business models.

Obstacles aside, the future looks bright for pure-play software companies that have the right mindset and an adaptive business approach. Now if all industry leaders can identify their own software capability shortcomings and actively work on solutions that leverage the potential of pure-play companies, both sides will enjoy a win-win situation.

View in article. Scott Corwin, Derek M. Thomas M. Detlef Zerfowski and Dr. We offer a global, integrated approach combined with business and industry knowledge to help our clients excel anywhere in the world.

Our experts work with companies across the entire automotive value chain — OEMs, suppliers, dealerships, logistics, and captive finance providers — to address the full range of challenges the industry must confront. Contact the authors for more information or read more about our automotive sector—specific services on Deloitte. Harald brings more than 20 years of experience advising multinational companies. His work focuses on transformation programs in industrial manufacturing as well as consulting on the increasing digitization and networking of value chains.

He has worked for various automotive OEMs and consumer goods industries including sanitary, food, and optical. In addition to Germany, he has also lived and worked in South Korea and Brazil. Since joining our firm in , Harald has led the Operations Practice.

He specialises in autonomous driving and artificial intelligence and its impact on the overall automotive industry transformation. He brings more than seven years of strategy and management consulting experience in the automotive and mobility industry, which enables him to bring new ideas to market quickly, and pragmatically apply these ideas to help clients modernise their businesses.

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Still not a member? Join My Deloitte. Software is transforming the automotive world by Dr. Harald Proff , Philipp Wolf. Article 15 minutes 18 June Are you sure? Yes No. Pisa, Pisa. Keywords software engineering automobile industry automotive engineering technological evolution European automotive industry electronic devices electronic equipments automobile functionalities Software SPICE Industries Safety Programming Automobiles Improvement Areas Automotive Software software engineering automobile industry automotive engineering technological evolution European automotive industry electronic devices electronic equipments automobile functionalities Software SPICE Industries Safety Programming Automobiles Improvement Areas Automotive Software.

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