

ACES: Framing the Future of Automotive Mobility
15-05-2024

<p><span style="font-family: "Segoe UI";"></span><i><span style="font-size: 12pt; line-height: 116%; font-family: "Segoe UI";">Over the coming decade,
the automotive sector is poised for a transformative shift unparalleled in a
century. This transformation will be propelled by four interrelated trends:
autonomous, connected, electric, and shared (ACES) vehicles. This will usher in
changes in consumer habits and mobility preferences, reconfiguring the
landscape of value distribution, fostering innovative business strategies, and
welcoming new players to the automotive arena. These trends are underpinned by
technological progress in electronics and software, exerting significant
influence on the automotive electronics and software market.</span></i></p><p><br></p>
<p><strong><span style="font-family: "Segoe UI";">ACES vehicles are defined as:</span></strong></p><p><span style="font-family: "Segoe UI"; font-size: 1rem;"> - Automated vehicles with SAE Level 4 or Level 5 capability (see Figure 1);</span></p><p><span style="font-family: "Segoe UI"; font-size: 1rem;"> - </span><span style="font-family: "Segoe UI"; font-size: 1rem;">Vehicles with connectivity capabilities for vehicle-to-everything (V2X) communication, over-the-air (OTA) updates, in-vehicle customer services, etc.,</span></p><p><span style="font-family: "Segoe UI"; font-size: 1rem;"> - </span><span style="font-family: "Segoe UI"; font-size: 1rem;">Battery electric vehicles, including hybrid vehicles; and</span></p><p><span style="font-family: "Segoe UI"; font-size: 1rem;"> - </span><span style="font-family: "Segoe UI"; font-size: 1rem;">Shared vehicles that are managed by service providers that offer short-term access to vehicles on demand—could be driven by the customer (e.g., like ZipCar today), a third party (such as current Lyft services), or by a computer.</span></p><p><span style="font-family: "Segoe UI"; font-size: 1rem;"><br></span></p><h3 class=""><b><span style="font-family: "Segoe UI";">Why is ACES important for the Software-Defined Vehicle Era?</span></b><b><span style="font-family:"Segoe UI",sans-serif"><o:p></o:p></span></b></h3><p class="MsoNormal" style="margin-top:12.0pt;margin-right:0in;margin-bottom:
12.0pt;margin-left:0in"><span style="font-family:"Segoe UI",sans-serif;
mso-fareast-font-family:Aptos"><span style="font-family: "Segoe UI";">As individuals reconsider their desired features
in a driving encounter, the automotive sector faces a critical juncture.
Historically, consumers prioritized vehicle performance, reliability, and
safety. These demands were met through the optimization of mechanical
components and hardware. However, contemporary consumers are beginning to view
vehicles akin to smartphones: as the ultimate connected devices offering
real-time interactions across various platforms, personalized functionalities,
and services. This evolution in consumer preferences necessitates the
automotive industry's transition into a novel realm characterized by
software-defined, service-oriented digital mobility.</span> <o:p></o:p></span></p><p class="MsoNormal" style="margin-top:12.0pt;margin-right:0in;margin-bottom:
12.0pt;margin-left:0in"><span style="font-family:"Segoe UI",sans-serif;
mso-fareast-font-family:Aptos"><span style="font-family: "Segoe UI";">Meeting these needs means connected cars must
continuously update software, engage with digital ecosystems, and provide
instant access to onboard and offboard data. An enabler of these capabilities
is electric/electronic (E/E) and software architecture, which is set to play a
vital role in shaping the automotive and semiconductor value chain. ACES
essentially pushes the boundaries of the SDV concept, requiring advanced
software development and integration for a truly seamless and intelligent
transportation system.</span><o:p></o:p></span></p><p>
<span style="font-size: 12pt; line-height: 116%; font-family: "Segoe UI";">The
impact of ACES trends and architectural advancements is leading to a
substantial expansion in the automotive electronics and software market. While
the global automotive market is projected to increase from USD 2,755 billion in
2020 to USD 3,800 billion at an approximate annual growth rate of 3 percent,
software and electrical/electronic systems are anticipated to grow at a rate of
around 7 percent annually, reaching a total market size of approximately USD
469 billion (excluding battery cells) from about USD 238 billion. </span></p><p><span style="font-size: 12pt; line-height: 116%; font-family: "Segoe UI";"><br></span></p><p></p><div style="text-align: center;"><img src="https://imagemaaz2023.blob.core.windows.net/images/aces-pic1.png" style="font-size: 1rem; width: 673px;display: block; margin-right: auto; margin-left: auto;"></div><div style="text-align: center;">Figure 1</div><p></p><h3 class=""><b><span style="font-family: "Segoe UI";">ACES - A Driver in automotive software development</span></b><b><span style="font-family:"Segoe UI",sans-serif"><o:p></o:p></span></b></h3><p class="MsoNormal" style="margin-top:12.0pt;margin-right:0in;margin-bottom:
