Automotive companies lag behind Tesla and Chinese competitors in developing modern software

Global automakers from Toyota and Volkswagen to General Motors are falling further behind Tesla and Chinese rivals in developing critical software for their cars, threatening their ability to make big profits in the age of electric vehicles, the Financial Times writes.

Image source: Jonas Leupe/unsplash.com

Only three traditional automakers – Ford, GM and BMW – made it into the top ten in the latest ranking of automotive digital performance from consulting firm Gartner. The remaining spots were taken by Chinese companies Nio, Xpeng and BYD, as well as American startups including Tesla, Rivian and Lucid.

The 2024 Gartner Digital Automaker Index reflects the efforts of auto industry majors like Volkswagen and Toyota to keep pace with a shift in focus from engines to software that will control everything from batteries and safety features to self-driving and connectivity technologies. .

Automakers have traditionally relied on in-house engineering teams to develop technology and software. However, they are now forced to look for talent from startups as well as large tech companies such as Apple and Google.

In June, Volkswagen struck a deal with US electric vehicle startup Rivian to form a joint venture in which it will invest $5 billion, after problems with internal software developer Cariad led to delays in the release of new models.

Toyota is also struggling at its software subsidiary Woven, which posted net losses of 126 billion yen ($888 million) over the past two years, according to the Financial Times. Toyota said it plans to release the Arene software next year, attributing the delays to timing factors.

«Toyota must solve this problem, says Macquarie auto analyst James Hong. “If that doesn’t happen, it and other Toyota family companies, including Subaru, Mazda and Suzuki, risk losing market share and may be forced to rely on big tech companies like Apple and Google for software that will be key to the future. their cars.”

According to Gartner analyst Pedro Pacheco, despite significant research budgets and a developed talent base, major automakers still cannot effectively use available resources for software development. This is partly due to the attitude of senior management, which was not fully committed to this direction.

In addition to improving core vehicle functions, automakers are attracted by the software’s potential to increase revenue by collecting user data and providing subscription services. These services include monthly payments for insurance, maintenance and repairs.

According to Accenture, digital services generate about $300 million, or 3% of automakers’ revenues worldwide. The consulting firm predicts that digital services revenue will grow to $3.5 trillion by 2040, accounting for nearly 40% of auto industry revenue.