Read the transcript:<\/strong><\/h3>\n\n\n\n![\"Conor](\"https:\/\/blogs.sw.siemens.com\/wp-content\/uploads\/sites\/19\/2021\/10\/conor-pieck.jpg\")
Conor Pieck, Writer – Global Marketing<\/figcaption><\/figure><\/div>\n\n\n\nConor Peick: <\/strong>In our last conversation, we talked a lot about the overall industry trends that are affecting automotive development, engineering, and many interesting things. So, now we want to dive a little more deeply into actual product development and what\u2019s driving change in that arena. To kick off the discussion, I\u2019m curious what you guys think is the basis of future vehicle development? What will drive innovation and excitement differentiation? <\/p>\n\n\n\nDan Scott:<\/strong> Yeah, I think it\u2019s an interesting question. It\u2019s a hard question, I guess just because, you know, what\u2019s going to drive innovation customer excitement depends a bit on when things like autonomous vehicles become reality. And, you know, a customer\u2019s kind of buying vehicles for the vehicle dynamics, or they\u2019re buying them just from a purely functional \u2018get me from point A to point B\u2019, and much higher interest in kind of quality and the basic functionality, and, you know, infotainment – those sorts of things. That\u2019s quite a possibility. <\/p>\n\n\n\n![\"Dan](\"https:\/\/blogs.sw.siemens.com\/wp-content\/uploads\/sites\/19\/2021\/10\/dan-scott.jpg\")
Dan Scott, Marketing Director \u2013 Integrated Electrical Systems Division<\/figcaption><\/figure><\/div>\n\n\n\nAnd I think one of the things I think we touched on last time was around that whole infotainment, and people coming with their expectations of this, their mobile devices that are coming into a vehicle – I think Doug was maybe mentioning about, you know, younger generations, that\u2019s one of the things they primarily care about when they\u2019re looking at vehicles, regardless of whether it\u2019s shared ownership or it\u2019s their personal vehicle. There\u2019s that sense of the personalization of the vehicle, and this user interface and the infotainment system and how they kind of interact with a vehicle is something which is increasing in importance, I think. I don\u2019t know, Doug, do you have any thoughts on that?<\/p>\n\n\n\n
Doug Burcicki:<\/strong> I think it is a hard question to answer because you have so many consumers of the product, that I think that the diversification of the product is really going to drive different types of development priorities and methodologies. So, what I mean by that is, you still have traditional models. You and I, we want to go out and buy a car. What drives the consumers of those vehicles is much different. I personally still care about the styling, the design, the drivability, the driving aspect, and the handling of a vehicle. <\/p>\n\n\n\n![\"Doug](\"https:\/\/blogs.sw.siemens.com\/wp-content\/uploads\/sites\/19\/2021\/10\/doug-burcicki.jpg\")
Doug Burcicki, Global Director Automotive & Transportation \u2013 Integrated Electrical Systems<\/figcaption><\/figure><\/div>\n\n\n\nThe younger generation, you know, I don\u2019t want to use a stereotype, but they tend to feel differently about a vehicle. Some of them do feel the way that I do but some look at a vehicle as just another way to be connected to society, to their friends. They don\u2019t really care about the style of the vehicle. They want to see features and functionality in the vehicle that drive their purchase and those are their priorities. OEMs have to cater to both sectors of the market because they are all valued consumers. And that individualization of the vehicle, of the product, drives just a large amount of complexity into their process.<\/p>\n\n\n\n
I<\/strong>t\u2019s not a one-size-fits-all solution. It\u2019s not realistic to think you can develop one platform that will address all the needs. So, there\u2019s a lot of differentiation that they\u2019re struggling with, and that differentiation is more and more being derived via software, not the hardware. As we talked about in the last episode, these are not software companies, historically. So those are big challenges for them. And, you know, they\u2019re changing internally to meet those challenges but, at the same time, the external world keeps changing just as rapidly. So it\u2019s almost like they\u2019re moving in quicksand at times because it\u2019s hard for them to stay on top of the trends. And some of the trends that they have to respond to come and go. Not all of the technology trends or investments that have been made over the last 10 years have gotten very far or have been realized. So, they\u2019re not in a position to pursue and respond to everything. They have to be strategic. And that\u2019s why you\u2019ll see some companies that jumped on EV and autonomous technologies earlier than others. Some companies 10 years ago or more were already doing things in the connected vehicle level with V2X and V2I and whatnot. There’s various companies at different rates of technology development, and they\u2019re all going to have to respond appropriately to close those gaps.