THE BATTLE FOR THE FUTURE OF THE CAR IS UNDER WAY. INVESTORS WON´T HAVE TO PICK A SIDE. / BARRON´S MAGAZINE

The Battle for the Future of the Car Is Under Way. Investors Won’t Have to Pick a Side.

Auto makers are pressing ahead with "software-defined vehicles." Here are the suppliers helping to make it happen.

By Eric J. Savitz

    ILLUSTRATION BY RUNE FISKE

Never mind ChatGPT. 

The next big computing platform has already arrived—and it’s sitting in your driveway.

The $4 trillion automotive industry is going through three big transformational changes at once. 

Two of those—the rise of electric vehicles and the gradual emergence of autonomous driving—have attracted most of the attention. 

But the third one could be more powerful still: Cars are becoming computers on wheels.

This isn’t to diminish the importance of EVs and self-driving cars. 

But progress there will be measured in decades, while auto makers are pressing ahead on “software-defined vehicles” today—allowing cars to be upgraded and improved on the fly, like a mobile phone. 

Large screens in cars have subsumed all manner of buttons, switches, and analog dials. 

As with phones, the digital displays unlock nearly unlimited options and all-new business models, requiring microprocessors, diverse software tools, ubiquitous network connectivity, and large, high-definition displays. 

“There are now more lines of code in the average car than there are in a Boeing 747,” says Dipti Vachani, senior vice president of automotive and Internet of Things for Arm Holdings, the SoftBank Group–owned chip-design house.

The progress comes not a moment too soon for car makers. 

They have been losing ground in their own cockpits, where Apple (ticker: AAPL) and Alphabet’s (GOOGL) Google increasingly control the entertainment and navigation experience.

“They aren’t just selling a car,” Vachani says of the auto makers. 

“They can own a customer experience for years, and they need to monetize that. 

It’s almost a matter of survival for them.”

Sure enough, after years of welcoming Apple and Google into their cockpits, car makers are now pushing back. 

Last month, General Motors (GM) said that its future EVs, starting with the 2024 Chevy Blazer EV, would no longer support Apple’s CarPlay or Google’s Android-based phones. 

GM will instead offer its own system based on an embedded design of Android Automotive, which will be preinstalled in the car, with custom versions of Google Maps, Spotify, and other applications.

“We will be moving beyond phone-projection systems, namely Apple CarPlay and Android Auto,” GM said. 

Mercedes, meanwhile, expects to generate billions of dollars in revenue by 2025 from MB.Connect, the German auto maker’s mapping, navigation, and vehicle-monitoring platform, and MB.Drive, the company’s autonomous-driving platform. Other auto makers are following a similar path.

The industry’s push comes as Apple steps up its own car game. 

Last year, the company said CarPlay was available on over 90% of new cars in the U.S. 

“It’s a must-have feature when shopping for a new vehicle,” Emily Schubert, Apple’s senior manager for car-experience engineering said at June’s Apple Worldwide Developers Conference. 

She cited research that said that 79% of U.S. buyers would only consider CarPlay-capable vehicles. 

During her WWDC remarks, Schubert showed off a new prototype of CarPlay that expands the iPhone’s territorial reach beyond the center console, giving Apple the entire instrument cluster, including the speedometer and tachometer and in-cabin functions like climate control and navigation—all with new, Apple-designed icons and dials.

Apple name-checked numerous auto makers—Ford Motor (F), Honda Motor (HMC), Mercedes-Benz, Volvo, and others, though not GM—that it said were considering adoption of the expanded version of CarPlay. 

There has been little subsequent news, although Apple had said the first announcements of cars with the new version of CarPlay would come in late 2023. 

Apple could offer updates at this year’s WWDC, coming up in early June.

A prototype of the next generation of Apple CarPlay goes beyond the center console, giving Apple control of the entire instrument cluster. COURTESY OF APPLE

Google is taking a multipronged approach, offering both Android Auto, which operates in a parallel fashion to CarPlay, along with Android Automotive, its embedded software that’s licensed directly to automotive manufacturers. 

In some cases, Google is licensing an embedded but connected version of its Google Maps software to companies like Mercedes, which then offer additional traffic data and vehicle information. 

With Android Automotive—which has been adopted in some cars from Ford, Honda, Volkswagen, and others—the car companies have more control over the applications and presentation of apps inside the car than they do with the current version of CarPlay and Android Auto, which take over cockpit screens entirely.

