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Automotive OS and the implications for the supplier industry

Munich, July 2023

Automotive OS and the implications for the supplier industry

Munich, July 2023
T

he software operating system or ‘OS’ lies at the heart of the E-mobility revolution. Almost every OEM has already launched its own vehicle OS (in marketing terms). But are current automotive OS developments good or bad for suppliers?

Many OEMs have already launched vehicle operating systems, including Volkswagen’s VW.os, Toyota’s Arene OS, Xpeng’s Xmart OS, Mercedes-Benz’s MB.OS and Ford’s Ford.OS.

In today’s automotive world, these are often compared to the software that powers consumer goods, like „Windows“ or „iOS.

While there are many differences between a consumer OS and a vehicle system, the comparison sends customers a clear message: the software-defined vehicle is a device meant to function very much like a smartphone, with regular updates, post-delivery feature enhancements and seamless integration into everyday life.

Automotive OS as enabler for the software-defined vehicle

But what exactly is an “automotive operating system”? The question is not nearly so simple as it might appear: in the course of our recent survey of industry experts (Berylls Automotive OS Study 2023), 82% were convinced that there is no universal understanding of the content of an automotive OS. The best hypothesis around broad consensus is that an automotive OS could probably be described as a software platform and development framework that covers a wide range of services. These straddle core services – such as a hypervisor – through middleware applications such as communications interfaces to platform services such as vehicle status monitoring.

The automotive OS provides a layer between software and hardware. It is typically intended to be developed continuously over generations of vehicles to facilitate rapid development and frictionless integration of third-party software.

Above all, the automobile OS is an enabler. The driver or user of a vehicle may be unaware of its central role and unable to distinguish one OEM OS from another – because it is not a brand differentiator, but an enabler of functionality. The driver is merely aware that there is a system structure underlying the functional interfaces of the vehicle.

Most OEMs are developing their own operating systems, both because they need to control software complexity across the various models and ranges, and to meet customer expectations of continual post-delivery vehicle development. They do this themselves rather than buying a ready-made OS because almost no complete solution exists in the market. Existing off-the-shelf solutions are aimed at individual functional domains such as infotainment rather than a total vehicle management solution.  

Consolidation is coming

Given that nearly all OEMs are working on non-differentiating OS solutions and making significant investments in OS development, consolidation is almost inevitable. One reason for this is that many OEMs lack the necessary skills and resources to develop a compelling OS in the available timescale. This is confirmed by 86% of experts in our 2023 survey, as well as changing strategies in the industry.

About three-quarters (74%) of our surveyed experts are confident that in the long term only a handful of platform solutions – somewhere between three and five – will become established in the market. However, agreement on the likelihood of consolidation among managers of OEMs is less pronounced than among managers of suppliers and big techs. One possible reason is continuing uncertainty about the future of differentiating versus non-differentiating automotive OS solutions. There is also concern on the part of OEM managers about poorly targeted investments and the prospect of loss of control over software architecture and vehicle function range. It appears that OEM managers surveyed are currently uncertain about whether and how a consolidation would work and what the consequences might be. On the other hand, suppliers’ expectations of consolidation are very clear and they are positioning themselves accordingly for a world of fewer and more dominant automotive OS solutions.

It is yet to be seen who the providers of the dominant platform solutions will be. A majority of those surveyed (60%) expect that big tech companies such as Google will be successful in the automotive OS market (Google services are already an established component in an increasing number of vehicles, a trend confirmed by the recent strategic partnership between Google and Mercedes-Benz). While technology companies remain primarily involved in applications in their classic domains of infotainment and autonomous driving, we expect they will gradually extend their involvement to embrace the full automotive technology stack, building new strategic co-operations to secure their own cloud and data business.

A majority of experts surveyed (78%) also believe that open-source software (OSS) will play an important role in future automotive OS solutions. In particular, experts from big techs view the establishment of an open-source platform solution as certain, as witnessed by the respective strategies. Representatives of suppliers are more skeptical about the success of open-source automotive OS solutions. The key reasons for this are concerns over licensing and liability issues, as well as unanswered questions about monetization and a feared loss of control.