<\/p>\n\n\n\nAnother topic we talked about last time was the post-COVID impact or the world as a result of COVID. And one of the things I mentioned was the consolidation of some of the players in these spaces, whether they\u2019re technology providers, tier ones, or tier twos. They\u2019re investing in areas that they\u2019re acknowledging they have technical gaps, but these are fundamental to their future business model. And, in short order, they\u2019re closing gaps that take some of their competitors or could take competitors years to close without strategic investments. So, the answers to the tech and product challenges that are not always tech and product process-related. Sometimes it is pure business solutions that solve those. It\u2019s a very dynamic environment. And my point is, it\u2019s not just technology. It\u2019s not just engineering. It\u2019s not just development process. There\u2019s so many different factors that come into it, which is why it\u2019s so exciting to be in the middle of it right now.<\/p>\n\n\n\n
Conor:<\/strong> Yes, it sounds like these companies are not just looking at how to develop advanced vehicles, because they also have to consider what people are going to be demanding in the future. And when you look at self-driving vehicles, there\u2019s no guarantee that that technology is going to mature to level five \u2013 fully self-driving level. So, as companies are looking at these trends, how do they figure out what to invest in? Because, they can\u2019t spend 10 years developing a self-driving car that never makes it to market in a meaningful way.<\/p>\n\n\n\nDoug:<\/strong> Yes, I used the term \u2018individualization\u2019 before, but that\u2019s not just people, it is markets or actually use cases. So, I do see a time in the near future where we\u2019ll have level four and five vehicles on the road, but there\u2019ll be for very specific applications or use cases. They will be geofenced areas for specific, repeatable routes run through certain urban environments, or locations, like college universities, or airports \u2013 very dense population of people and traffic, but it\u2019s easy to control the flow and contain or restrain those areas. So I think we will see that type of technology, but I don\u2019t think it\u2019ll be prevalent on the road where people like you and I are walking into dealerships and buying cars that don\u2019t have steering wheels or gas pedals to drive us around. It is not that the technology and the corner cases are the limiters. Those are definitely factors, and the regulations and everything else \u2013 the insurance models that go with it \u2013 all have to be figured out. But at the end of the day, even if all that stuff is resolved, there\u2019s not a business model to support it, there\u2019s not a business case where an OEM can produce those types of vehicles at scale, and at a level that you and I can afford to buy them, thus justifying that business model. So, I don\u2019t see that being a prevalent need that\u2019s addressed by many OEMs in the near future. There will be companies that do it for people that pay exorbitant amounts of money for their vehicles because they can afford it. And again, that\u2019s an individual case. It\u2019s a small portion of the total market. And I think you\u2019ll see more and more of that. You\u2019ll see more of these startups trying to secure 10 or 15 million units of market share. They\u2019re going after very small pieces of the market and they want to exploit those use cases and be the best at exploiting them.<\/p>\n\n\n\nSo it\u2019s a different game, but they bringing technologies and capabilities that can have an impact on the broader industry. This is why, every once in a while, those companies do get snapped up by larger OEMs and players. Here\u2019s an example of what I mean by that: if you have a vehicle that\u2019s a level-five autonomous vehicle, and it has passengers in it that is shuttling around an urban environment, but it never exceeds 25 miles an hour, well, that vehicle can be built relatively cheap because it doesn\u2019t need to withstand crash test impact worthiness that a car that you and I would drive on the freeway would need. And there\u2019s a different level of affordability to produce that vehicle. This type of vehicle is in use all the time because it\u2019s running on 24-hour cycles. So there\u2019s a different business model proposition behind it. And it can be affordable, and be a justifiable use case. But again, that\u2019s not the type of vehicle that you and I would be driving on a regular basis, or allowing our kids to commute in to school on a regular basis unless it was in that very defined environment that never exceeded 25 miles an hour \u2013 a repeatable route. Currently, all those other corner cases and technical challenges haven\u2019t been addressed yet.<\/p>\n\n\n\n