For car makers, the computer industry offers a cautionary tale. 

Over time, Dell Technologies, HP Inc., and Lenovo—the once-dominant players in PCs—became largely interchangeable and commoditized. 

In their place, Microsoft gained dominance of operating systems; Intel, Advanced Micro Devices, and Nvidia made the most important chips; and Google and others owned the web browser and other key software. 

“The auto makers want to retain their brands,” says Danny Shapiro, Nvidia’s vice president of automotive. 

“They want to differentiate. And there will be a lot of revenue from transactions.”

“When auto makers bring Google or Apple functions into the car, they start to lose touch with the consumer,” adds Nakul Duggal, Qualcomm’s senior vice president for automotive. 

“Auto makers need to understand what customers like or don’t like. 

If you lose that primary interface, that’s a big challenge.” 

The good news for investors is they don’t have to pick a side as Apple and Alphabet battle the car makers for cockpit supremacy. 

Instead, they can look to the arms dealers, in particular the chip makers.  

Nvidia (NVDA) is providing high-powered processors with artificial-intelligence capabilities in more new cars, along with a related set of software tools; autonomous driving is one of the most powerful examples of AI. 

Nvidia CEO Jensen Huang was a surprise guest at a recent Mercedes event in Silicon Valley to unveil the company’s push into software-defined vehicles. 

Mercedes is using Nvidia chips in Drive Pilot, the company’s system for Level 3 autonomous driving, allowing drivers to take their hands off the wheel in some situations.

Qualcomm (QCOM) is taking a similar approach with its vision to be the provider of the “digital chassis,” taking control of automotive connectivity, battery functions, sensors, cameras, and display screens, as well as Advanced Driver Assistance Systems, or ADAS, the precursor to fully autonomous vehicles.

Memory-chip maker Micron Technology (MU) has said that the automotive industry offers the company’s best long-term growth opportunity.

And soon, investors will have the opportunity to buy shares of Arm Holdings, which is planning an initial public offering on the Nasdaq later this year.

Arm’s Vachani notes that Arm-based chips are already running 85% of in-car entertainment systems. 

“Consumers want their cars to provide the look and feel they experience on their mobile phone,” she says. 

“That’s an experience we understand.” Arm’s designs power iPhone chips, servers, and other computing gear.

Smaller companies should benefit, as well, from more niche applications that rely on specialized chips. 

A fully digital widescreen cockpit from Mercedes-Benz. COURTESY OF MERCEDES-BENZ

Ambarella (AMBA), which provides chips used in advanced driver-assistance systems and driver-monitoring applications, is producing in-car radar systems intended to alert drivers not to leave their children behind in the back seat. 

Ambarella also supplies chips used in Hyundai’s Genesis GV60 to unlock the car with a facial scan. GAC Motor, a Chinese auto maker, is using Ambarella chips in a cabin-monitoring system that reduces the radio volume when a passenger is on the phone, or lowers a window if someone inside is smoking.

Samsung’s Harman International unit, a legacy provider of connected car experiences, believes software—combined with high-powered chips—will offer new ways for auto makers to offer unique experiences. 

Christian Sobottka, Harman’s president of automotive, says that electrification of the powertrain is “not that differentiating,” putting pressure on the companies to find other ways to stand out. 

Harman offers a heads-up display called “Ready Vision” that projects relevant driving data onto the windshield, so that it’s in the driver’s field of vision. 

“Ready Care” is a suite of safety services that tracks activity inside the vehicle. 

Sobottka says the system can keep tabs on the driver, tracking life signs like heart rate, respiration, and eye movements—nudging the seat, tightening seat belts, or turning up the radio when it detects wandering attention from the driver.

Even BlackBerry (BB), once a dominant player in mobile phones, has refocused on security and automotive software. 

The company’s IVY platform is targeted at managing the growing flow of sensor data in modern cars. 

At the Consumer Technology Association’s CES tech event in Las Vegas in January, BlackBerry said that the Chinese auto maker Dongfeng Motor would use IVY in a new model to manage batteries in an effort to reduce drivers’ EV “range anxiety.”

Technology, of course, isn’t new to cars. 

Auto makers have been using chips and embedded software in cars for several decades, for everything from antilock brakes to electric door locks. 

But those electronics have largely been defined by a class of chips called microcontrollers, and their slightly more sophisticated cousins, “electronic control units,” or ECUs. 

Microcontrollers are the slower, more simple-minded versions of the microprocessors that control phones, PCs, and other electronics. 