Hardware/software separation spells supplier risks

A software platform which is independent of hardware allows for continuous development. As a consequence, thinking around the vehicle life cycle will evolve and shift toward continuous management. This was confirmed by 72% of the experts consulted in our 2023 survey, with a high level of agreement. Representatives of the big techs are particularly optimistic about a future of continuous life-cycle management in automotive, not least because they can leverage their product life-cycle experiences from cloud-hosted services for consumer goods such as smartphones and for the Internet of Things.  

The transition to continuous life-cycle management breaks with the traditional delivery-chain model, which is characterized by six-year cycle planning. As a result, suppliers need to make their development resources increasingly flexible, as production-cycle unpredictability becomes the norm. Yet suppliers can benefit from the longer life cycles of both hardware and basic software that will result from continuous life-cycle management, and thus better allocate development costs. Companies with appropriate skills can become strategic partners and participate in new monetization models throughout the life cycle of the vehicle.

The separation of hardware and software means that Tier 1 suppliers risk losing their time-honored role as total system suppliers. If software can be bought separately from hardware, they run the risk of being sidelined as pure hardware suppliers in a world where software is the premium service – 76% of experts in our survey saw this as a risk. This outcome would put suppliers in competition with hardware contract manufacturers with considerably leaner cost structures, and for many their current ebit targets would become unattainable.

Automotive OS will change the relationship between OEMs and suppliers

It remains the case that OEMs’ operating systems are not yet fully defined, although the goals are clear and the implementation indispensable. There is some doubt as to whether many OEMs will be able to develop non-differentiating standalone solutions within five years, rather than drawing on a market solution from big techs, open-source software providers or other OEMs. Yet irrespective of the final shape of automotive OS solutions, they will change the relationship between OEMs and suppliers.

The implementation of a cross-vehicle software platform will inevitably challenge current supplier business models. At the same time, it will open the market for “Tier N” suppliers and offer opportunities for those established supplier companies that are ready to develop new partner models. The moment to prepare for those changes is now.

Authors
Dr. Jürgen Simon

Associate Partner

Sebastian Böswald

Associate Partner

Felix Günther

Consultant

Dr. Jürgen Simon

Dr. Juergen Simon (1986) is Associate Partner at Berylls by AlixPartners (formerly Berylls Strategy Advisors), an international strategy consultancy specializing in the automotive industry. He is an expert in sales and corporate strategies as well as M&A and can look back on many years of consulting experience.
Dr. Juergen Simon has been advising automotive manufacturers and suppliers since 2011 and has in-depth expert knowledge in the areas of holistic strategy development, business models and commercial due diligence. He also focuses on market entry strategies and topics related to the „Software Defined Vehicle“.
Prior to joining Berylls Strategy Advisors, he worked as senior consultant at the Droege Group, a consulting and investment firm.
As a graduate economist from the University of Hohenheim, he completed his doctorate at the Institute of Management at the Karlsruhe Institute of Technology (KIT) before joining Berylls.

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Sebastian Böswald

Sebastian Böswald (1991) joined Berylls by AlixPartners (formerly Berylls Strategy Advisors) in April 2021. He is an Associate Partner and an expert in both transformation and operations. Over the last decade, he has focused his work on strategy and organizational design, as well as on two megatrends shaping the automotive industry: software-defined vehicles and CASE (connected, autonomous, shared, and electrified mobility). In these fields, he has advised our global OEM clients as well as Tier-1 suppliers and tech companies.

Prior to joining Berylls, he worked for PwC Strategy& and started his career at BMW as a project manager for product strategy and digital charging services.

He received a Bachelor of Science in Automotive Computer Science at the Technical University of Ingolstadt as well as a Master of Science in Management from the Technical University of Munich.

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