Dan:<\/strong> Conor, I guess, just going back to one of the aspects of what you were asking before about what\u2019s going to drive innovation \u2013 those things that Doug was talking about \u2013 fundamentally, those innovations, whether it\u2019s electrification, whether it\u2019s autonomous, whilst there are other aspects of vehicle development where stuff obviously kind of develops, primarily, I think they are really developed by big shifts in the electrical system in electronics, in embedded software, networking \u2013 those sorts of technologies. It is definitely true that there are other parts of organizations which are getting a lot of focus, like thermal, for example. Electrification in thermal is probably one of the biggest challenges, along with packaging physically. And high-voltage batteries is the actual cooling of these, to improve their performance and range. But underlying these is a big shift that OEMs and companies are needing to make towards different capabilities in software, deep electronic knowledge, sensors, and all of that sort of stuff. As Doug was saying, we\u2019re inevitably going to see consolidation as this part of the market kind of matures, whether that\u2019s technology partnerships, companies being bought \u2013 whatever it happens to be. But I think one of the clear and obvious trends going forward, and is underway, is a shift towards EE systems, and an emphasis for organizations on those, and how to gain a competitive advantage in those areas, whether it\u2019s enhanced, partnering, in the supply base or whatever approach they take in the business models.<\/p>\n\n\n\nConor:<\/strong> I’m glad that you brought up the EE systems and the EE architecture. I think it\u2019s something that we hit on in the last episode andthe growing importance of those systems. So, I\u2019m hoping you guys could kind of describe why they are becoming so vital for the listener. Why are they becoming so important? <\/p>\n\n\n\nDan:<\/strong> I think, with electrification, there\u2019s still massive challenges for basic stuff like infrastructure, and definitely incentives. Much of the development that\u2019s kind of happened in that market has been because of government incentives \u2013 whether legislative or financial. When those get taken away, or if those aren\u2019t as pressured, it’s like coming out of COVID, for example, they care more about making money and the economy. And, for OEMs, I think they\u2019re probably going to revert back to creating more petrol engines because they can make more money on those, and they need money. So, it’s going to be interesting. I could definitely see a dip in the EV uptake. I think it is quite visionary in terms of what it\u2019s trying to achieve. It is a hard bet, which is always the case. I mean, I think the breadth of what he\u2019s interested in and trying to do is definitely commendable. On the business side of it, it\u2019s hard to know what to make of it, from a stock market perspective, but also, when you think about all of the incumbents kind of getting going and getting ramped up. These guys are not daft. They kind of know what they\u2019re doing. They\u2019ve been in this market for decades and centuries, some of them, so I wouldn\u2019t put it past them kind of eating his lunch, really. <\/p>\n\n\n\nConor:<\/strong> What\u2019s your thoughts on that, then? On electrification \u2013 what would you think about it from a US perspective, because I think the US is a slightly different market than Europe, and again, different from China, in particular.<\/p>\n\n\n\nDoug:<\/strong> Here\u2019s the way I think on electrification: I think that we are closer now than ever for there to be justifiable business models, where the players can make money on it. And what I mean by \u2018players\u2019, is everyone who\u2019s supplying infrastructure to the grid \u2013 the OEMs, the service dealerships, the companies that are building brick and mortar battery plants around the world to support this market that\u2019s not there yet. So, there\u2019s a ton of investment on the \u2018come if\u2019, basically, but from a business perspective, supply and demand \u2013 market demand \u2013 will determine whether it succeeds or not. And I do believe it will. I do believe that now we got to the point where the price point of the technology of the batteries primarily is affordable enough to where we are able to have the range of vehicles that the average consumer requires and demands. And it\u2019s at a point more and more so that it can be much more accessible and affordable.<\/p>\n\n\n\nBut then the other part is the fact that, quite honestly, the EV vehicles that are being produced now are just awesome. They\u2019re awesome designs because there\u2019s so much freedom with packaging and how to architect the vehicle because a battery pack takes up so much less space and value and there\u2019s so much less restrictive packaging and thermal management around that subsystem or system of subsystems, as opposed to a battery-driven powertrain. And it\u2019s really making vehicles that are very compelling, and that\u2019s why I think the EVs are starting to take on more traction. I do think they are gonna be successful and I think we\u2019re going to see a higher rate of adoption than we have over the last 10 years, because the vehicles themselves are becoming more attractive and appealing.<\/p>\n\n\n\n
