Software-Defined Vehicles

A Forthcoming Industrial
Evolution
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Software-Defined Vehicles—A Forthcoming Industrial Evolution | Contents

Contents
Introduction 1
1. Understanding "software-defined vehicles" 2
2. Driving forces of software-defined vehicles 3
2.1 Industrial development requirements 3
2.2 Consumer expectations 3
2.3 Value chain transfer 4
3. Gap between the Present and the Future 6
3.1 The automotive hardware and software architecture does not suit the
software-defined vehicles 6
3.2 The traditional waterfall software development model has major limitations 11
3.3 Organizational structure and talent supply are major shortcomings of
software-oriented automotive transformation 13
3.4 Obstacles from the supply chain system 14
4. What are the new opportunities 16
4.1 Industry value chain under the "software-defined vehicle" trend 16
4.2 Prominent position of software platforms 17
4.3 From Tier-2 to Tier-0.5 19
5. How should different enterprises respond 21
5.1 OEMs transform based on rational assessment and their capabilities 21
5.2 With "oppression from both ends", parts enterprises should seek
self-transformation 23
5.3 Facing both opportunities and challenges, automotive software
companies shall create value based on flexible positioning 25
Conclusion 26
Contact us 27
 Software-Defined Vehicles—A Forthcoming Industrial Evolution | Introduction

Introduction
Over the past few years, standardized hardware of smartphones and
computers gradually reached physical limits, pushing industrial transformation
from hardware upgrades to software development. The automotive industry
is different from the smartphone and computer industries in terms of
hardware standardization and technology. Thus, the automotive industry is
not ready to replicate the exact development pattern of the smartphone or
computer. However, with increasingly standardized hardware and narrowed
technical gap, the automotive industry is now likely to go through a similar
development process.

Hardware design and performance reached a peak due to the limitation of

production process or physical properties of materials, and subjective factors
such as consumers' stronger sensitivity and demand for an innovative
experience, are driving the automotive industry to seek software
technology-based transformation and development, attaching more software
value to hardware technology.

The "software-defined vehicles" concept became increasingly prevalent in the

automotive industry. Tesla is the quintessential leader of this trend, whose
consumer-oriented OTA software services, autopilot packages, differentiated
software marketing, as well as the agile undercarriage hardware & software
development architecture and central computing platform are the focus of
industry research and discussion. Looking at the innovation case of Tesla, the
two most remarkable impacts of software-defined vehicles are: first, network
functions decoupled from proprietary hardware appliances, enabling parallel
physical and digital development of vehicles while software deciding
differentiation; second, software becomes commercialized—the new business
model represented by Tesla, such as monthly software updates for
performance and function improvement, and software subscription like SaaS,
maximizes the life cycle and value cycle of vehicles .

Some forward-looking OEMs have begun strategic transformation by

enhancing their software capability, while some remain cautious about the
software-oriented transformation due to various considerations, such as
capital investment and difficulties with internal transformation. This report
analyzes the origin of "software-defined vehicles", the driving forces, industry
changes, transformation, and new opportunities for the industry, and provides
several feasible response models and transformation strategies based on the
location and capabilities of the stakeholders on the industry chain, aiming to
help OEMs, parts manufacturers, and emerging software companies to
comprehend the nature and development process of software-defined
vehicles, make rational responses and on-demand layout, and focus on the
high profit links of the industry chain transformation in advance.

*"Software-Defined Vehicles—A Forthcoming Industrial Evolution" is independently published by Deloitte,

and is not authorized, sponsored or officially endorsed by Tesla.
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Software-Defined Vehicles—A Forthcoming Industrial Evolution | 1. Understanding "Software-Defined Vehicles"

1. Understanding "Software-Defined
Vehicles"
In 2018 "Software-defined vehicles" Consequently, the core capabilities of Last, enterprises on the industry
became a industry hot topic; in 2019, OEMs will shift from mechanical chain, including OEMs and parts
Volkswagen CEO Herbert Diess said hardware to electronic hardware and manufacturers, will strengthen
that Volkswagen would become a software; the industry value chain will their software capability and
software-driven car company1, marking also change from one-off hardware embark on "software-defined
the beginning of software-oriented sales to continuous software and vehicles"-centered internal reform
industrial transformation. Since then, service premiums. in product development,
many interpretations of software- organizational structure,
defined vehicles appeared on the First, software and automotive personnel structure, and operation
market, including discussions on OTA electronics account for system. In addition, emerging
(Over-The-Air) system construction and increasingly more vehicle R&D software companies will capitalize on
self-developed operating systems, as costs. The value of in-vehicle the software-hardware synergy to
well as detailed analysis of electrical/ software and electronic hardware satisfy the needs of various upstream
electronic architecture and basic is expected to exceed that of and downstream enterprises and
software platforms. hardware to become the core become the new Tier-1 companies on
value of a vehicle. Software cost the automotive industry chain.
Based on these interpretations, currently accounts for less than 10% of
Deloitte seeks to have a more vehicle BOM (Bill of Material) costs,
comprehensive and in-depth which is expected to increase to 50%
understanding: "software-defined by 2030—the software includes
vehicles" apparently refers to the state application development software, AI
that the quantity and value of algorithms, operating systems, as well
software (including electronic as the software-hardware integrated
hardware2 ) in a vehicle which exceeds controllers, chips and other electronic
that of the mechanical hardware; hardware.
furthermore, it reflects the gradual
transformation of automobiles from Second, software and the
highly electromechanical terminals to corresponding improvement in
intelligent, expandable mobile performance and functions will
electronic terminals that can be determine the differentiation of
continuously upgraded. To become future vehicles. Software
such intelligent terminals, vehicles are maintenance and upgrading will be the
pre-embedded with advanced most economical, convenient, and
hardware before standard operating efficient way for future OEMs to
procedures (SOP)—the functions and provide differentiated experience and
value of the hardware will be gradually improve customer satisfaction.
activated and enhanced via the OTA Software iteration will be achieved on
systems throughout the life cycle. the basis of hardware redundancy.

1
Source: Volkswagen official website, Christian Senger becomes Brand Board of Management Member for new Digital Car & Services function, https://www.
volkswagen-newsroom.com/en/press-releases/christian-senger-becomes-brand-board-of-management-member-for-new-digital-car-and-services-function-4664,
February 25, 2019.
2
Electronic hardware includes AI chips, microprocessors, domain controllers, etc.

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 Software-Defined Vehicles—A Forthcoming Industrial Evolution | 2. Driving Forces of Software-Defined Vehicles

2. Driving Forces of Software-Defined

Vehicles
2.1 Industry development Unlike the Internet industry, the In recent years, smartphone
requirements automotive industry features manufacturers have accelerated
Software & algorithm— embedded software development, development of in-vehicle infotainment
indispensable for the development which means that for each new products, and automobile
of connected, autonomous, function, a corresponding ECU manufacturers have increased their
shared, and electrified automotive (Electronic Control Unit) will be added R&D investment in intelligence,
technologies and new codes will be developed. connectivity, and man-machine
With continuous development of Both intelligent connected technology interaction technologies, indicating
connected, autonomous, shared, and and autonomous driving require a that consumers' experience and habits
electrified automotive technologies, large number of hardware devices on smartphones have expanded to
automobiles are transforming at an and involve a huge amount of vehicles, which means that the
accelerated pace from mechanical corresponding software development competition focuses with smartphones
equipment to highly digitalized and data processing. Therefore, will also be replicated to vehicles.
intelligent information-based terminals. in-vehicle software codes increase
Many important functions such exponentially. According to preliminary The frequent iteration of smartphones
as monitoring and controlling the statistics, for luxury vehicles, the lines allow consumers to experience major
battery pack temperature, running of code have exceeded 100 million due improvements in performance and
the applications on the center to the high loading rate of Advanced functions through system upgrades,
console, human-vehicle interactions, Driver Assistance System (ADAS) and needless of buying the latest phones.
and autonomous vehicle detecting L2 autonomous driving. In the next few The OTA is a double-edged model for
and classifying the objects around years, the lines of software code are the rapidly iterated consumer
can only be achieved by using expected to increase from 100 million electronics. One apparent
software and algorithms. Taking to 300 million.3 disadvantage is that consumers are
autonomous vehicles as an example: replacing their phones less frequently,
an autonomous vehicle is a highly 2.2 Consumer expectations although mobile phone manufacturers
software-hardware integrated terminal Consumers expect similar continue to update their products once
and the software can be considered behaviors and experience from a year.4 However, for durable
as its "brain" —the "brain" analyzes vehicles as with smartphones. consumer goods that generally have a
and utilizes the information collected China has seen the world's highest replacement cycle of at least five years,
by various sensors to help the vehicle smartphone penetration rate of nearly the OTA model enables continuous
make the best driving decisions. Higher 60%. With ever increasing hardware performance optimization and
levels (L3 and above) of autonomous performance, competition of function upgrades throughout the
driving will be more complicated smartphones now lies in the software entire life cycle of a vehicle.
to require more complex machine ecosystem, innovative application of
learning algorithms and deep neural cutting-edge technologies and
network models. in-depth exploration of user value.

