In a seminal 2011 blog, venture catalyst Marc Andreessen proclaimed that ‘software is eating the world’. He talked about how products and entire industries, which were originally hardware driven, are being disrupted and replaced or ‘eaten’ by software. So, iTunes ate music, Netflix swallowed Blockbuster whole, and Amazon gobbled up big box bookstores and is nibbling at all retail. So, it was no surprise to me to come across an excellent article by IEEE on ‘how software is eating the car.’ 

We got rudely reminded of that recently, when the pandemic induced global semiconductor shortage impacted availability of cars across the board. In fact, analysts predict that four million less cars will be made this year, because of the lack of chips. Not steel, or rubber, but chipsets which would usually be the heart of a mobile phone or a PC. In fact, technology and semiconductors are becoming the hearts of most vehicles going forward. Ten years back, the IEEE article explains, ultra-premium cars contained about 100 microprocessor-based electronic control units (or ECUs), running about 100 million lines of code. Today even a basic Ford truck runs 150 million lines of code. Deloitte estimates that 40% of the cost of a new car is attributable to its electronics, and this will only rise, with an average car running on more than 3000 chips. The success of a car, say experts, depends on its software much more than on its mechanical side, and 90% of future innovations will be in software, not hardware.

This is a great challenge for traditional OEMs (Original Equipment Manufacturers) like Volkswagen, the largest car company in the world, whose CEO admitted that “hardly a line of software code comes from us.” This has massive implications. Testing is one – making sure that this complex electronics and software work seamlessly together requires a very different skill set, that of a large software company doing millions of test sequences. Cyber security is another, where cars can become the new favourite playing ground of hackers, with McKinsey estimating that the external and internal vehicle communication can exceed 25 gigabytes of data an hour. Safety in cars meant passing the crash tests and roll tests with flying colours, now it is how to make your car hacker-proof! Repairs is another. The days of the roadside mechanic being able to tinker around and repair your car are past. Even a cracked windshield repair would cost 10x of what it did, due to the cost of replacing all the sensors, cameras, and intelligence in it. Sometimes it is cheaper for an insurer to declare the vehicle as a total loss, rather than ponying up the cost to repair it, heralding in the era of ‘use and throw’ cars. Then, there is the problem of software updates; you cannot expect to wheel your car to a garage every time software needs to be updated, much like you would not take your mobile phone to a shop every time it decides to update its operating system. All the world’s OEMs have been fundamentally used to building great looking and performing Internal Combustion engine-based hardware, with the software as a ‘black box’ which is built outside and bolted on to it. All, except Tesla. 

Elon Musk built a software-designed car concept, where the heart was the software, and the hardware was ‘bolted on’. A Tesla architecture has “a handful of powerful, extremely fast computer processors executing micro-services-driven code that communicate internally across a greater number of sensors across lighter wiring harnesses or even wirelessly”, and an over-the-air based software update system, like that of a phone. Musk borrowed the ‘full stack approach’ from Apple, where he controls the hardware, the software is all inhouse, the batteries are built in his giga-factories, he builds the super chargers and their networks, manages the repair and now is getting into insuring his car. This is why Tesla is valued more than the next five car OEMs combined; it’s not just because they make great cars, or because Musk has a cult fan following. 

I see the car becoming like any other device. Tesla has chosen the full stack Apple approach, and other OEMs will also try the same. Many, however, will become like PC or phone companies, making the hardware, while a few companies like Tesla, Microsoft, Apple, or Google will make the software, the Operating Systems (OS) that will run them. And pretty much like the PC or phone business, the software guys will eat up all the profits, as their software eats up the car.

This article can be found here.