One thing that I do think, though, where they can have a big impact is, I definitely can understand this bigger global warming CO2 impact might not be as great as we hope. But I do think things like air pollution and reducing that, particularly in light cities, I think electric vehicles have a decent contribution to make to that. Not that it will solve everything, but I think, in that specific use case \u2013 and I\u2019m sure there\u2019s others like it \u2013 they can definitely have an impact on that issue. The other issue is going back to the making of attractive vehicles \u2013 I think that\u2019s probably one of the best things that Tesla has done is the actual experience of being in one of their vehicles and driving it. Fundamentally, I think electric vehicles are just more fun to drive than petrol, diesel vehicles or gas vehicles. The low-speed talk just makes them fun in terms of acceleration. But the other thing which Tesla I think has done so well, is that in-vehicle experience, and the infotainment. When you kind of get into a Tesla, it is like something from the future. And then, when you get back into a more traditional vehicle, it is kind of like stepping back 20 years \u2013 there\u2019s maybe like a small little display there and various bits and pieces, but there\u2019s still lots of buttons, knobs, dials, etc. So, I think even in slightly ancillary ways, Tesla\u2019s done a really good job of pushing the industry forward.<\/p>\n\n\n\n
Conor:<\/strong> They raised the bar on what an EV could be. I think, before that, there were a lot of people making almost kind of cutesy, little vehicles like the smart car, but electric. They\u2019re small, very much designed for urban commuting, and not going on a highway ever, at all. Not very attractive, not really that spacious, or anything. And Tesla said, \u201cWell, why can\u2019t an EV be cool?\u201d And that\u2019s one of the biggest things they did.<\/p>\n\n\n\nDoug:<\/strong> But Dan, to both of your points \u2013 if you go back to one of the points I made earlier, when I go out to buy a car, I look at the style, design, driving, handling \u2013 those are factors for me. And Tesla addresses both of those markets I talked about. They address the younger market because those buyers can sit in the car, and see it\u2019s state-of-the-art technology, and it\u2019s automatically connected, right? And the center stack represents devices that they\u2019re used to interfacing with day in \u2013 day out, so it\u2019s almost intuitive. You don\u2019t need to learn where buttons and certain features are located. You know, in the past, if I went from one brand to another brand, even within the same OEM, the IP was laid out differently, the button configurations were laid out differently even on the steering wheel. So, you had to relearn things. Whereas Tesla, it did seem to be almost intuitive just because of the way we interface with consumer electronics on a daily basis. And now, you see OEMs that panned the design years ago, are now being fast followers. And at mid-level price points, we\u2019re seeing these very integrated center stack consoles, in many cases doing away with a traditional IP or instrument cluster in front of the driver, maybe just a more limited set of data there. And, in many cases, the traditional instrument cluster itself \u2013 that electromechanical device with drivers and motors and the PCB and dedicated displays and heat sinks, which is a relatively complicated and expensive device, is essentially being obsoleted by this more integrated center stack display that quite honestly was seen for the first time on a Tesla, and it\u2019s becoming more of a standard type of cockpit interface now. So, yeah, it\u2019s interesting to see how technology and the design implementation \u2013 the user interface implementation \u2013 is being adopted across the industry like that.<\/p>\n\n\n\nDan:<\/strong> Yes, and one of the other things I think Tesla did is one of their revolutionary features, which maybe pushes us towards talking a bit about something around EE architectures, and that is over-the-air updates. I don\u2019t own a Tesla, but from speaking to Tesla owners, that\u2019s one of the things that seems to give them the most delight, is just that your vehicle is different and better now than it was six months ago. I think that future-proofing vehicles, as they\u2019re kind of being designed five years in advance, is a really interesting challenge from an EE architecture point of view, in terms of that balance of putting in enough technology. So, maybe there\u2019s a little bit of redundancy immediately for the first vehicles that are sold, but knowing that two to five years down the line that\u2019s going to come to life when legislation catches up, or when software catches up, or functionality or what have you. So, I think that\u2019s quite an exciting thing.