3
Source: http://news.eeworld.com.cn/qcdz/ic501994.html, July 3, 2020.
4
Source: https://kuaibao.qq.com/s/20190717A0DKYQ00?refer=spider, June 26, 2019.

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Software-Defined Vehicles—A Forthcoming Industrial Evolution | 2. Driving Forces of Software-Defined Vehicles

2.3 Value chain transfer Apple6 established a strong software software brings, and the new business
Accelerated commercialization of ecosystem and sustainable revenue models to provide consumers with
hardware enables higher model by virtue of the App Store, the differentiated experience and value.
additional value for software Apple operating system, digital
Like the smartphone and other products and services. The automotive In Tesla 'case, software services are
hardware manufacturing industries, industry is gradually shifting from becoming an increasingly important
the automotive industry is undergoing one-off hardware sales to "continuous revenue and profit contributor. In
the process of "hardware hardware upgrade, subscription addition to the traditional IoV services
commercialization". As the industry service" and other profitable models. (data traffic + in-vehicle content/
signals major technological In recent years, the rise of services), Tesla's software revenue also
transformation and complex pre-embedded hardware + FOTA comes from OTA upgrades and
automotive electronics emerge, some (Firmware Over-The-Air) model has optional software packages. Tesla
traditional mechanical parts are rapidly propelled the OEMs to reconsider the began to roll out paid OTA upgrades in
commercialized and become white value of OTA. With pre-embedded 2019—a typical case is that Model 3
labelled products, meaning that performance and advanced hardware, owners can pay $3,000 for the
hardware is becoming less the vehicle owners can activate the Acceleration Boost to improve the
differentiated and less profitable. As a hidden performance and apply new 0-100km/h time from 4.6s to 4.1s7. The
result, the global parts giants with functions through the OTA system more-favored optional autopilot
internal combustion engines as their when the algorithms and software package is expected to become the
major business segment experienced a mature. The OTA model was valued in main source of income for Tesla' s
stock price decline by about 30% over the last round of Internet Of Vehicle software business. Tesla plans to
the past three years. However, (IoV) evolution, however, it was limited change the one-time charging model of
software and services became more to update of In-Vehicle Infotainment software and offer its Full-Self Driving
important on the industrial chain over (IVI) applications and operation (FSD) upgrade via a premium
the same period. Autonomous driving interface (i.e., SOTA, Software subscription service. Owners of Tesla
full-stack software companies, Over-The-Air), and remote updates did with pre-installed FSD hardware will
high-precision map manufacturers, as not bring consumers practical pay only $100/month for the service.
well as AI chip and other value-added experience. As FOTA Once the subscription service model is
semiconductor enterprises have technology matures, and hardware implemented, all cars with activated
created a boom in the capital market. becomes commercialized and FSD are expected to continuously
According to preliminary statistics, the standardized, the hardware experience contribute to Tesla's cash flow.
autonomous driving enterprises differentiation will quickly disappear.
worldwide raised $23.4 billion in 374 OEMs gradually realize that they must
investment and financing activities.5 exploit software, the new functions

5
Source: https://kknews.cc/zh-tw/car/e5kk8vz.html
6
"Apple" is the trademark of Apple Inc. registered in the United States and other countries.
7
Source: https://kknews.cc/zh-tw/car/qx4lrvy.html, July 20, 2020.
8
Source: https://auto.sina.com/bg/industry/sinacn/2020-09-21/doc-ihaaeezs2487027.shtml, September 21, 2020.
*
"Software-Defined Vehicles – A Forthcoming Industrial Evolution" is independently published by Deloitte and is not authorized, sponsored or officially endorsed by
Tesla, Apple or any other companies.

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 Software-Defined Vehicles—A Forthcoming Industrial Evolution | 2. Driving Forces of Software-Defined Vehicles

Figure 1: Software may become an important contributor to Tesla's revenue

Vehicles sales revenue Software revenue Product picture Specific functions Charging model
Software sales revenue composition /services

Autopilot optional •Enhanced autopilot: •One-time charge of $8,000

package (FSD) Auto-park, Navigate on for pre-installation;
Autopilot, Smart •The subscription services
Hailing, etc. ($100/month) may be
available by the end of the
14% year.

9%
6%
5%
3% OTA upgrade •OTA upgrades to constant- •Charge each time for the
optional package ly introduce new features specific update services
and improve performance
•Online upgrades for power-
train, in-vehicle infotainment,
autopilot, electronic, and
chassis systems.

2019 2020 2021 2023 2025

Advanced •Advanced IoV connectivi- •Subscription service at
IoV Service ty services, including $9.99/month
real-time traffic, karaoke,
streaming, and other
functions.

Source: Tesla's Financial Report, Guosen Securities

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Software-Defined Vehicles—A Forthcoming Industrial Evolution | 3. Gap between the Present and the Future

3. Gap between the

Present and the Future
3.1 The automotive hardware and However, as automotive intelligent and exceed 100 TOPS for L4, which cannot
software architecture does not connected technologies continue to be handled by the current computing
suit software-defined vehicles. advance, the traditional distributed resources of microcomputers. Another
The electrical and electronic EEA with MCU at the core will no longer flaw of the distributed architecture
architecture has demonstrated satisfy the development demands of is being unable to share computing
constraints in computing power, intelligent vehicles. The pain points power among controllers—the
drawbacks in communication include: computing power cannot be shared
efficiency, and uncontrolled costs among control modules due to
of wiring harness. First, the distributed EEA cannot the one-to-one matching model of
The electrification and mechatronics keep up with the increasingly sensors and ECUs; therefore, it is
of vehicles have been greatly improved higher computing power. difficult to optimize the distribution
since the ECU was first introduced ECU is based on a microcontroller unit of computing power when processing
into the automotive industry. The (MCU) and an embedded system— similar functional logic, resulting in a
ECU's functions have expanded from the MCU is a microcomputer, and the large amount of wasted computing
only controlling engine operation to embedded system is used mainly resources.
controlling the chassis, electronic for controlling but not computing.
components, as well as in-vehicle Therefore, a single ECU can only
infotainment and networking devices, handle computing and control tasks
and now each vehicle function is involving a small amount of data,
controlled by one or more ECUs. In such as engine control, battery
recent years, the number of electronic management, and motor control. In
controllers rose significantly with the future, the biggest challenge for
the increasing fuel-saving, safety, vehicle development will be the surging
comfort, and entertainment demands. higher demand for data processing
Currently, more than 100 ECUs and computing speed, either from
function on a L2 luxury car. intelligent connectivity or autonomous
driving technologies. In particular, the
In the early development stage development of autonomous driving
of mechatronics, the Electronic & technology will spark off complex
Electrical Architecture (EEA) of vehicles logical operation and unstructured
adopts a distributed model where data processing scenarios. The
the sensors, ECUs and actuators computing of L2 autonomous driving
are in one-to-one correspondence, software has already reached 10 TOPS
which ensures anti-interference ability (Tera Operations Per Second), and
and independence of the system. the computing power is expected to

