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Automakers Have to become Tech Firms

Automakers Have to become Tech Firms


As digital technology becomes the differentiator in the car, automakers will soon have no choice but to become tech or software companies themselves, a new report has forecast.

The automotive companies will increasingly look at data in a similar way to that of the tech world, to build or integrate ecosystems that will allow them to develop more compelling features or digital services.

By 2025, 50 per cent of the top 10 automotive original equipment manufacturers (OEMs) will design their own chips and establish direct, strategic, long-term working relations with chip companies, according to market research firm Gartner.

For the last 100 years, automakers have focused on the mechanical side of car development and have mostly left software to other parties.

“As digital technology becomes the differentiator in the car, software will become the main profitability growth driver for automakers. Ultimately, the goal for original equipment manufacturers (OEMs) will be to turn into tech or software companies,” said Pedro Pacheco, senior research director at Gartner.

Automakers are re-evaluating their long-held inventory strategy following the just-in-time (JIT) principle, which led OEMs and Tier 1 suppliers to have no buffer inventory to fall back on during the various chip shortages.

As a result, automakers are reviewing how they deal with chip manufacturers and considering designing their own chips.

The year 2022 will see digital giants, such as Amazon Web Services (AWS), Google, Alibaba or Tencent, continuously expand their footprint in vehicle technology.

“These tech companies are bringing the car closer to their respective ecosystems, which, in turn, opens new vehicle-connected services,” said Pacheco.

Gartner predicts that by 2028, 70 per cent of vehicles sold will utilise Android Automotive operating system, up from less than 1 per cent today.

“As developing technology and software on their own is difficult, car companies can either partner with digital giants to succeed in turning software into a main moneymaker or build vast in-house resources to achieve it mostly on their own,” Pacheco elaborated.

In 2021, several tech companies created open-source vehicle architecture operating systems and open electric vehicle (EV) platforms.

This approach of adopting new partnership models in the automotive sector will increase in 2022, the report mentioned.

By 2023, half of the top 10 automakers will offer unlocks and capability upgrades through software updates that can be purchased after the sale of the vehicle, it added.

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