<\/p>\n\n\n\nDoug:<\/strong> That is a great point. That\u2019s actually one of the main enablers for new business models that most of the OEMs, if not all the OEMs, are pursuing now and trying to drive revenue after the point of sale. And over-the-air updates is the only way to do that \u2013 or one of the only ways to do that. And it\u2019s like you say, those updates are continuous. Consumers or drivers of Tesla today have a much better efficiency or range on their vehicles \u2013 almost 10% more than they did when they first bought vehicles because of software algorithms that have been updated based on monitoring of actual drive cycle usage of users on the road. That\u2019s a very impressive capability. And I think, Dan, you might have even mentioned to me before that, during a hurricane in Florida, Tesla modified software algorithms to improve the range in all the vehicles that were leaving the state due to the hurricane evacuations. Stuff like that is just incredible. And then, Rivian \u2013 you can easily go on YouTube and if you search for Tank Turn, Rivian demonstrated one of their prototype vehicles \u2013 they didn\u2019t add any hardware, it was purely a software feature addition, but they were able to demonstrate a 360-degree tank turn type of rotation of one of their pickup trucks, just like you would see in a military vehicle. And they implemented that feature 100% via software. And the hardware to do it was already there, present in the vehicle. They didn\u2019t modify anything in that regard.<\/p>\n\n\n\nIt is very powerful. But it also is very dangerous, right? We know that there\u2019s statistics out there, there\u2019s over 100 million lines of code on current vehicles \u2013 we know that that\u2019s going to increase \u2013 there\u2019s engineering bodies out there that estimate for every 10,000 lines of code in a vehicle, there\u2019s as many as 15 bugs or defects. So, clearly, it\u2019s a very large concern for the OEMs. Those over-the-air updates are going to become even more critical, because that\u2019s how they provide patches, fix gaps in their security. It\u2019s going to be a very complicated challenge for them. There\u2019s different levels of regulations around those updates. If they\u2019re offering new features, those have to be validated and proven out and approved, right? If they\u2019re providing fixes or patches, those don\u2019t need to be validated per se, on a system-level basis. And then, also, these OEMs are trying to reuse legacy data. They\u2019re trying to take legacy data and build on it because system complexity is evolving. They\u2019re using standard data, or off-the-shelf data that\u2019s readily available from third parties. And they\u2019re also obviously custom developing their own software code. So, there\u2019s a myriad of software environments that are coming together. And then, you always have to worry about external threats: people trying to access the vehicles and modify their performance characteristics or just steal data. So, it\u2019s a very complicated environment for our customers these days.<\/p>\n\n\n\n
Conor:<\/strong> Vehicles as a service \u2013 it\u2019s kind of what we\u2019re trending towards.<\/p>\n\n\n\nDan:<\/strong> Yes, it\u2019s interesting, isn\u2019t it? That kind of continual development of more features getting thrown in, but it\u2019s that sort of race of the jewel thing of more features coming, but it creates more overhead in the development process or the validation or the homologation of vehicles. And, it reminds me, in a company I used to work for, we had this constant battle with really aggressive light-weighting \u2013 wanting to get the vehicles lighter, but balanced against more and more features being demanded and added into the vehicles. You\u2019re on this kind of ever-losing battle to try and get the vehicles lighter whilst adding in loads of more functionality. And a lot of that\u2019s driven by hardware, which is obviously where the weight challenge is. But it\u2019s interesting, in that specific case, you\u2019re freed from some of the hardware dependencies, and actually, you\u2019re getting new functionality just through software. For example, it’s ideal if somebody has an idea post-SOP, of how you can use that vehicle better, or in a new or an interesting kind of way, bringing some new feature for the customer, and you can simply implement that into the software and push out to customers. But none of that stuff is free, is it? You know, like you\u2019re saying, there\u2019s validation, homologation challenges, there\u2019s service, there\u2019s support, there\u2019s all of those things that kind of need to go behind the scenes.<\/p>\n\n\n\nDoug:<\/strong> So, what you\u2019re touching upon there is the requirements \u2013 tracking and traceability. I mean, you\u2019re going to be talking about continuous revision in code or portions of your code, continuous threat from external entities, regularly known phenomenon among software referred to as \u2018software shifting or drifting\u2019, that can take place over time, which means it performs a little bit differently in conjunction with the hardware it interfaces with. And then, a lot of these updates, if you\u2019re making a significant system-level update to a vehicle, you need to be able to back up and revert to the prior revision of software or version of software in case there was a bug or glitch in that latest software that was released. So, the management of that full EE system from the hardware interoperability with the electrical connection systems that bring all the modules and devices together. <\/p>\n\n\n\nAnd then the software that\u2019s running on all of those separate ECUs or multicore ECUs, has never been more complex than it is now, and it\u2019s never been more essential that each of those domains truly understands the impact they have on each other, as vehicle architectures are being developed. All the major OEMs are going through that right now because you can\u2019t support this over-the-air functionality \u2013 the redundant utilization cases that are required in autonomous vehicle development. And there\u2019s a myriad of examples that we can provide, but that\u2019s what the OEMs are struggling with right now because they are developing brand new architectures to support that level of feature and functionality because the vehicles of today, and the historical vehicles, just aren\u2019t capable. <\/p>\n\n\n\n
