Lowering costs using the software-defined vehicle

Hardware costs

The SDV will enable decreasing hardware costs over time as software can fill the role of special-purpose hardware. Virtual sensors, for example, can significantly increase safety, efficiency, and driving comfort for little cost. The future is commoditized hardware and differentiating software, and the key drivers for this are outlined below.

Rationalization for SDVs

Rationalizing the electrical/electronics (E/E) architecture contributes to the cost savings of SDV programs. Today, numerous individual ECUs are coupled to single functions, estimated at 100 ECUs on average per vehicle. In SDV architectures, domain control units (DCUs), a combination of multiple ECUs and central compute platforms, will consolidate hardware capabilities, decoupling software from hardware by more than 90%. In the SDV, more efficiently integrated hardware leads to lower costs.

For example, Tesla achieved outstanding software development and cost rationalization by efficiently integrating and standardizing the hardware components of control modules. By not reusing legacy ECU parts off-the-shelf, Tesla integrated fewer ECUs in its vehicles. In comparing the electrical architectures of the Tesla Model Y, the Ford Mustang Mach E, and the Volkswagen ID.4, it is clear Tesla has the most streamlined and integrated hardware architecture.

Streamlined zonal software stacks

In conjunction with rationalized hardware, OEMs will design hardware to reuse software. A new zonal and central computing architecture is emerging. Functional domains will be converged into zonal gateways. Zonal gateways will reduce wire routing, cable, and manufacturing costs and enable better reuse of software infrastructure. Then, zonal controllers will connect to sensors and use high-speed communication to transfer large datasets to the central computer running the software-defined functions.

Automotive operating systems (OSs) will run real-time and critical safety functions, while general-purpose OSs will be used for tasks like the infotainment system. Technologies, such as virtualization and containers running on the central computing architecture, will allow these OSs and their software-defined functions to be securely isolated and operate without fear of interference from each other or bad actors. Posix-based systems, like Blackberry’s QNX, will provide safe and reliable OSs for the hardware's abstraction and connectivity functions.

Zonal and central computing architecture

“OEMs lose US$900m annually in the US and Europe from physical recalls, and the number of vehicle recalls for software fixes has doubled in the last two years.”

- Esync Alliance

Efficiency and speed

SDV provides for cost-savings through efficiency, mainly by enabling automation of previously labor-intensive work, especially in OTA updates, cybersecurity, and sales processes.

FOTA/OTA update infrastructure

Firmware over-the-air (FOTA) and general over-the-air (OTA) update infrastructure is a fundamental component of SDVs. Where OEMs once relied on physical vehicle recalls to make software updates or changes, an OTA update infrastructure enables OEMs to update vehicle software completely remotely, lowering overall recall (and general update) costs while increasing speed and efficiency.

OTA updates also help OEMs reduce operating costs and expenditures from failures to make critical safety upgrades to affected vehicles on time. Software- and hardware-related safety issues can be solved remotely with OTA updates, and this has the potential to allow OEMs to free up more capital for investment. Today, OEMs must keep substantial resources in reserve to pay fines for recalls and safety upgrades they fail to make on time.

Cybersecurity compliance at scale

OTA update infrastructure is also an essential consideration for vehicle cybersecurity compliance. In addition to ensuring the safety and security of a vehicle, the failure to comply with cybersecurity regulations is often costly in fines, sanctions, or lost investment due to non-approval. Under UN regulation 156 (UNECE R156), which applies to numerous vehicle types, including passenger vehicles, OTA updates must be able to:

• Restore systems if an update fails
• Only execute updates when there is sufficient power
• Ensure updates are executed safely, especially when the update may affect safety-critical systems
• Be able to inform users about each update, including their successful execution (or otherwise)
• Ensure the vehicle is capable of conducting the update
  
• Be able to inform the user when a mechanic is needed.

SDV sales strategies

SDVs also introduce novel selling strategies. In the United States, Tesla outsold its next 19 rivals combined in the first half of 2023, with 325,291 vehicles sold compared to 214,542. Its cost-effective and efficient direct sales channel, combined with smart branding around the ability to enable in-vehicle features with OTA updates, has allowed it to gain such market dominance. Software is central to Tesla’s brand and sales and marketing success story. In a sense, Tesla created a price premium for the software capabilities within its vehicles; software that has a significantly smaller marginal cost compared to the overall vehicle. This fact has helped them achieve profitability.

In another example, GM has lowered the cost of selling an SDV for the dealer by $2,000. GM uses its own wholly-owned fulfillment centers to deliver an exact configuration of the SDV to a customer within four days, while other OEMs can take anywhere from six to eight weeks to make similar delivery times. In turn, the turnkey functionality of SDV sales reduces inventory costs for dealerships. Machine-learning tools facilitate the stock fulfillment for GM's centers and dealerships. The ML tools get sales information from cloud data on what vehicles sell and where. It allows for lean running at the dealer while also being flexible to change their stock fulfillments without affecting the ability for a customer to buy what they want, exactly when they want it.

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Managing dealership relationships

SDVs will also cause the OEM-dealership relationship to evolve. While there are benefits, such as faster delivery times and lower inventory costs, the functionality of SDVs can impact other parts of a dealership business, such as the service department.

For example, it is inevitable that dealerships will make less revenue from replacing parts in battery electric vehicles. McKinsey forecasts that after-sales part replacement spending could decrease by as much as 40% by 2030.

OTA updates could cannibalize some software-related services and recall repairs. Lower in-person visits also reduce the opportunities for the dealership to interface directly with customers and provide additional services. However, it is more likely that a hybrid service model will persist. In West Virginia, OEMs' appeasement to the dealerships’ “right to repair” has already resulted in legislation being introduced to prevent automakers from performing OTA updates directly.

On the other hand, dealerships could also save money from an OEM’s central OTA update architecture by fulfilling basic warranty and repair claims with less overhead costs. GM contends that as new features are added, dealerships will need to walk customers through vehicle changes following an update, thus necessitating ongoing interaction, whether in-person or virtually.

Telematics systems used by OEMs to predict when vehicles will need repair, maintenance, or replacement parts could also help dealerships create revenue-generating opportunities by maintaining regular communication with customers over the vehicle's lifetime and replacing faulty parts before they fail.

Or, in the case of a critical repair, telematics could direct the driver to the nearest dealership, delivering a better experience to vehicle owners while driving service business for dealers. If OTA updates could handle routine upgrades, then dealer service bays and their technicians would be freed up to do higher-profit repair work.