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 Software-Defined Vehicles—A Forthcoming Industrial Evolution | 3. Gap between the Present and the Future

Second, another driving force for (laser radar, radar, camera, etc.) needs be redesigned. The complex wiring
EEA architecture upgrading is the to complete real-time information harness layout will lead to higher
demand for higher communication processing and fusion, which requires mechanical structure cost, thus
efficiency and greater bandwidth higher communication bandwidth increasing the overall BOM costs of the
capacity. The current EEA is a signal- and transmission rate. The CAN vehicle and affecting the automated
based architecture, where signal is bus operates at Mbps, while the production efficiency.
transmitted between ECUs through new communication technology,
the CAN (Controller Area Network) the Ethernet, allows sensor data
bus. The CAN bus is simple, stable, transmission at Gbps. Therefore, no matter the stronger
low-cost, anti-interference, and safe, computing power, higher signal
and a single-node failure will not transmission efficiency or for vehicle
spread to the entire network. However, Last, difficulty in cost control: as weight reduction and cost control, the
with more sensors in the vehicle and ECUs and sensors increase in the automotive electrical and electronic
higher demand of the smart cockpit vehicle, wiring becomes more hardware architecture needs to
for network bandwidth and latency, costly and difficult. For autonomous be changed from the traditional
the demand for data transmission driving at L3 and above, more distributed model to the "centralized,
will surge and data communication hardware sensors will be deployed in compact and scalable".
will need to be completed at a higher the vehicle. In addition to an increasing
rate. For example, in an autonomous number of ECUs, the wiring harness
driving vehicle, different sensors layout and installation will need to

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Software-Defined Vehicles—A Forthcoming Industrial Evolution | 3. Gap between the Present and the Future

Figure 2: Automotive EEA Upgrade Roadmap

图：EE架构升级路径图
Traditional (2015) Present (2020) Future (2025)

Distributed EEA Centralized (cross-) Centralized Vehicle-cloud

domain EEA vehicle EEA computing
IVI

Left front Right front Central

Power Chassis Body IVI
computing
Form Central
platform
computing
platform Sensor Actuator
Left back Right back

Power ...

•Distributed, independently •Several major domains are •The central computing •Cloud computing +
functioning ECU formed based on the platform is the top automotive central
•CAN and LIN bus-based functions of the automotive decision maker; the zone computer + sensor +
communication, BCM electronic components, such controllers are formed actuator architecture
Character integrated gateway as power, chassis, cockpit, based on the physical
istics autopilot, and body domain. locations on the vehicle,
•Communication network: CAN+ and act as a gateway to
Ethernet distribute data and electric
power.

•Dedicated sensors, ECUs •Centralize the scattered •Simplified harness design •Seamless integration of
and algorithms, non-syner- ECUs to the domain control- to reduce costs in-vehicle and cloud
gic computing power lers for easier OTA upgrades •SOA software architecture architecture: vehicle-end
leading to redundancy. •Higher computing power that supports iteration and computing for in-vehicle
•Distributed architecture •Available for more flexible, expansion of software real-time processing, with
Pros & requires a lot of internal higher-rate communication function supplementary cloud
Cons communication, resulting in networks computing to provide
a significant increase in •Higher requirements for non-real-time data
wiring harness cost. security mechanism interaction and process-
ing (e.g., IVI) for an
intelligent vehicle.

Functional ECUs Domain controller unit Zone controller unit Central gateway Sensors & actuators

Source: Bosch EEA Roadmap; www.shujubang.com

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 Software-Defined Vehicles—A Forthcoming Industrial Evolution | 3. Gap between the Present and the Future

The earliest parts manufacturers that Thus, the number of ECUs will be At this stage, the EEA layout will be
proposed the EEA concept developed greatly reduced, and the functions will actually guided by the wiring harness
a roadmap for OEMs to upgrade their be simplified. However, some functions (the physical areas of the vehicle). The
electrical and electronic architecture that require low computing power but OEMs, with consideration of
(Figure 3). Bosch divides the vehicle high real-time and safety performance modularity, will optimize function
EEA into six stages: modularity, will still be controlled by ECUs. classification and integration, and
integration, domain centralization, In-vehicle networks such as CAN bus apply the software to the core zone
zone centralization, central computing, will be used for intra-domain controllers.10 Finally, the vehicle
and vehicle-cloud computing.9 communication, while Ethernet computing resources will be
Integration will make each ECU technology will be introduced for concentrated in a few central
perform multiple functions, thus communication between domains. computing units to uniformly control
reducing the number of single-function the sensors and actuators.
controllers. However, the modular Later, "cross-domain fusion" will further
closed-type architecture can only meet integrate domain controllers at the If further simplified, the hardware
the needs of autonomous driving same function safety and information architecture of the automotive EEA will
below L2; it will not satisfy the safety levels. For example, the power, mainly evolve through three stages:
computing power, function and safety chassis, and body domains will be integration, domain centralization
requirements of higher-level integrated to be the "vehicle control (DCU and MCU), and vehicle
autonomous driving. domain" to control the entire vehicle centralization (as shown in the figure).
and perform better real-time and At present, OEMs have stepped onto
"Domain centralization" can be divided safety functions; the "intelligent cockpit different transformation paths based
into two stages: initially, five main domain" will replace the original on their technology and R&D (software
domains can be clarified based on which infotainment domain to perform the talent) capabilities, as well as their
functional domain the hardware man-machine interaction and T-box relationships with parts manufacturers
modules are located, including the integration functions; the "intelligent and cost balance.
power domain, chassis domain, body driving domain" will be responsible for
domain, infotainment domain, and ADAS perception, planning, and
domain. Each domain will be matched decision-making for high-level
with a domain controller unit (DCU) with autonomous driving. "Zone (a
strong computing power and wider different concept from domain)
control range, and usually equipped with centralization" will be a special stage,
multi-core processors. and also the earliest prototype of
vehicle central computing.

9
Source: https://www.sohu.com/a/426372694_733088, October 21, 2020.
10
Source: https://www.eefocus.com/automobile-electronics/432370, March 25, 2019.

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Software-Defined Vehicles—A Forthcoming Industrial Evolution | 3. Gap between the Present and the Future

Figure 3: EEA Upgrade Paths of Mainstream Automakers

图：不同主机厂EE架构升级路径类型

Upgrade approach Characteristics Architecture Example

One-step •Skip the domain Vehicle centralized EEA Tesla BMW Mercedes-Benz
centralization (multi-do- •In-vehicle •In-vehicle •Based on the
main fusion) stage to computer + zone central in-vehicle
Cloud
directly to the in-vehicle controller calculator computing
computing
central computing •Self-developed OS •Self-developed platform
platform (the top •Vehicle OTA OS •Vehicle OTA
decision-maker) to upgrade available upgrade available
mobilize the resources at
all levels for direct 2019* 2021 2024
application/services.