Dan:<\/strong> Yes, it\u2019s interesting, isn\u2019t it? Because it\u2019s like that next level of driver for real proper systems engineering, and all of the different domains having a clear sight of what each other are doing, and being able to trace and analyze system-level impacts where you make a change in one bit, whether it\u2019s a network signal, or a wire or a software code, and being able to see the ripple effects of that backup into the requirements and what other systems that kind of impacts. It feels like it takes that to the next level, again, and puts yet more kind of impetus on being able to do that system-level design and proper architectural design and let that drive software, electrical and electronic development.<\/p>\n\n\n\nDoug: <\/strong>You\u2019re basically talking about breaking down the silos or blurring the boundaries. We know that that is a historical challenge. Many of the newer companies that we see have flatter organizations, and the responsibility or scope of the engineering teams at times is much broader than what we\u2019ve seen historically. And that\u2019s, in large part, due to the breadth and scope that they want to have when they take into account the overall vehicle architecture and development. It\u2019s a more holistic approach, as opposed to a series of disparate or parallel development cycles that are brought together at the end, which is the historical way the vehicles have been developed. But obviously, that\u2019s not going to be conducive, and it\u2019s going forward. And part of that is because the OEMs have a lot of differentiation coming from the software and that\u2019s a specific strategy for many of these OEMs. They feel their brand differentiation is going to be provided via features or functionality that is software-driven. They basically want to commoditize all types of hardware wherever possible so that they have two or three suppliers that can supply the respected unit, ECU and they can put it into their architecture. And it doesn\u2019t matter which supplier it came from because it\u2019s the software that\u2019s running out and that differentiates \u2013 and that software is coming from in-house. So, this is driving new value propositions all the way through the supply chain too, on what value they bring, and where they derive their profit from ultimately, because profit is indicative of the value you bring to your customers. So, my point is that device suppliers are essentially being squeezed into a commodity manufacturing role, potentially, unless they move upstream, or they develop capabilities that are needed and important to the OEMs that they don\u2019t have themselves.<\/p>\n\n\n\nDan:<\/strong> Yes, and there was a really good quote from one of our IESF Munich events in 2019, I think. There was a keynote speaker there \u2013 it was Strategy Analytics \u2013 who was basically saying that all of the people in the OEM value chain, from OEMs down to whatever tier supply you\u2019re looking at \u2013 one of their biggest challenges is going to be defining or redefining who they want to be, and where they want to play, where you have tier ones who are just component suppliers wanting to move into B-system integrators, or whatever level that is. The OEM is picking up some of the costs of IC development and technology. But what really stuck with me, was he was saying that companies need to really define themselves as to who they want to be. Otherwise, they will just get pushed and boxed into a certain area, because everybody else will be making land grabs for new bits of the business, and expanding into new operations.<\/p>\n\n\n\nDoug:<\/strong> Yes, I don\u2019t disagree with that. I think that\u2019s a real struggle. And, some companies have been doing what they\u2019ve been doing, and they\u2019ve been doing it very well, for a very long time \u2013 and they might not be as well equipped to modify their business model. But, others are moving very aggressively and very strategically. So, like I said before, it\u2019s a very fun time to be in the industry just because of how much is going on. And every day, there\u2019s something happening, something different changing. So, it\u2019s very dynamic, and I look forward to the next five to ten years.<\/p>\n\n\n\n
