For the first century of the automotive age, cars were run by mechanics. By the late 1960s, there was a computer here and there to control the fuel injection rate, and by the 1980s, they were ubiquitous. It happened that fast. In many ways, our cars are computers on wheels.
Now we are at another inflection point. A combination of trends—autonomous driving, connectivity, electrification, and shared mobility (ACES)—are transforming the automotive industry and will have a significant impact on computing and mobile network requirements. Advances in computing and connectivity could bring many new use cases to the auto industry, such as infotainment, emergency services monitoring, and fostering the use of autonomous and electric vehicles.
Specifically, 5G will be much faster, more reliable, and provide more uniform user experiences, supporting a wide range of concurrent connections from cars on the road. These services can be provided onboard, in the cloud, or near the user (the “edge”). One implication is that these places could change as 5G connectivity advances. For example, non-safety-related services, such as infotainment and smart traffic management, could shift to the edge, and some safety functions could be augmented by the edge infrastructure rather than relying solely on onboard systems.
However it is done, the potential is significant: McKinsey estimates that the total value created by connected-car use cases could rise from about $65 billion in 2020 to as much as $500 billion by 2030 and open up opportunities for players all along the value chain.
Three kinds of connected-car ecosystems are emerging. In a closed system, a group selects its participants and creates standards for new technology layers or control points to ensure high levels of interoperability among its members. This gives them greater control over the user experience but also risks slowed innovation and may restrict the use of certain technologies.
In an open system, there are broadly adopted interoperability standards with relatively common interfaces, and anyone can join. In such cases, companies may remain within their traditional domains, with semiconductor players, for example, producing chipsets for specific customers. Participating in an open system can help companies reach critical scale faster and also speed up innovation. But standardization could also lead to commoditization.
In a hybrid model, companies pick and choose on a system-to-system basis, depending on their strategic planning. This gives them a degree of control over quality and can mitigate risks. But it is also more complicated because companies will need to integrate multiple systems.
Regardless of the model chosen, and there are advantages and disadvantages to each, the important fact is that greater connectivity is a source of opportunity. Capturing it will require players to take a hard look at their strategy, capabilities, and portfolio.
Semiconductor companies must move quickly to identify opportunities and refine their existing strategies in the automotive market, which is one of their most promising segments. They could benefit from seeing how they can become solution providers rather than hardware suppliers, for example, by developing application architecture or balancing workloads between onboard, cloud, and edge computing. They could also produce more purpose-specific chips, such as microcontrollers for advanced driver assistance, smart cockpit, and power-control systems.
Tier 1 suppliers could leverage their capabilities and assets to become system integrators and develop operating systems, ADAS, autonomous driving, and human-machine-interface software for new cars. To do so, they need full-stack employees who can design products that meet user expectations. They may want to consider focusing on low-cost countries and high-volume growth markets with price-differentiated, customized, or lower-specification offerings that have already been tested in high-cost economies.
Communications service providers (CSPs) need to ensure that they keep up to date and invest enough to ensure 5G and edge service availability and support highly autonomous driving. They will benefit from expanding their product portfolios to include edge-based infrastructure-as-a-service and platform-as-a-service.
Original equipment manufacturers (OEMs) can use their expertise to build closed- or open-ecosystem applications and also on high-quality contract manufacturing. Offerings could include shared mobility service and batteries. They may need to seek new partnerships to fill talent gaps and manage their portfolio. Working with semiconductors and CSPs could help them leverage new 5G and edge technologies to create as-a-service solutions.
Hyperscalers can step up their cloud and edge offerings by considering partnerships with other players in the value chain, such as with OEMs to test priority use cases and create automotive-specific standards in the cloud and emerging edge segments.
One of the major themes of the fast-emerging ACES landscape is that there are big opportunities—and these are not being captured. A second is that it will be difficult to go it alone: partnerships and the cultivation of a connected ecosystem will be essential. By working together, all the players can accelerate innovation and shorten the time-to-market for the goods and services that will bring smart vehicles from the lab to the road—and that benefits everyone.