Is Software Eating the Automotive Industry?
In 2011, Silicon Valley entrepreneur Marc Andreessen famously declared, “software will eat the world,” predicting that software would become a dominant force in every industry. His argument was that companies leveraging software would disrupt legacy industries at a rapid pace. Over a decade later, Andreessen’s prediction rings true, as industries increasingly rely on software-driven innovations to stay competitive, or to disrupt the competition.
The automotive sector is no exception, as vehicles increasingly evolve into software-defined machines. Newer automakers like Rivian and Tesla have seamlessly integrated hardware and software into their vehicles from the beginning of their existence as companies. Legacy automakers have struggled to adapt to this software-centric ecosystem, facing significant challenges in transitioning from their historical mechanical engineering-driven approaches.
Traditionally, legacy car companies have outsourced software engineering to primary hardware suppliers like Bosch, Continental, and ZF. As automakers now attempt to make software development a core competency, how long will it take to compete with the software-native auto companies, that design vehicles with a “software-first” philosophy.
Volkswagen Group offers a striking example of these challenges. In 2020, VW launched CARIAD, a dedicated software subsidiary aimed at consolidating and advancing the company’s software development efforts. However, the initiative has been fraught with issues, resulting in delays to key vehicle launches and significant restructuring efforts. By many measures, CARIAD has been a failure.
Indirectly acknowledging this struggle, VW recently announced a $5 billion investment in Rivian to co-develop advanced vehicle architectures and software platforms. This strategic partnership signals an implicit admission that VW cannot achieve software competence alone. Yet, an important question still remains. Will this collaboration sufficiently elevate VW’s software capabilities sufficiently to compete with software-native automakers like Tesla? Unless VW ultimately acquires Rivian, how can the company insure this partnership will create the software engineering core competence it desires?
An industry that provides a potential preview for the future of automotive is consumer electronics. Apple learned to control both hardware and software for its consumer products, prioritizing seamless integration and vertical control that revolutionized the consumer electronics industry. Apple’s approach to hardware-software integration ultimately left many of its hardware-centric competitors obsolete, unable to match the cohesion and innovation seen in Apple products.
Does obsolescence loom for some legacy automakers unable to build core software competencies? Could a car company like Tesla, with its software-first DNA, become an Apple of the automotive industry? As software continues to “eat” the automotive world, the fate of legacy automakers may hinge on their ability to adapt, or risk being left behind in an increasingly software-driven future.
Randall, having grown up a GM kid (Flint, MI) and working in and out of the automotive industry for over 20+ years and Silicon Valley in equal parts, I see the dichotomy. Yesterday, I had a moment with a friend who owns a Tesla Y. We were at a winery (I live in Napa), and we had a wine shipment to pick up, which required us to get the car and drive it back to the pick-up spot—where we were tasting.
My friend decided to see if he could remote-control his Telsa to the pick-up spot (he is a CTO car nerd and uses Autodrive consistently, but he had never attempted this move).
The road from the parking lot to the pick-up spot, included several turns up a windy hill, so not a straight line. We all watched as he finger-controlled the Y on his phone. And, several on-lookers joined us as we watched the vehicle make the last turn and drive up the hill to where we were standing.
We told our host that we had just "Eloned" a Tesla up the hill. It was a very impressive "holy shit" kind of moment. Waymo is one thing, but doing what we did yesterday was quite another thing. My answer to your question is Yes.