(Bloomberg Businessweek) —
There’s a common misconception about what makes electric vehicles so disruptive. Automakers have long considered their core technology to be the powertrain—essentially the engine and transmission. For all of the components they bought from suppliers, it was a pretty safe bet that premium carmakers in particular would assemble the powertrain themselves. That, they thought, is what set them apart. Thus, BMW AG’s advertising slogan is “Freude durch Fahren” (“joy through driving”).
Electric vehicles are changing that, not because electric powertrains are better, but because, with a few exceptions at the superhigh end, they’re all broadly similar. The driving experience in an electric BMW differs little from that in an electric Cadillac. That’s the problem: The powertrain has ceased to be the differentiator.
Tesla Inc. has made a very good case for what should take its place: “user experience,” as Silicon Valley likes to call it. Much of it comes down to the software interface that runs the vehicle. Tesla drivers rave about the iPad-like display that controls everything from music to driving modes, meaning their Model 3 interior has no fiddly knobs or buttons.
This year’s CES, the gargantuan tech and automotive expo in Las Vegas, showed the extent to which carmakers are waking up to the importance of software and user experience. BMW bragged of the “digital soul in every vehicle” and unveiled concept cars that were also bereft of knobs.
Instead of turning to suppliers such as BlackBerry Ltd. or Samsung Electronics Co.’s Harman unit, automakers are bringing more of their software development in-house. Volkswagen’s Cariad has hired 6,600 software engineers in the past two years and wants to add 1,700 more this year.
Software-enabled automotive revenue will top $700 billion by 2030, UBS Group AG estimated in November, about a quarter of the car industry’s total sales. Much of that will simply replace revenue lost elsewhere.
Auto companies fear the fate of the original cellphone makers that sacrificed much of the value in the smartphone market to Google and Apple Inc.—companies that mastered the user experience with superior software. Those tech giants are now making moves on autos, and not just with their self-driving car projects. Apple announced an update of its CarPlay system in June that does more than just show content from your iPhone, integrating more deeply with the car to display speedometers and other performance data.
If it manages to become the default vehicular interface, then carmakers risk ceding a large slice of that $700 billion in revenue, because Apple could become the gateway for over-the-air updates and in-vehicle content. Think the App Store, where the company gets a 30% cut of all transactions, but for cars. It’s the worst-case scenario, and one of which carmakers are cognizant. But many still need to up their game.
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