Radical •DCU architecture: Domain centralized EEA Volkswagen

perform the functions
•New centralized EEA consisting
of vehicle control, Central cross-domain ECU
of three in-car application
intelligent driving and
servers (ICAS)
infotainment through
Core •Self-developed OS
the classic five-domain
or three large domain domain
controllers. ECU

Step-by-step •Steady progress by the Distributed EEA •Domestic automotive brands

Bosch EEA roadmap and some joint ventures
•Weak online upgrade
capability of software;
communication
architecture still
adopting the traditional
CAN bus

Source: Soochow Securities, Deloitte Research

According to the planning of automobile satisfied with the progressive upgrade application ecology, and OEMs
enterprises, we have summarized approach of Tier-1 enterprises—the domination in developing more
and classified the EEA upgrade paths controllers are deployed in accordance advanced software in the future,
into three types: first, the "one- with the OEMs' optimal scheme, such specifically:
step" approach: it skips the domain as Volkswagen. Third, the "step-by-step
centralization stage and move directly approach": the enterprises are relatively First, the low degree of
to in-vehicle central computing. Taking conservative and follow the upgrade modularization and platformation
Tesla as an example, the Model 3 path of Tier-1 enterprises. of automotive software has
adopts the zone controller + Central impeded centralized dispatching
Control Module (CCM) model—the CCM Following the rules of the IT industry, and collaboration of software
integrates the ADAS and IVI modules, the development of software will also resources. OEMs' ECUs are usually
and the remaining domain functions drive automotive EEA upgrade. At provided by different suppliers. In fact,
(directed by the left and right vehicle present, both the distributed EEA and many underlying software controllers
body control modules) are deployed by the automotive software development are repetitive, and the code is mainly
the physical locations, which significantly model (ECUs use an embedded ensuring the normal operation of the
reduces the wiring harness cost of the system, i.e., highly coupled hardware controllers, such as transmitting and
vehicle. The zone controller can achieve and software, which are mostly receiving the CAN bus signals,
centralized computing as well as material delivered to OEMs by suppliers under scheduling tasks, and reading and
cost balance of the vehicle. Second, the "black-box" model) are hampering writing Flash data.
the "radical approach": OEMs are not the OTA functions, the expansion of

*"Software-Defined Vehicles – A Forthcoming Industrial Evolution" is independently published by Deloitte and is not authorized, sponsored or officially endorsed by
Tesla, BMW, Mercedes-Benz, Volkswagen or any other companies.

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 Software-Defined Vehicles—A Forthcoming Industrial Evolution | 3. Gap between the Present and the Future

However, the underlying code cannot standard application programming Under the traditional waterfall
be copied or migrated due to the interfaces (APIs) to achieve software development model, the development
suppliers' different software stratification. It decouples the of automotive software is divided
programming languages and interface upper-level application software and into different parts of work based
standards, as well as the high degree the underlying software, improving the on different functional modules. The
of dependence of the software on the reusability and expandability of development team of each part focuses
hardware. Therefore, ECU software software and reducing the complexity on developing one function, and each
development is highly repetitive and and risks of product development. For development stage follows the overall
the resources are not efficiently example, application developers can progress plan, which runs in a flow-line
utilized. focus only on the specific application model like a waterfall. The relatively
separate development parts are likely
functions, needless of considering the
to cause a "silo effect"—there is only
Second, software and hardware differences of the underlying controller
internal improvement with each part but
are highly nested, and OEMs software. A more profound impact
no overall system/platform optimization;
cannot conduct extensive and triggered by the decoupled automotive
moreover, the development time of each
in-depth updates or customized hardware and software is the gradual
part is varied, which requires a top-down
development. The distributed transformation from the current signal-
work structure and a comprehensive
software architecture is a based software architecture to a
development sequence plan to advance
signal-oriented architecture, where service-oriented architecture (SOA). the development in an orderly manner.
information transfer between The nature of SOA is that the software This work structure, which separates
controllers is achieved via signals, but of controllers, regardless of the the business structure from the
the entire system is closed and static, hardware platform and operating organizational structure, requires good
and is absolutely defined at the system they reside on, is shared, by internal coordination for overall work
compilation stage. Therefore, when the providing abstract services, by other synergy. In addition, the development
OEMs want to modify or increase the software components. progress of each part being dependent
function definition of a controller, the on each other can easily lead to a
instruction of which will invoke the 3.2 The traditional waterfall queue effect—the overall development
function of another controller, they software development model has progress will be affected if one part
have to upgrade all the necessary major limitations. is delayed. These problems emerge
controllers, thus greatly prolonging the Based on the above changes in in practical work: every development
development cycle and increasing the technology architecture, in the stage with a long development cycle
development costs. context of software-defined corresponds to an independent test
vehicles, automobile R&D will stage, which will be verified level-to-level,
Therefore, automotive software shift from the traditional waterfall thus the development and test cannot
development will follow the development to agile development be conducted simultaneously; each
model.During the development stage depending largely on the results
development rules of the IT industry
process of software-defined vehicles, of the previous stage gives rise to a rigid
and introduce the middleware and
vehicles will gradually evolve into overall process, leading to high costs and
virtualization technologies to achieve
an intelligent mobile terminal and long development cycle. All these factors
software modularization, and
demonstrate more features of a are contradictory to the software-
hardware abstraction and
consumer electronic product, raising defined vehicles that require the OEMs
standardization, thereby further
new requirements on the control of to shorten the time-to-market, develop
breaking the coupling relationship
development costs and development products based on consumer needs,
between hardware and software to cycle; meanwhile, product iteration will enable constant iteration, and respond
improve EEA flexibility and just begin after the vehicle is delivered quickly to market demands. Therefore,
expansibility. Middleware is a to the consumer. The traditional the traditional waterfall development
technology that packages software at automobile R&D follows the waterfall model will increasingly demonstrate its
different levels of hardware development model to have a linear limitations.
dependency to achieve software R&D eco-chain, where product R&D
modularization, and defines a series of ends with SOP.

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Software-Defined Vehicles—A Forthcoming Industrial Evolution | 3. Gap between the Present and the Future

The agile development model that is streamlined, which is conducive to industry will face the complex
mostly used in pure software achieving close coordination and challenges of hardware development
development environments (e.g., cooperation and minimizing and multi-suppliers environment.
software companies), better fits the management costs; moreover, due to Tesla, a pioneer in agile development
requirements of software-defined work flexibility, the development team for software-defined vehicles, has
vehicles with its unique features. can interact with customers and quickly provided valuable experience for the
Under the agile development model, satisfy the users' needs by providing industry. In addition to the separated
the development teams are classified minimum viable products (MVP) and hardware and software development
based on product features, and are making continuous innovation and cycles, Tesla pre-designs the hardware
completely responsible for their iteration. All these characteristics are and software, fully considers the
future function expansion needs at
respective feature, including all consistent with the requirements of
SOP, pre-installs the standardized
functions of the feature, and all teams software-defined vehicles.
hardware required for future function
have certain freedom and
expansion, and subsequently activates
decision-making power. When different However, it is important to note that,
new functions of the hardware
product features involve common unlike pure software development
through software upgrades or function
functions, the teams will establish environments, the automotive
development. For example, Autopilot
cross-feature collaboration industry is unique and complex in its
pre-installs hardware and the built-in
communities to conduct cooperative own way. Software-defined vehicles
functions will be sparked off through
development and achieve overall will ultimately be about combining
OTA updates, moreover, it supports full
optimization. In addition, the business software and automotive hardware,
lifecycle software updates.11
and organizational structures under which means the application of agile
the agile development model are development model in the automotive

11
Tesla’s 8.1 software update brings Autopilot 2.0 cars up to speed, March 30, 2017, TechCrunch, https://techcrunch.com/2017/03/29/teslas-8-1-software-update-
brings-autopilot-2-0-cars-up-to-speed/