They are cheap and specialized, and rely on older chip-making technology. 

During the recent chip shortage, tight supply of key microcontrollers reduced the ability of auto makers to meet demand for new cars—or to repair old ones. 

The inside of a concept vehicle built on Qualcomm’s Snapdragon Digital Chassis COURTESY OF QUALCOMM

“Today, the average car has 30 to 50 ECUs, and higher-end cars have upward of 100,” says Sam Abuelsamid, an analyst with the research firm Guidehouse Insights. 

“Each one of them has a little [operating system] that runs independently. 

You end up with a system that is hard to update.”

The chips that control electric seats don’t talk to the chips that control instrument displays or the sensors that monitor tire pressure. 

Processor companies such as Qualcomm and Nvidia are rolling out chips that handle many automotive functions that previously relied on unconnected microcontrollers, reducing the chip count and making the car easier to upgrade. 

Tesla (TSLA) was a pioneer here, Abuelsamid notes. 

“Features aren’t necessarily locked in when their cars roll off the assembly line,” he says. 

Another advantage: over-the-air software fixes for mandatory recalls. 

He notes that auto makers can be subject to fines when auto makers don’t lure enough owners into dealerships to handle recalls. 

“With over-the-air updates, you get 100% of them updated.”

As cars add more code and connectivity, consumers will be pressured to pick up the tab.

There are two elements to that story. 

One is the ability to upgrade software for almost any automotive function over the air. 

Tesla drivers already have that experience, but that isn’t true for every EV; upgrading the battery software to improve efficiency in a 2018 Chevy Bolt EV, for instance, still requires a trip to the dealer. 

There will be software updates that improve battery range, add new self-driving features, or improve other aspects of the in-cabin experience that have historically been handled by nonupgradable microcontrollers.

Even more alluring for car makers is the notion of turning cars into a platform for subscription services. 

Tesla, for instance, charges up to $199 a month to include full-driving mode, despite the fact that the hardware and sensors required to handle the additional skills are already factory installed in the car. 

Wendy Bauer, general manager for automotive at Amazon Web Services, says that Amazon.com’s (AMZN) cloud services will play an increasingly important role in the in-car experience, with an increased range of entertainment and information options. 

“We see auto makers experimenting in many categories—in entertainment, certainly, in safety and convenience, even in productivity apps,” she says. 

“It comes down to what customers are willing to pay for. 

And when you get to Level 3 autonomy, it frees up time in the car for productivity and entertainment.”

Turning the car into a platform for subscriptions provides a new opportunity for Zuora (ZUO), a software company focused on subscription management. 

“Why not turn the car into a two-ton payment method?” says Zuora CEO Tien Tzuo. 

“If you are leasing the car, the auto maker already has a financial relationship with you. Imagine pulling up to the charger or the pump, filling up, and then driving away.”

General Motors has been working on the subscription problem for years. 

Its OnStar service, launched in 1996, offers in-vehicle voice connections to service agents who can provide directions or dispatch roadside service. 

OnStar plans can run as high as $49.99 a month. 

This year, the company will begin rolling out Ultifi, a software service based on IBM‘s Red Hat that will allow developers to create new apps for GM cars—and services that car owners could pay for as one-time downloads or via subscriptions. 

GM’s early ideas for Ultifi include “Max Power Mode,” to boost acceleration in EVs; “Choose Your Own Adventure Mode,” basically a driving scavenger hunt; “Teen Driver Mode,” to adjust settings for younger drivers; and “Planetarium Mode,” which would project constellations on in-car screens.

Nvidia has announced plans for an in-vehicle version of its GeForce gaming platform, for passengers to use at any time and for drivers when the car is parked or waiting for an EV charge. 

Auto makers plan to offer software that provides friction-free EV charging, connecting you to a payment system when you pull up to the charger and plug in, or automatic tolling for roads, bridges, and parking lots. 

And some auto makers are dabbling in a different kind of recurring payment—insurance.

BMW experimented with a fee for heated seats, but the company has backed off that plan and says it has no plans to start charging a subscription fee for equipment already installed in its cars. 

Auto makers rattle off the potential for other services, such as enhanced mapping and streaming music and video, but there remains the real risk that consumers stick with their iPhone and Android devices for those applications.

The good news for car makers is that there’s enough money going around to remake business models across the industry. 

Their challenge will be figuring out what consumers want, how much they’re willing to pay—and then collecting all of it, or at least most of it, for themselves.