Another week in the books. Here’s what’s cookin’ today in Transmission:
- Software has a big role to play in the future of the auto industry
- Stellantis’ focus for the future
- Industry news
Software has a big role to play in the future of the auto industry
For decades, the automotive industry grew accustomed to normality. Automakers build cars themselves. Suppliers provide needed components to OEMs. However, as we all know, times are changing. There’s a push for more digitization and a growing need for more software as more EVs emerge and more self-driving capabilities are added to cars. Automakers are finding themselves without the expertise to fulfill the need for connected services and AI insights.
Engineers at parts supplier Continental have predicted that vehicle functions controlled by software will increase from 10% to 40% by 2030. Tamara Snow, head of research and advanced engineering at Continental, said in an interview with Ward’s Auto that “vehicles are becoming part of the Internet of Things and will increasingly be defined in terms of software rather than hardware.” She went on to point out that the current vehicle architecture model is decentralized, having an excess of wires and other components instead of having one system in place that serves as a central source for data and interface operations.
According to Gartner, the rise of vehicles with an embedded connection will rise to 580 million by 2025, a 152% increase from 2020. Legacy automakers are beginning to partner with software brands to develop architecture that allows for things like customized interface interaction and over-the-air system updates.
The gist: Suppliers need to move forward with digitalization in mind. The sun is starting to set on the days of just supplying hardware to OEMs. Auto manufacturers are looking for software that’ll allow them to meet consumer demand for personalization. It’s also important to realize that filling the “software gap” for OEMs isn’t entirely everything. It may be smart to start building relationships with software providers in order to come up with ways to innovate the internal architecture for vehicles.
Stellantis’ focus for the future
The merger between Fiat Chrysler Automobiles (FCA) and PSA Group is officially complete, creating one unified brand called Stellantis. Stellantis CEO Carlos Tavares, formerly PSA’s CEO, has indicated that although this merger may seem like an offensive move, it’s also a defensive one.
The newly combined automaker’s vision includes reassessing operations in China, including potentially exiting altogether, preserving factory jobs and creating more distinctions between brands. PSA has been working with IBM and Sigfox, a French wireless network operator, to create better packaging tracking between suppliers and assembly plants in order to meet another one of Stellantis’ priorities of reducing costs by 80% by the end of 2024.
Tavares looks to be the right man for the job. In 2017, PSA bought Opel/Vauxhall, (aka GM’s struggling European operations) and Tavares was a big part of the brand revival, raising its operating margin to 4.7%. Tavares’ leadership combined with a focus on improving pricing, even if that meant at the cost of volume, and strong emphasis on branding were a few reasons why the turnaround was successful. FCA has experienced difficulty with weak sales and underutilized factory space in Europe. Tavares wants to use PSA’s engineering resources to revamp Fiat’s lineup and increase profitability.
It doesn’t look like any brands will be cut as a result of the merger, at least for now. Strong brand diversity will be key to market share growth.
In a press conference Tuesday, Tavares said, “Stellantis is more than the sum of its parts,” indicating that even though the new company has access to a large pool of resources, its focus is on the future and quickly adapting to consumer demand and EV adoption. In my opinion, the biggest challenge Stellantis and Tavares must tackle revolves around China since it’s the largest vehicle market on the planet. If Stellantis can crack the code for success in China and properly execute whatever plan it decides on, it’ll come as a massive win for the company.
Industry news:
- Semiconductor shortage update: Volkswagen China has lost over 50,000 cars in production because of the ongoing chip shortage. The automaker was one of the first OEMs to experience the shortage back in December. Vehicles using the Electronic Stability Program are the models primarily affected by the supply shortage. China accounts for 40% of VW’s vehicle deliveries and is also a huge source of profits for the German OEM.
- Cruise raised another $2 billion in a new equity round and one of the investors is making headlines: Microsoft. Cruise specializes in autonomous vehicles and, after this latest round of funding, is moving closer to commercializing. Microsoft will provide Azure, its cloud and edge computing platform. Cloud services are extremely important and sometimes costly since AVs have to compile and compute massive loads of data. This also marks another significant investment made by a large consumer tech firm.
- Volkswagen may face a fine up to $121 million for missing out on CO2 emissions requirements set in place by the European Union. VW cut average CO2 emissions in new vehicles in 2020 by 20% to 99.8 g/km, .5 g/km above its target. CEO Herbert Deiss blamed the pandemic as the major factor that thwarted VW’s efforts to meet the restrictions set in place. Volkswagen still has a positive outlook for 2021 as the company increases electric vehicle output.
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