Majority of Both Auto and Tech Execs Expect Software-Defined Vehicles to be Prevalent Within Four Years, Says AlixPartners Survey

The firm’s poll of senior executives shows varied level of commitment and readiness for the transition of modifiable vehicle features – including safety, security, and convenience – to software that is over-the-air upgradable; priorities and urgency varies based on industry and role in value chain

DETROIT (January 3, 2024) – A major change is set to transform the way automobiles are engineered, sold, and operated, as software-defined vehicles (SDVs) become prevalent by the end of the decade, according to a survey of 180 senior executives in both the auto and technology industries released today by AlixPartners, the global consulting firm. This development has automakers, auto suppliers, and tech companies gearing up for app stores and subscription-based services and considering what their future business models will look like.

This transition will alter consumer expectations; open new avenues for automakers, suppliers, and tech companies to monetize innovation; present several new risks and opportunities; and require a new era of collaboration among automakers, suppliers, and tech companies, the survey finds. Ultimately, all key stakeholders need to update their strategic playbooks or face the likelihood of being left behind. As it stands, according to the survey only about a quarter of automakers and Tier-1 auto suppliers are fully prepared for SDVs – and those who are prepared are only focusing on the near-term stages.

A company’s focus area depends on its level of readiness for the transition, according to the survey. Automakers that consider themselves fully prepared are focused on immediate improvements, and are in turn counting on auto suppliers and tech companies to handle personalization features and those involving complex algorithms and real-time connectivity.

The survey, fielded just in advance of next week’s CES 2024 show in Las Vegas, includes an AlixPartners roadmap for an SDV ecosystem that supports vehicles whose modifiable mechanical and electromechanical features can be controlled by software – including the performance of functions including safety, security, and convenience that can be upgraded over-the-air, and new software-driven user experiences and personalized features that can be implemented in the vehicle long after it leaves the assembly line.

In this ecosystem, automakers drive design, development, delivery, and support. Auto suppliers take on a system- and subsystem-integration role, while also focusing on component design and sourcing. And the role of tech companies covers a wide gamut, from providing mobility services; to offering cloud, connectivity, and software services; to ensuring the supply of semiconductors.

The survey, which polled senior executives up to the level of CEO at automakers, Tier-1 auto suppliers, and tech companies (two-thirds with annual revenue above $1 billion), found misaligned priorities depending on the role played in the current value chain. Auto companies are heavily focused on improving existing features, security, and user-experience, while tech firms put more emphasis on futuristic aspects, including personalization and real-time data processing.

“The emergence of SDVs in greater numbers will force key players to take traditional ‘industry wisdom’ and merge it with modern practices, including better utilization of emerging vehicle-architecture design approaches and software-development strategies,” said Mark Wakefield, global co-leader of the automotive and industrial practice at AlixPartners, and a partner and managing director at the firm. “Automotive has long been a complex business – only those who adopt best practices will be able to minimize risk during vehicle launches, address interoperability concerns, and leverage modern integration approaches. However, the opportunities are enormous, including reducing time-to-market and process efficiency.”

Among the most important issues addressed by the survey is expectations for future business models. Roughly two-thirds of Tier-1 auto suppliers are targeting collaboration with tech companies. That number drops to 46% for tech firms and 38% for automakers, which most plan to strengthen SDV capabilities through partnerships and relationships with Tier-1 suppliers, respectively.

Another question the survey sought to answer is who the owner of the software should be. More than half of automakers favor a proprietary software model, which enables differentiation and security -- albeit at a higher cost than open-source solutions. The survey found tech firms and automotive Tier-1s prefer a mixed strategy, though opting for proprietary software for core systems.

Among the other findings in the survey:

• For risk mitigation, 49% of automakers favor early-phase testing, while 43% of tech firms and 30% of automotive Tier-1s prefer modular-platform software design testing
• 38% of automakers favor model-based systems-engineering for integration of software and hardware; tech companies, meanwhile, largely prefer AI for testing
• To attract and retain SDV talent, automakers focus on compensation and investing in leading-edge capabilities, while tech firms and Tier-1 auto suppliers prefer a more balanced approach, including reskilling and redesigning internal processes

The findings come on the heels of a separate AlixPartners survey of consumers saying they are trusting of certain software-powered innovations, including advanced driver-assistance (ADAS) systems. That survey found that 60% of consumers are willing to sign up for subscriptions that offer safety or convenience enhancements.

“The evolution of autos into ‘smartphones-on-wheels’ will require every player in the new ecosystem to make tough choices and rapidly adapt to a fast-changing and less-linear landscape,” said Himanshu Khandelwal, a partner and managing director in the automotive and industrial practice at AlixPartners. “In particular, auto suppliers, at risk of being squeezed by both automakers and tech companies, need to relentlessly focus on their potential role as innovators in areas that extend beyond hardware. Automakers, meanwhile, need to manage priorities and strike a better balance between relying on in-house expertise, tech-industry partnerships, and the expertise of their suppliers to establish an edge.”

About the survey

In November and December of 2023 in North America, AlixPartners surveyed 100 executives at automakers and Tier-1 auto suppliers, and 80 technology-industry executives. Roles of those polled ranged from electric architecture leads to CEO. The majority of those surveyed worked for companies with between $1 billion and more than $20 billion in annual revenue.

About AlixPartners

AlixPartners is a results-driven global consulting firm that specializes in helping businesses successfully address their most complex and critical challenges. Our clients include companies, corporate boards, law firms, investment banks, private equity firms, and others. Founded in 1981, AlixPartners is headquartered in New York, and has offices in more than 20 cities around the world. For more information, visit www.alixpartners.com.