Musk says one thing is key to the car’s future

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The connected car, the electric car, the autonomous car: the future of the automobile has often been publicly debated in these terms for several years now.

Automakers have used this trio of concepts to describe the colossal investment challenges of the next decade.

Elon Musk, who shook up the auto industry with electric vehicle maker Tesla, (TSLA) – Get the report from Tesla Inc. has just spoken on the subject by saying that the car of the future combines all three.

“Autonomous electric cars will be all that matters,” Tesla’s chief executive tweeted on July 24. “A gasoline-powered car without range will be like riding a horse and using a flip phone. It always happens, but it’s a niche.”

A computer on four wheels

The connected car, the autonomous car and the electric car have a largely underestimated common point: the software, the system that controls the equipment and functions of the car.

The automotive value chain will be software-centric instead of hardware-centric, experts say. The car will become a computer on four wheels.

Musk echoes other auto industry executives in saying software is central to the future of the car.

“Software is the key to the future,” Musk said on July 24, when asked about Volkswagen’s unexpected departure. (VLKAF) CEO Herbert Diess. The company is one of the Tesla (TSLA) – Get the report from Tesla Inc. main competitors.

In addition to the tensions with the unions, according to the media, Diess warrant was hurt by failures at Cariad, a Volkswagen unit tasked with coding software at the heart of the company’s electric and connected efforts. He had inherited oversight from Cariad earlier this year after losing control of Volkswagen’s operations in China following an internal power struggle, according to reports.

It was because of Cariad’s slow progress that Volkswagen’s flagship Porsche recently decided to sever the partnership with the unit and develop its own software solutions. The decision was made by Diess’ successor, Oliver Blume, who has led Porsche since 2015.

Original equipment manufacturers “still view software as a cosmetic cost center to be incorporated into vehicle design,” said Brett Winton, director of research at ARKInvest. “It will be their death.”

He adds, “Software is now the primary performance differentiator. Every vehicle (and entire product strategy) must enable and reinforce software at its core.”

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New services, new revenues

Until now, a car was considered complete when it was delivered. But software has changed that since Tesla, under Musk, implemented a strategy of delivering over-the-air software updates to its vehicles.

The method allows the manufacturer to improve its vehicles throughout their life. Automatic seat adjustment, vehicle loading, airbag triggering or listening to the radio: the software is integrated into almost all vehicle functions.

Automated updates are similar to what cellphone manufacturers do to bring fixes and new features to their handsets.

In 2017, Tesla, with the Model 3, took a new step: four electronic cards control most of the vehicle’s computers. Thus, most functions can be programmed and reconfigured remotely.

This architecture is different from that of its competitors, but experts say that it will gradually be adopted by all car manufacturers. The car truly becomes a computer on wheels, so car design evolves largely as software develops.

This car-computer also produces thousands of data points, thanks to the numerous sensors, radars and other on-board cameras. The centralized architecture and connectivity makes it possible to upload these huge volumes of data to the cloud, which will facilitate vehicle design.

Tesla already uses data from its customers’ vehicles to develop its automatic driving algorithms. Cars will thus be able to learn from their own data, improve their performance and personalize them by better knowing the habits of their drivers.

The software in turn opens up new economic opportunities for car manufacturers. Indeed, they can launch subscription services to increase their revenue. At the request of individual drivers, they can provide options such as navigation services, satellite radio, additional power and much more.

Automakers can also customize maintenance, insurance and financing services, based on their knowledge of actual vehicle usage.

“Software will improve our business model, disconnecting hardware from software…shifting the center of gravity of our business,” Stellantis (STLA) – Get the Stellantis NV report CEO Carlos Tavares said last December at the company’s Software Day.

The parent company of Jeep and Chrysler plans to generate about $22.5 billion in additional annual revenue from software services and subscriptions by 2030. Other automakers have announced similar moves.

According to some experts, the embedded software market could reach 225 billion dollars by 2030 against 100 billion dollars currently.

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