12
 Software-Defined Vehicles—A Forthcoming Industrial Evolution | 3. Gap between the Present and the Future

3.3 Organizational structure In China, SAIC is one of the few OEMs decreasing, and the domain controllers
and talent supply are major that made a strategic shift toward or central computing platform is
shortcomings of software-oriented software. Earlier this year, SAIC deployed in a layered or
automotive transformation. established the software center, the service-oriented architecture, the
OEMs' organizational structure will Z-ONE, which will focus on intelligent future automotive electronic software
be fundamentally reshaped: from driving system engineering, software development is expected to be divided
a function-oriented structure to a architecture, basic software platform in a layered way.
platform development structure. and data factory. This new software
Some OEMs have begun organizational subsidiary is expected to scale up to Currently, automotive software talent
structure adjustment since the 500 employees by the end of the year, are in short supply. Automotive
announcement of software-oriented 1,000 by next year, and 2,200 by electronic software is a branch of
transformation. For example, 2023.14 A few other domestic OEMs are embedded software, which is a
Volkswagen established the new increasing their positions for software relatively closed industry, so the talent
software department, Car.Software, talent, although no independent source is limited. Most of the
last June (which became independent software subsidiaries have been set embedded software development
this July). The department planned to up. For example, more than 90% of the talent have flowed to tech companies,
recruit nearly 5,000 software open positions at the R&D center of and they have little knowledge of
engineers, and announced an overall GAC Group are software engineers.15 hardware, automotive engineering and
investment of EUR7 billion in software automotive software. These factors
architecture over the next 3-5 years.12 Establishing an independent subsidiary have caused the shortage of
Toyota, another mainstream for software development allows automotive software engineers. In
automaker substantially advancing the greater autonomy, independence and addition, enterprises need to modify
software-oriented transformation, vitality. Automotive enterprises that their recruitment and talent
announced in this July that it would have only set up a software team management models to cope with the
establish a new holding company—the within the group need to further adjust areas where technologies such as
Woven Planet Holdings, and two their internal organizational structure autonomous driving that are still
operating subsidiaries early next year, and optimize the vehicle software evolving and the business model is
which will focus on developing development process. For example, a unclear, such as changing from
autonomous driving, new vehicle top-down platform software position-centered to talent-centered
operating system, high-definition map development organization shall be model; in the meantime, they should
and other state-of-the-art software.13 established to enable be flexible in job duty setting,
OEMs are actively bringing in cross-department cooperation, and performance management, and
interdisciplinary talent specializing in implement the common strategy or incentive mechanism.
software, algorithms, IoV, autonomous work towards the common goal.
driving, AI engineering, electronic Automotive engineering development
engineering, etc., aiming to accelerate is divided by functional modules, such
the adjustment of the current as powertrain, chassis & body, and
personnel structure and increase the infotainment, and each module is
number of software engineers to developed independently. However, as
preserve competitiveness during the automotive EEA is developing
software-oriented transformation and towards "domain center" and
product innovation. "centralization", the number of ECUs is

12
Volkswagen with new software unit, June 18, 2019, VW Website https://www.volkswagen-newsroom.com/en/press-releases/volkswagen-with-new-software-
unit-5092
13
Toyota Research Institute - Advanced Development to Form Woven Capital, an $800 Million Global Investment Fund, September 10, 2020, Toyota Press Release,
https://global.toyota/en/newsroom/corporate/33751885.html
14
Source: https://auto.gasgoo.com/news/202007/22I70198617C601.shtml, July 22, 2020.
15
Source: https://auto.gasgoo.com/news/202007/22I70198617C601.shtml, July 22, 2020.

13
Software-Defined Vehicles—A Forthcoming Industrial Evolution | 3. Gap between the Present and the Future

3.4 Obstacles from the supply For example, the international parts A few other automobile manufacturers
chain system enterprises are incapable of localizing with greater dedication and R&D
Connection between vehicle and their ADAS solutions and slow in strength have chosen to build their
parts enterprises changes from the responding to customer needs. software infrastructure from the
tower-shaped vertical relationship Moreover, the parts manufacturers do ground up—they adopt independent
to an annular flat relationship. not provide flexible solutions development and vertical integration
OEMs can quickly develop and deploy —Mobileye adopted the tie-in sale of for core parts and system upgrades, to
product functions with the help of algorithms and chips, which did not achieve technological superiority and
Tier-1 suppliers. For example, for R&D support OEMs' customized algorithms, differentiation, which requires
investment in primary autonomous thus holding up the OEMs' customized enormous investment. Under the
driving (i.e., L2 and lower level and differentiated product independent development model,
systems), most manufacturers have development and resulting in OEMs are no longer bound by the
adopted the solution provided by the insufficient product innovation. supplies' technological and hardware
Tier-1 suppliers due to the high costs performance barriers as well as
for all the development tasks and the Therefore, reshaping of the current development cycles, as a result, the
lack of technological advantages. The relationship between vehicle and parts most advanced processors will operate
international parts giants, with years of enterprises is largely actuated by on the vehicles, and hardware iteration
engineering experience, productization OEMs' desire to achieve autonomy and will coincide with software iteration.
capability, and cost control experience, control over autonomous driving
can provide mature products that technology. In particular, automotive The traditional supply chain
meet the vehicle standards—no software is becoming increasingly relationship will change fundamentally,
matter for the autopilot perception and important at the ADAS stage, and whether the automobile
decision-making parts (e.g., automakers are no longer satisfied manufacturers choose to cooperate
millimeter-wave radar, monocular and with the black-box supply model, with the core software and electronic
binocular cameras, and other sensors/ instead, they want to define hardware enterprises, or to develop
systems) or for the control parts requirements, functions and standards and vertically integrate their own
(drive-by-wire systems). Therefore, for from the top down and purchase products. The collaboration between
driver assistant systems, OEMs software, hardware and systems OEMs and sub-suppliers will be further
generally tend to directly purchase the separately, and hope to break down enhanced, breaking the tower-shaped
software (chips, algorithms)-hardware the Tier-1 core technological barriers (from Tier-2 to Tier-1 and then to OEM)
(sensors) integrated products and and directly cooperate with the core supply model and eventually forming a
solutions from the Tier-1 enterprises. underlying parts enterprises. Driven by flat supply network.
At present, a large number of new this emerging trend, in recent years,
vehicles are equipped with Mobileye's domestic and foreign OEMs have
vision chips for the Advanced Driver established partnership with autopilot
Assistance System (ADAS), and most full-stack enterprises, AI chip
OEMs obtains the vision module manufacturers, as well as laser radar
capability for their L2 autonomous and other sensor enterprises, in the
driving solutions from the suppliers. form of equity participation or strategic
However, the supplier model has cooperation.
gradually shown its drawbacks:

14
 Software-Defined Vehicles—A Forthcoming Industrial Evolution | 3. Gap between the Present and the Future

Figure 4: Changes in Supply Chain Relationship under the "Software-Defined Vehicles" Trend
图：不同主机厂EE架构升级路径类型

Tier-2 and Tier-3 Suppliers Tier-1 Suppliers OEMs

Application software HMI software enterprises

Pure
Internet giants Fuel New
software
vehicles vehicles
AV algorithm software
Algorithm software
enterprises

Operating system Operating system

/middleware enterprises
System
software
Hardware
abstraction layer

Hardware
Basic
abstraction layer
Integration, testing,
software and debugging Basic software enterprises

Traditional parts
Networking/comm enterprises
unication modules

Hardware Electronic hardware

AI chip enterprises

Mechanical hardware

Newly developed Changes in roles on

business areas the supply chain

Source: TF Securities, Deloitte Research, public information

15
Software-Defined Vehicles—A Forthcoming Industrial Evolution | 4. What Are the New Opportunities

4. What Are the New

Opportunities
4.1 Industrial value chain under the head-up display and other display open and standardized automotive
"software-defined vehicles" trend devices), ADAS software (e.g. adaptive software architecture jointly
Taking the intelligent connected cruise control, collision warning), developed by global major automobile
vehicles as an example, what changes and body control software. Some manufacturers, parts suppliers,
have taken place to the value of application software is supported by and hardware, software as well as
the industrial chain in the wake of various algorithms such as the vision electronics industries.
the software-oriented industrial and image processing algorithms of
transformation. From top to bottom, ADAS software, and the AI or deep The tool suite specifically covers
the industrial chain can be divided into learning-based core algorithms of testing, design and R&D, such
the pure software layer, basic software autonomous driving software for as ECU software testing and
layer, tool software, and electronic environment perception, decision verification, simulation testing of
hardware stack. From the value chain planning, and control execution. autonomous driving system. The
perspective, the application and electronic hardware stack includes
algorithm software as well as the The basic software layer mainly includes communication modules, data storage
software-intensive electronic hardware the operating system and framework modules, GPS inertial navigation,
at both ends of the value chain have software. Operating systems are divided sensors, chips, and controllers.
relatively high industrial added value, into hard real-time and soft real-time
which is now the focus of OEMs, systems, which undertake the function
parts enterprises, and technology of controlling and distributing in-vehicle
companies. The middle basic software hardware resources. There are only a
underpins the software-oriented few operating system vendors in the
transformation of vehicles. As OEMs industry, thus seeing a high degree of
seek to enhance their autonomy and industrial concentration. The framework
software capability, the basic software software is a middleware concept,
will be more important on in the which abstracts the hardware resources
industrial chain. including the operating system, sensors,
actuators and computing platform
The pure software layer includes to provide a unified basic software
application and algorithm software. interface for the upper-level application
The application software contains the and algorithm software development,
man-machine interaction and interface thus avoiding repetitive development
design of the infotainment system due to differences in operating systems
(replaced later by the smart cockpit or hardware. AUTOSAR16 is the most
that integrates the instrument panel, common middleware solution. It is an