12.0pt;margin-left:0in"><span style="font-family:"Segoe UI",sans-serif;
mso-fareast-font-family:Aptos"><span style="font-family: "Segoe UI";">These days, software (SW) is a critical factor
for strategic development in the automotive industry. </span><o:p></o:p></span></p><p class="MsoNormal" style="margin-top:12.0pt;margin-right:0in;margin-bottom:
12.0pt;margin-left:0in"><span style="font-family:"Segoe UI",sans-serif;
mso-fareast-font-family:Aptos">The ongoing enhancement of vehicle capabilities,
including improved connectivity, management of electric powertrains, and
advanced driver assistance systems (ADAS), is made possible not only by
stronger hardware but also by sophisticated SW. The synergy between
advancements in SW and hardware mutually reinforces their effectiveness,
allowing vehicles to advance with enhanced functionality and efficiency.<o:p></o:p></span></p><p>
</p><p class="MsoNormal" style="margin-top:12.0pt;margin-right:0in;margin-bottom:
12.0pt;margin-left:0in"><span style="font-family:"Segoe UI",sans-serif;
mso-fareast-font-family:Aptos">The exhibit from McKinsey shows the allocation
of automotive SW development efforts across various domains and technology
stack elements. The projected overall market size is anticipated to reach
approximately USD 84 billion by 2030, more than doubling over the decade from
the estimated USD 34 billion in 2020. Despite the anticipated overall increase
in SW development, it's likely that not all vehicle software functions will
experience growth during this period.</span></p><p class="MsoNormal" style="margin-top:12.0pt;margin-right:0in;margin-bottom:
12.0pt;margin-left:0in"><span class="MsoIntenseEmphasis"><o:p></o:p></span></p><p class="MsoNormal" style="margin-top:12.0pt;margin-right:0in;margin-bottom:
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<p><em><span style="font-family: "Segoe UI";">Three key factors contribute to the strong overall growth of the SW market: increase in SW complexity in the domains most influenced by ACES trends, customization effort for integrating functions in a growing number of platforms, and growing labor costs for SW developers.</span></em></p><p class="MsoNormal" style="margin-top:12.0pt;margin-right:0in;margin-bottom:
12.0pt;margin-left:0in"><span style="font-family:"Segoe UI",sans-serif;
mso-fareast-font-family:Aptos">In the upcoming years, SW will become one of the
strategic development areas for the automotive sector. This is because the
continuous expansion of vehicle functionality – becoming more connected,
managing the electric powertrain, AD – is enabled by increasingly powerful SW
just as much as by HW. These developments are mutually reinforcing. Take the
domains of infotainment and connected services as an example: once vehicles can
drive autonomously, passengers will expect the infotainment system to integrate
the kind of services that are currently typical of smartphones, e.g., virtual
assistants, media consumption, and productivity SW. In another area poised for
growth, energy management will be a prime target for further evolution with the
proliferation of EVs.</span></p><p class="MsoNormal" style="margin-top:12.0pt;margin-right:0in;margin-bottom:
12.0pt;margin-left:0in"><span style="font-size:12.0pt;line-height:116%;
font-family:"Segoe UI",sans-serif;mso-fareast-font-family:Aptos;mso-ansi-language:
EN-US;mso-fareast-language:JA;mso-bidi-language:AR-SA">Progress in these fields
relies on sustained attention to software development and testing, encompassing
the creation of more complex functions, enhancing interaction among software
modules, and rigorous testing protocols. Across different sectors, the influence
of ACES trends on the software market growth varies, ranging from approximately
2 percentage points (for infotainment) to about 15 percentage points (for
advanced driver assistance systems - ADAS). Diversification of target
functionalities and customization of core software for various vehicles emerge
as significant drivers for the anticipated expansion in the automotive software
market. With the integration of intricate functions becoming standard, a
growing number of vehicle platforms and variations will incorporate them,
demanding increased efforts from OEMs and Tier-1 suppliers to tailor and expand
software offerings. ACES trends are poised to further escalate this demand, as
more interconnected vehicle platforms necessitate advanced energy management
functions or ADAS features. It is projected that by 2030, nearly all vehicle
platforms will integrate some form of data connectivity and incorporate ADAS