Conor Peick: <\/strong>In our last conversation, we talked a lot about the overall industry trends that are affecting automotive development, engineering, and many interesting things. So, now we want to dive a little more deeply into actual product development and what\u2019s driving change in that arena. To kick off the discussion, I\u2019m curious what you guys think is the basis of future vehicle development? What will drive innovation and excitement differentiation? <\/p>\n\n\n\n Dan Scott:<\/strong> Yeah, I think it\u2019s an interesting question. It\u2019s a hard question, I guess just because, you know, what\u2019s going to drive innovation customer excitement depends a bit on when things like autonomous vehicles become reality. And, you know, a customer\u2019s kind of buying vehicles for the vehicle dynamics, or they\u2019re buying them just from a purely functional \u2018get me from point A to point B\u2019, and much higher interest in kind of quality and the basic functionality, and, you know, infotainment – those sorts of things. That\u2019s quite a possibility. <\/p>\n\n\n\n And I think one of the things I think we touched on last time was around that whole infotainment, and people coming with their expectations of this, their mobile devices that are coming into a vehicle – I think Doug was maybe mentioning about, you know, younger generations, that\u2019s one of the things they primarily care about when they\u2019re looking at vehicles, regardless of whether it\u2019s shared ownership or it\u2019s their personal vehicle. There\u2019s that sense of the personalization of the vehicle, and this user interface and the infotainment system and how they kind of interact with a vehicle is something which is increasing in importance, I think. I don\u2019t know, Doug, do you have any thoughts on that?<\/p>\n\n\n\n Doug Burcicki:<\/strong> I think it is a hard question to answer because you have so many consumers of the product, that I think that the diversification of the product is really going to drive different types of development priorities and methodologies. So, what I mean by that is, you still have traditional models. You and I, we want to go out and buy a car. What drives the consumers of those vehicles is much different. I personally still care about the styling, the design, the drivability, the driving aspect, and the handling of a vehicle. <\/p>\n\n\n\n The younger generation, you know, I don\u2019t want to use a stereotype, but they tend to feel differently about a vehicle. Some of them do feel the way that I do but some look at a vehicle as just another way to be connected to society, to their friends. They don\u2019t really care about the style of the vehicle. They want to see features and functionality in the vehicle that drive their purchase and those are their priorities. OEMs have to cater to both sectors of the market because they are all valued consumers. And that individualization of the vehicle, of the product, drives just a large amount of complexity into their process.<\/p>\n\n\n\n I<\/strong>t\u2019s not a one-size-fits-all solution. It\u2019s not realistic to think you can develop one platform that will address all the needs. So, there\u2019s a lot of differentiation that they\u2019re struggling with, and that differentiation is more and more being derived via software, not the hardware. As we talked about in the last episode, these are not software companies, historically. So those are big challenges for them. And, you know, they\u2019re changing internally to meet those challenges but, at the same time, the external world keeps changing just as rapidly. So it\u2019s almost like they\u2019re moving in quicksand at times because it\u2019s hard for them to stay on top of the trends. And some of the trends that they have to respond to come and go. Not all of the technology trends or investments that have been made over the last 10 years have gotten very far or have been realized. So, they\u2019re not in a position to pursue and respond to everything. They have to be strategic. And that\u2019s why you\u2019ll see some companies that jumped on EV and autonomous technologies earlier than others. Some companies 10 years ago or more were already doing things in the connected vehicle level with V2X and V2I and whatnot. There’s various companies at different rates of technology development, and they\u2019re all going to have to respond appropriately to close those gaps.<\/p>\n\n\n\n Another topic we talked about last time was the post-COVID impact or the world as a result of COVID. And one of the things I mentioned was the consolidation of some of the players in these spaces, whether they\u2019re technology providers, tier ones, or tier twos. They\u2019re investing in areas that they\u2019re acknowledging they have technical gaps, but these are fundamental to their future business model. And, in short order, they\u2019re closing gaps that take some of their competitors or could take competitors years to close without strategic investments. So, the answers to the tech and product challenges that are not always tech and product process-related. Sometimes it is pure business solutions that solve those. It\u2019s a very dynamic environment. And my point is, it\u2019s not just technology. It\u2019s not just engineering. It\u2019s not just development process. There\u2019s so many different factors that come into it, which is why it\u2019s so exciting to be in the middle of it right now.