16
Source: Autostar official website, https://www.autosar.org/

16
 Software-Defined Vehicles—A Forthcoming Industrial Evolution | 4. What Are the New Opportunities

4.2 Prominent position of software At the distributed ECU stage, OEMs real-time capability and stability. In the
platforms only focus on in-vehicle information stage of cross-domain integration and
Through clarifying the industrial systems, developing customized IVI central computing platform, domain
chain, we believe that three types of operating systems based on the above controllers with varied requirements
software and the related tool chain underlying operating systems. For for real-time capability, security and
suppliers will play a key role in the example, the two Linux-based open performance will be integrated, or
software-oriented transformation of source projects, AGL and Genivi, are merged into a central computing unit,
the automotive industry. widely adopted by OEMs—the two which needs a single operating system
platforms allow OEMs to directly use with competent real-time computing
First, operating system software. the software codes (70%) that have capability and reliable performance.
In the trend of "software-defined been developed by the consumer
vehicles", the operating system will electronics/communications industry, As the operating systems "sink" to the
become increasingly important, and so they only need to develop the bottom of the industrial chain, OEMs
will be automobile manufacturers' remaining 30% software for in-vehicle have begun to independently develop
focus point for business layout in the scenarios and differentiated their operating systems based on open
intelligent connected vehicle field as experiences. This model lowers the source systems—they will no long rely
well as the new technology companies' software development threshold and on the suppliers, and share core data,
strategic priority. difficultly for OEMs. Some automobile instead, they will control their own
enterprises with strong R&D capability software stack, and fix problems or
Operating systems can be classified have joined hands with technology add new functions via OTA. In 2019,
into the Unix family, the Windows companies to customize their own Volkswagen announced its huge
family, the Linux family (including operating systems (such as AliOS) investment in the R&D of the VW.OS
Android), and the RTOS family based on open-source operating operating system, aiming to create a
(including QNX\Vxworks) according to systems. In the meantime, technology unified OS platform that will be
the type of kernel. Different operating companies have created some compatible with multiple underlying
systems, with varied advantages, are frameworks/middleware for operating systems to enable intelligent
used in different in-vehicle developers based on specific interaction between different domain
environments. For example, the IVI requirements, such as DuerOS. controllers and different displays.
system often uses the Android system Before that, Tesla developed its
as it emphasizes consumer experience However, with the progress of real-time operating system (RTOS)
and diversified application ecosystem, software-defined vehicles, operating based on Linux, which supports IVI
and the instrument panel mainly systems will become more complex system and ADAS17.
adopts the QNX due to its requirement and important. The automotive EEA
for high security, although both belong has different requirements for
to the smart cockpit domain. With operating systems at different
higher real-time and functional safety development stages. For example, in
requirements, autonomous driving the stage of "domain centralization",
systems mainly adopt the RTOS, with the operating systems are required to
currently three mainstream systems: emphasize: openness, compatibility
RT-Linux, QNX, and VxWorks. and ecology; as well as security,

17
Source: http://finance.sina.com.cn/stock/hyyj/2020-08-11/doc-iivhuipn7999112.shtml

17
Software-Defined Vehicles—A Forthcoming Industrial Evolution | 4. What Are the New Opportunities

Second, middleware: the hardware and software in the domain reached vehicle standards include
in-between software of application centralization stage, such as the the BlackBerry QNX Hypervisor, Wind
and operating system. The so-called one-core multi-screen multi-system River VxWorks, Green Hills INTEGRITY
distributed middleware is to offer a trend of smart cockpit domain. One Muitivisor, Mentor Graphics
distributed computing and major trend of the smart cockpit Embedded Hypervisor, and
communication framework to shield domain is that the central panel will OpenSynergy (acquired by Panasonic
the kernel differences of various gradually integrate with the instrument last year).
underlying operating systems and panel, head-up display and other
provide standard interfaces and display devices, with microcontrollers
protocols for the upper-layer of various hardware integrated into a
application developers. single chip. The key demand behind
multi-screen integration is cost
Adaptive Autosar and ROS are typical reduction, as it is the cheapest way to
operating system middleware. run multiple operating systems of
Currently, The Autosar R&D tool chain different security level on a
and basic software are dominated by a System-On-a-Chip (SOC). Moreover,
few overseas parts enterprises, each screen corresponds to a different
including Elektrobit (acquired by the operating system, which means that
Continental Group18), Vector and the smart cockpit domain needs to
Bosch. Recently, domestic enterprises support multiple operating systems
have begun to develop their own tool such as the QNX, Android, and Linux.
chain, for example, Huawei's intelligent Therefore, a virtualization platform is
driving domain controller MDC is needed on top of the physical
compatible with the Autosar standard hardware to support the operation of
architecture, and also provides a the operating systems.
complete R&D tool suite.
Thereby, the virtual machine manager
Middleware is becoming increasingly concept of avionics devices was
important in the intelligent vehicle era. introduced to the automotive
It is expected that intelligent vehicles electronics industry, and the
will be using various operating systems AUTOSAR Hypervior19 was created
for a long time. As EEA evolves rapidly based on Autosar standard, which is
and operating systems become like a software layer running between
incrementally complex, the middleware the operating system kernel and the
connecting the underlying hardware physical hardware layer, providing a
layer and the application layer has a virtual hardware platform for the
great development space. operating system to make it more
irrelative to the hardware and
Third, virtual machine hypervisor. applicable to various platforms. The
The application of virtualization current mass-produced products
technology is largely triggered by the that are installed with a virtual
demand of EEA for separation of machine hypervisor and have

18
Source: Elektrobit official website. https://www.elektrobit.com/about/
19
Source: http://news.eeworld.com.cn/qcdz/article_2018030921931.html, March 9, 2018

18
 Software-Defined Vehicles—A Forthcoming Industrial Evolution | 4. What Are the New Opportunities

4.3 From Tier-2 to Tier-0.5 mass production capacity for their In terms of sales strategy, some chip
Future vehicles will be a highly competitivenss20. Seeing from their enterprises have maintained a close
mechatronic intelligent device. Being recent moves, chip enterprises are relationship with Tier-1 suppliers, while
software-oriented does not mean that demonstrating to the upstream some directly cooperate with OEMs.
hardware is negligible. On the contrary, customers their full-stack capabilities For example, for the partnership
hardware serves as an important such as software-hardware integration, between Geely and Mobileye,
carrier for software to perform its ecological environment, and open tool Mobileye, instead of only supplying
functions. Particularly, the chain. For instance, there is a subtle semi-finished components to Tier-1
software-intensive electronic hardware change in NVIDIA' s product strategy, suppliers, will for the first time provide
and semiconductor hardware will rake with focus on promoting its open, a complete solution stack including
in greater added value and more expandable and customizable product hardware, software, drive strategy and
profits on the industry chain. features. Last year NVIDIA introduced control; Mobileye also plans to provide
the DRIVE AGX Orin, a software-defined subsequent software update
The development trends in recent platform for autonomous vehicles services23. Skipping the Tier-1
years have showed that algorithm and and robots; it is a set of open-source suppliers, the core hardware vendors
chip enterprises, originally Tier-2 pre-trained AI models and training will gain higher profits and a greater
enterprises, have strengthened their codes; Once the autonomous driving say in the industry.
software-hardware co-development vehicle developers adopt this
capability, and fully integrated ecosystem, they can freely expand and
hardware resource, system software customize models via the NVIDIA AI
and functional software, which enables tools, thus improving the stability and
them to satisfy diversified upstream capabilities of their autonomous
and downstream demands of the driving system21.
industry chain; thus, they gradually
change from Tier-2 sub-suppliers to Domestic chip enterprises have made
Tier-1 or even Tier-0.5 suppliers of similar adjustments. Horizon Robotics'
OEMs, holding a key position during latest Journey™ 3 highlights high
the development of intelligent performance, low power consumption,
connected vehicles. expandability, safety and reliability, as
well as its in-depth understanding of
Taking AI chip industry as an example, algorithms and solutions for various
domestic and foreign chip enterprises application scenarios of autonomous
including NVIDIA, Mobileye, and driving; besides, Horizon Robotics
Horizon Robotics have made promotes its flexible and open product
significant adjustment to their product features, making available to
positioning, core competence and customers its algorithm samples, AI
sales strategy over the past two years. chip tool chain, and the tool suite
Chip enterprises have long been required for application development
evaluated by the computing power to help the manufacturers roll out
(utilization of computing power), power products and applications at a
consumption ratio (TOPS/W), costs and faster pace 22.