features. In more traditional software domains such as powertrain, chassis, and
body, customization for different vehicle variants will continue to
significantly impact costs associated with base Electronic Control Unit (ECU)
software.</span></p><p class="MsoNormal" style="margin-top:12.0pt;margin-right:0in;margin-bottom:
12.0pt;margin-left:0in"></p><div style="text-align: center;"><img src="https://imagemaaz2023.blob.core.windows.net/images/aces-pic2.png" style="font-size: 1rem; width: 1005px;display: block;margin-right:auto;margin-left:auto;"></div><span style="font-family: "Segoe UI";"><div style="text-align: center;"><span style="font-size: 1rem;">Figure 2</span></div><div style="text-align: left;"><span style="font-size:12.0pt;line-height:116%;
font-family:"Segoe UI",sans-serif;mso-fareast-font-family:Aptos;mso-ansi-language:
EN-US;mso-fareast-language:JA;mso-bidi-language:AR-SA">Apart from function
development and customization, validation and verification play pivotal roles
in ensuring that developed functions meet specifications consistently and
reliably. By 2030, validation and verification are expected to represent
approximately 29 percent (USD 24 billion) of the total automotive software
market, largely driven by the need to verify safety-critical software like
ADAS, AD, and security, as well as the operating systems deployed in vehicles.
This underscores the necessity for automotive stakeholders to enhance their
capabilities in testing and validating software efficiently. Integration at the
system level involves bringing together software subsystems into a larger
system. </span></div><div style="text-align: left;"><span style="font-size:12.0pt;line-height:116%;
font-family:"Segoe UI",sans-serif;mso-fareast-font-family:Aptos;mso-ansi-language:
EN-US;mso-fareast-language:JA;mso-bidi-language:AR-SA"><br></span><p class="MsoNormal" style="margin-top:12.0pt;margin-right:0in;margin-bottom:
12.0pt;margin-left:0in"><span style="font-family:"Segoe UI",sans-serif;
mso-fareast-font-family:Aptos">While integration's share of the overall
software market is anticipated to remain stable, areas like AD may see a
significant increase in its share of development (up to 30 percent).
Consequently, organizations should increasingly allocate resources to software
domains most affected by ACES. AD software is expected to witness the highest
yearly growth rate until 2030 due to increased complexity and integration
efforts. By 2030, AD software (excluding ADAS) is projected to represent more
than a quarter of the market value and grow at an average yearly rate of over
20 percent until 2030. This growth mirrors the escalating complexity of
functionalities, increased validation and integration efforts for AD
functionalities across vehicle platforms, and rising labor costs for highly
specialized development resources.</span></p><p class="MsoNormal" style="margin-top:12.0pt;margin-right:0in;margin-bottom:
12.0pt;margin-left:0in"><span style="font-family:"Segoe UI",sans-serif;
mso-fareast-font-family:Aptos"> <o:p></o:p></span><span style="font-family: "Segoe UI", sans-serif; font-size: 1rem;">AD is poised to be the automotive software
domain where most OEMs and Tier-1 suppliers concentrate their strategic
investments, with the market value expected to reach approximately USD 28
billion by 2030. The escalating functionality requirements, such as sensor
fusion and environmental modeling, highlight the need for critical
decision-making regarding essential functionalities. Validation, verification,
and integration significantly amplify the market value, with AD development
costs anticipated to nearly double due to extensive testing, simulation, and
integration with different sensor configurations. This necessitates increased
collaboration among market actors to ensure efficient integration and cost
management. The steady rise in labor costs for specialized software developers
and domain experts required for AD software development further contributes to
this trend, with a projected Compound Annual Growth Rate (CAGR) of 4.5 percent.
Talent sourcing remains a crucial aspect for all market players, with talent
concentration likely in the short term, although the market's evolution and
better understanding of technology and tools may expand the talent pool in the
future.</span></p>
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<p><em><span style="font-family: "Segoe UI";">Overall, the automotive sector is undergoing a profound shift towards software-defined vehicles, with ACES trends driving significant growth in the automotive electronics and software market, particularly in domains such as ADAS and AD software development. Collaboration among market actors and talent sourcing are crucial for efficiently managing costs and meeting the demands of this evolving landscape.</span></em></p>