Autonomous driving, connected vehicles, the electrification of the powertrain, and shared mobility (also called the ACES trends) are mutually reinforcing developments in the automotive sector. Combined, they are disrupting the automotive value chain and affecting all its stakeholders. Moreover, they are also significant drivers of the expected 7 percent compound annual growth rate in the market for automotive software and for electrical and electronic components (E/E), which is projected to grow to $469 billion, from $238 billion, between 2020 and 2030. At this rate, the software and E/E market is expected to outpace growth vastly in the overall automotive market, which is estimated to grow at a compound rate of 3 percent in the same time frame. Software and electronics have therefore become the focus of most automotive companies and their executives.
In this context, we offer a perspective based on our extensive research and analyses (see sidebar, “How we derived our insights”) on three crucial questions:
What are the specific forces behind the automotive sector’s software and E/E growth dynamics and changing landscape through 2030?
How will these forces affect the automotive industry’s long-established value chains?
How can players inside and outside the industry optimally prepare for upcoming market developments?
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Our new report,
Automotive software and electronics 2030, looks closely at these issues. The remainder of this excerpt outlines some high-level findings. The automotive software and E/E component market will grow rapidly, with significant segment-level variation driven by the disparate impact of the ACES trends.
The overall trend toward
a more centralized software and E/E architecture will drive the market’s expected expansion through 2030 (projected at a 7 percent compound annual growth rate). Significant variation is expected across the market’s segments (exhibit).
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Power electronics is expected to occupy the high end of the market’s growth, at an annual rate of 15 percent.
Autonomous driving will fuel growth in the software and sensors segments, expected to reach 9 percent and 8 percent, respectively. The segment that includes electronic control units (ECUs) and domain control units (DCUs) will continue to hold the largest share of the market, but growth here is likely to be relatively low, at 5 percent. While ECUs and DCUs will be used increasingly in autonomous-driving applications, price decreases from efficiency gains will counterbalance growth in the segment. Electric-vehicle platforms will be a new market for high-voltage harnesses, but the demand for low-voltage ones is expected to shrink, so the harness segment will grow at the slowest rate. A separation of hardware and software would fundamentally change the dynamics of the automotive sector’s landscape of players and value.
The days when OEMs comprehensively defined specifications and suppliers delivered them may be nearing an end. Neither OEMs nor traditional suppliers can fully define the technology requirements of new systems. Codevelopment between OEMs and suppliers is expected to become not just prevalent but also necessary. In addition, tech-native companies are expected to enter the space more boldly—something that will become easier as hardware and software sourcing become more separate. This separation would break up established value pools, reducing barriers to entry. For OEMs, the separation would also make sourcing more competitive and scaling less complex, and it would provide a standardized platform for application software while maintaining competition on the hardware side.
Both archetype-specific and cross-player strategies can position companies for success in the future landscape.
The strategic moves for OEMs include plans to keep the ever-growing cost of hardware and software development under control and to establish more agile cross-functional development organizations. Cross-functionality would benefit tier-one suppliers too, and so would actively partnering with OEMs to define their E/E architectures. Tier-two suppliers will want to specialize further and scale within an attractive niche to thrive even as many components become commodities. All players will benefit from building their software-delivery and E/E-architecture capabilities, embracing the latest technological innovations (including those related to the user interface, the user experience, and analytics), and abandoning absolutist notions of competition while analyzing the benefits of partnership within
an emerging ecosystem.
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