20
Source: https://auto.gasgoo.com/a/70220737.html, October 14, 2020
21
Source: NVIDIA Introduces DRIVE AGX Orin — Advanced, Software-Defined Platform for Autonomous Machines, December 19, 2019, NVIDIA Website, https://
nvidianews. nvidia.com/news/nvidia-introduces-drive-agx-orin-advanced-software-defined-platform-for-autonomous-machines
22
Source: Horizon Robotics' official website. https://horizon.ai/journey3.html
23
Source: https://new.qq.com/omn/20201009/20201009A074XB00.html, October. 9, 2020
"Software-Defined Vehicles – A Forthcoming Industrial Evolution" is independently published by Deloitte and is not authorized, sponsored or officially endorsed by
*

NVIDIA, Mobileye, Horizon Robotics, or any other companies.

19
Software-Defined Vehicles—A Forthcoming Industrial Evolution | 4. What Are the New Opportunities

Figure 5: Changes of the Role of AI Chip Enterprises on the Intelligent Vehicle Industrial Chain Chain

图：Tier-2到Tier-0.5

Tier-2 suppliers Tier-0.5 ODM

Vehicle ... Model n Cloud

OEM Original equipment manufacturers OEM model 1 Model 2 5G IoT ...
Computing

Ecological
Application Controller Services
Tier-1
software hardware

Platform In-vehicle computing platform In-vehicle computing platform

Tier-1.5 System Functional Integrated

software software solutions

Kernel Tier-1 Vehicle Model n

Tier-2 Chip IP ... Sensor Controller ... Tn OEM Model 2 ...
OS model 1

Source: Deloitte Research

20
 Software-Defined Vehicles—A Forthcoming Industrial Evolution | 5. How Should Different Enterprises Respond

5. How Should Different Enterprises

Respond
5.1 OEMs transform based on We believe that OEMs need to decide a than marginal costs, and strives to
rational assessment and their proper transformation path based on improve user experience; the upper
capabilities their business scale, R&D strength, left quadrant represents a moderate
The global automotive industry began cash flow status, and historical transformation path: OEMs build their
software-oriented transformation last burdens. Brands with products for own software teams while actively
year. Different from the past mass production and luxury brands cooperating with technology and
transformations, the cost and will choose different transformation Internet companies—they still need
risk-sharing "alliance model" has been paths, so will fuel vehicle and electric Tier-1 suppliers or newly-rising
further broken, which is gradually vehicle manufacturers. Deloitte has software enterprises to provide basic
replaced by the vertical integration identified four software-oriented software as well as software-hardware
model. In addition, the transformation transformation paths for OEMs architecture solutions before they
is unprecedentedly deepened, according to the transformation develop adequate software R&D
extending even to product R&D measures some enterprises have taken capability; the lower left quadrant
process, organizational structure and and the future development trends. As represents the conservative path:
supply chain network of OEMs. shown in the figure below, the four OEMs continue the typical outsourcing
paths are separated in four quadrants model to engage Tier-1 suppliers for
Volkswagen, a typical traditional OEM, based on OEMs' software strength. software development.
has invested heavily in building a Specifically, the right upper quadrant
software R&D team (a separate R&D represents the most ambitious and
team from the group) and developing thorough transformation path, which is
its own operating system and other characterized by the construction of
underlying software infrastructure, full-stack technological capabilities
becoming a leader among OEMs in from software architecture, software
terms of transformation breadth and R&D, to software engineering, as well
intensity. Tesla, a representative of new as the active promotion of
vehicle manufacturers, has vertical integration; the right lower
demonstrated a high degree of quadrant represents a relatively
independent development and vertical ambitious but not exhaustive path: it
integration for application software, mainly makes breakthroughs in one or
operating systems, AI chips and two core technologies, focuses on the
in-vehicle central computing platform. areas where marginal income is higher

21
Software-Defined Vehicles—A Forthcoming Industrial Evolution | 5. How Should Different Enterprises Respond

Figure 6: Four Paths for OEMs' Software-oriented Transformation

Strong

OEMs: establish strategic cooperation with

software enterprises while expanding internal OEMs: have independent full-stack (software,
R&D team. algorithms, chips, etc.) R&D capability
Supplier relationship: OEMs promote software Supplier relationship: skip Tier-1 and co-
ecology, which will be practically built by Tier-1 develop subsystems with Tier-2 suppliers
suppliers

Establish strategic cooperation Full-stack technological layout

OEMs' comprehensive
software capabilities
with software enterprises

Weak OEM Control over R&D Strong

Deeper tie with Tier-1 Focus on making breakthroughs

in key areas

OEMs: develop in-house R&D capability in one

OEMs: still adopt the black-box model, and
or more areas with strategic differences and
follow the parts manufacturers' architecture
outsource all other R&D tasks.
upgrade roadmap
Supplier relationship: cooperate directly with
Supplier relationship: OEMs promote software
core technology vendors through partnership
ecology, which will be practically built by Tier-1
or investment and achieve maximum
suppliers.
autonomy and control.

Weak

Source: Deloitte Research

22
 Software-Defined Vehicles—A Forthcoming Industrial Evolution | 5. How Should Different Enterprises Respond

5.2 With "oppression from both eco-network, and work closely with core
ends", parts enterprises should subsystem enterprises to shorten the
seek self-transformation adaptation cycle.
With the development of connected,
autonomous, shared, and electrified In addition, like OEMs, parts
automotive technologies, international enterprises are faced with the pressure
parts giants have forayed into the of organizational structure adjustment.
software field, focusing on: 1) building In July this year, the global parts giant
more comprehensive and flexible Bosch announced that it had merged
software-hardware integration its automotive electronics and
capabilities, and gradually shifting from software businesses departments and
outsourcing to self-development of established a new cross-domain
core software; 2) adjusting personnel computing solutions division; thus, the
structure to better adapt to software entire Car Multimedia division and
development rhythms and cycle; 3) parts of the Powertrain Solutions,
exploring new business models. Chassis Systems Control, and
Automotive Electronics divisions that
The strengths of parts manufacturers develop software-intensive,
are their integration capability and mass cross-domain electronic systems
production experience. However, driven would be brought together in the new
by the "software-defined vehicles" trend, division.24 Its competitor, Continental,
the core competence of parts planned to adjust its global
manufacturers will be "openness", organizational structure in 2019, and
"compatibility" and "ecology". Taking the began the adjustment earlier this
smart cockpit for example, Tier-1 year25; Under the new structure,
suppliers have mature solutions for "Automotive Technologies" as well as
domain controllers' embedded software the Powertrain and Rubber
development and hardware integration. Technologies are separated, and
However, Tier-1 enterprises, driven by "Automotive Technologies" was further
the industrial trends or new divided into two business areas, the
requirements of OEMs, must open up Autonomous Mobility and Safety
their domain controller development to (AMS), and the Vehicle Networking and
allow OEMs to customize applications Information (VNI); besides, the Holistic
and functions, support heterogeneous Engineering and Technologies was
multi-core operating systems as well as established to assume responsibility
reusable and portable basic software, for central development activities
and accommodate more powerful (basic R&D and future-oriented
computing hardware. Therefore, Tier-1 technological development) in the
enterprises need to build more automotive sector and support the
comprehensive and compatible two business areas AMS and VNI.
hardware and software integration
capabilities, open up their supply chain

Bosch pools its software and electronics expertise in one division with 17,000 associates, July 21, 2020, Bosch Website, https://www.bosch-presse.de/pressportal/
24

de/en/bosch-pools-its-software-and-electronics-expertise-in-one-division-with-17000-associates-216256.html
25
Source: Official website of Continental, https://www.continental-corporation.cn/zh-cn/新闻中心/大陆集团新闻稿/大陆集团宣布新管理层架构-166896?_
ga=2.193074351.389119842.1603956091-778085108.1603956091, March 15, 2019.
26
Source: https://www.sohu.com/a/424505398_115873, October 14, 2020.

23
Software-Defined Vehicles—A Forthcoming Industrial Evolution | 5. How Should Different Enterprises Respond

Finally, software will significantly affect based on the calculation of upstream

the revenue structure of parts raw materials costs as that with
manufacturers. The one-off hardware hardware sales. In addition, as a
sales model that is based on material system integrator, it is difficult for
cost accounting will be no longer parts manufacturers to obtain the
applicable. The marginal costs of highest added value during the
software development will disappear, industrial chain transformation. Tier-1
and charging of software may be enterprises need to satisfy the
conducted in varied modes throughout upstream OEMs' customization
the product life cycle. First, before requirements, and buy proprietary
mass production, automotive software development tools or systems from
revenue mainly comes from the downstream third-party software
one-off project development enterprises and pay the engineering
charge—the fees charged to Tier-1 costs (Mobileye's earlier business
enterprises or OEMs during the R&D model). Software charges cannot be
process for delivery of special software standardized due to software's
design and customized development, customization property, thus, Tier-1
and the software loyalties—loyalties suppliers will gradually lose pricing
charged for the use of the software/ power. Currently, Tier-1 enterprises
systems/development tools are still exploring a flexible charging
independently developed by the mode that will fit the era of
software company. After mass "software-defined vehicles". For
MO
production, software is charged in the example, Bosch has expressed that
form of "royalty fees", "technical service its software and hardware may be
AUTOMATIC PARKING
fees", and FOTA-based software sold separately or sold together in
upgrade fees. The royalty fees are the the future.26
single-vehicle royalties charged based KM/h

on the number of functional module SMART TRAVEL

SMART
IPs used by the customer and the INTERACTION

shipments. In the future, automotive

INTERACTION
software enterprises may change to
sustainable charging modes (like that
of water and electricity), such as the
SaaS model.

For traditional parts enterprises, the

profit model pain point caused by the
increase of the software quantity/value
ratio is that they cannot accurately
calculate the single-vehicle software
costs, so they are unable to maintain
their gross margin at a stable level

24
 Software-Defined Vehicles—A Forthcoming Industrial Evolution | 5. How Should Different Enterprises Respond

5.3 Facing both opportunities and applications such as IVI and map are Cooperation with core hardware
challenges, automotive software more viewed as commercial software enterprises to enter the automotive
companies shall create value products, so these software supply network: some large software
based on flexible positioning development companies have a weak and algorithm companies started to
As mentioned hereinbefore, along with bargaining power. Third, software transform towards hardware-software
the restructuring of EEA, software development requires huge initial integration last year, and have acquired
enterprises will become increasingly capital investment, but whether the underlying hardware enterprises or
important on the software value chain, subsequent scale effect will generate begun to develop their own hardware,
including the application software, great economic benefit is expecting to become the new Tier-1
basic software, and safety testing and unpredictable. Last, the lack of a suppliers in the autonomous driving/
verification software. However, software architecture standard in the intelligent connected era, however,
automotive software development will industry will be another big challenge for small and medium-sized software
inevitably encounter objective facing the automotive software enterprises, the most competitive and
challenges. First, as automobile suppliers.27 efficient market-entry strategy is to
electronics and intelligent networking deeply cooperate with upstream core
continue to advance, and the global Anyway, software enterprises will have electronic hardware vendors. Mobileye
market has an increasingly higher more opportunities than challenges. worked closely with Tier-1 enterprises
requirement for automobile safety, the Taking into consideration their strength in the beginning to enter the OEMs'
international safety standard (ISO and positioning as well as the supply network; smart cockpit software
26262) for automobile electronic and upstream demands, emerging enterprises may access the supply
electrical functions has been set up. automotive software companies/ chain through close cooperation with
The high safety level of "ASIL-D" Internet companies may focus on the processor vendors.
(applicable to ADAS/autopilot systems) following aspects to create value:
under this standard has imposed strict
access requirements on software Full-stack software capabilities:
enterprises' safety technologies and under the trend of software-hardware
development techniques. Moreover, decoupling, OEMs with strong R&D
vehicle manufacturers strictly select capability will seek semi-autonomous
suppliers, requiring not only safe R&D. Therefore, emerging software
functions and stable, reliable systems, companies may enhance their
but also technical support throughout advantages in full-stack software
the life cycle of vehicles. Second, the layout and that in open, compatible
automotive software industry lacks a tool chain, to accommodate OEMs'
clear pricing model. If charging by value demands of independent development
(i.e., pricing based on consumers' as well as cost and risk control.
willingness-to-pay for the products or
Go-to-market efficiency: for OEMs
services) as that of the consumer
that have begun to select software
electronics industry, it will contradict
suppliers through bidding, software
OEMs' strategies. Currently, OEMs view
companies need to emphasize the
ADAS/autopilot technology as their
productization and commercialization
core assets and capability, and are
efficiency of their solutions.
willing to pay a high premium. However,

27
Deloitte Insights, "Software is transforming the automotive world", June 18, 2020, https://www2.deloitte.com/content/dam/insights/us/articles/22951_software-is-
transforming-the-automotive-world/DI_Software-is-transforming-the-automotive-world.pdf

25
Software-Defined Vehicles—A Forthcoming Industrial Evolution | Conclusion

Conclusion

For enterprises in the automotive The "software-defined vehicles" as well as opportunities for the new
industrial chain, "software-defined transformation will spread to every automotive industry players, such as
vehicles" is no longer an experimental aspect of the automotive industry, chip suppliers, software suppliers and
path. Technology, market, consumers, covering OEMs' vehicle software and Internet companies. The
and many other factors are hardware architecture design, product "software-defined vehicles"
substantially pushing the development process, development transformation will be an inexorable
software-oriented transformation of organization framework, personnel trend driving the development of the
the automotive industry. Automobiles, development, as well as the supply automotive industry over the next 5-10
a complex hardware-based chain system and business models of years. All enterprises in the industrial
engineering product, will be the entire industry. It may even lead to chain should make thorough
increasingly marked by software. restructuring in some areas. During evaluation and forward planning, and
the transformation process towards find a suitable path to retain the
software-defined vehicles, there will be initiative during the new industrial
difficulties and challenges for transformation.
traditional automobile manufacturers

26
 Software-Defined Vehicles—A Forthcoming Industrial Evolution | Contact us

Contact us

Andy Zhou Ricky Liu

Automotive Sector Leader Automotive Consulting Director
Deloitte China Deloitte China
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Golden Liu Yi Zhou

Automotive Risk Advisory Leader Automotive Tax & Legal Leader
Deloitte China Deloitte China
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Email: [email protected] Email: [email protected]

Tony Wang Wilson Liu

Automotive Financial Advisory Leader Automotive Audit & Assurance Leader
Deloitte China Deloitte China
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Email: [email protected] Email: [email protected]

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