<\/p>\n\n\n\n Conor:<\/strong> Yes, it sounds like these companies are not just looking at how to develop advanced vehicles, because they also have to consider what people are going to be demanding in the future. And when you look at self-driving vehicles, there\u2019s no guarantee that that technology is going to mature to level five \u2013 fully self-driving level. So, as companies are looking at these trends, how do they figure out what to invest in? Because, they can\u2019t spend 10 years developing a self-driving car that never makes it to market in a meaningful way.<\/p>\n\n\n\n Doug:<\/strong> Yes, I used the term \u2018individualization\u2019 before, but that\u2019s not just people, it is markets or actually use cases. So, I do see a time in the near future where we\u2019ll have level four and five vehicles on the road, but there\u2019ll be for very specific applications or use cases. They will be geofenced areas for specific, repeatable routes run through certain urban environments, or locations, like college universities, or airports \u2013 very dense population of people and traffic, but it\u2019s easy to control the flow and contain or restrain those areas. So I think we will see that type of technology, but I don\u2019t think it\u2019ll be prevalent on the road where people like you and I are walking into dealerships and buying cars that don\u2019t have steering wheels or gas pedals to drive us around. It is not that the technology and the corner cases are the limiters. Those are definitely factors, and the regulations and everything else \u2013 the insurance models that go with it \u2013 all have to be figured out. But at the end of the day, even if all that stuff is resolved, there\u2019s not a business model to support it, there\u2019s not a business case where an OEM can produce those types of vehicles at scale, and at a level that you and I can afford to buy them, thus justifying that business model. So, I don\u2019t see that being a prevalent need that\u2019s addressed by many OEMs in the near future. There will be companies that do it for people that pay exorbitant amounts of money for their vehicles because they can afford it. And again, that\u2019s an individual case. It\u2019s a small portion of the total market. And I think you\u2019ll see more and more of that. You\u2019ll see more of these startups trying to secure 10 or 15 million units of market share. They\u2019re going after very small pieces of the market and they want to exploit those use cases and be the best at exploiting them.<\/p>\n\n\n\n So it\u2019s a different game, but they bringing technologies and capabilities that can have an impact on the broader industry. This is why, every once in a while, those companies do get snapped up by larger OEMs and players. Here\u2019s an example of what I mean by that: if you have a vehicle that\u2019s a level-five autonomous vehicle, and it has passengers in it that is shuttling around an urban environment, but it never exceeds 25 miles an hour, well, that vehicle can be built relatively cheap because it doesn\u2019t need to withstand crash test impact worthiness that a car that you and I would drive on the freeway would need. And there\u2019s a different level of affordability to produce that vehicle. This type of vehicle is in use all the time because it\u2019s running on 24-hour cycles. So there\u2019s a different business model proposition behind it. And it can be affordable, and be a justifiable use case. But again, that\u2019s not the type of vehicle that you and I would be driving on a regular basis, or allowing our kids to commute in to school on a regular basis unless it was in that very defined environment that never exceeded 25 miles an hour \u2013 a repeatable route. Currently, all those other corner cases and technical challenges haven\u2019t been addressed yet.<\/p>\n\n\n\n Dan:<\/strong> Conor, I guess, just going back to one of the aspects of what you were asking before about what\u2019s going to drive innovation \u2013 those things that Doug was talking about \u2013 fundamentally, those innovations, whether it\u2019s electrification, whether it\u2019s autonomous, whilst there are other aspects of vehicle development where stuff obviously kind of develops, primarily, I think they are really developed by big shifts in the electrical system in electronics, in embedded software, networking \u2013 those sorts of technologies. It is definitely true that there are other parts of organizations which are getting a lot of focus, like thermal, for example. Electrification in thermal is probably one of the biggest challenges, along with packaging physically. And high-voltage batteries is the actual cooling of these, to improve their performance and range. But underlying these is a big shift that OEMs and companies are needing to make towards different capabilities in software, deep electronic knowledge, sensors, and all of that sort of stuff. As Doug was saying, we\u2019re inevitably going to see consolidation as this part of the market kind of matures, whether that\u2019s technology partnerships, companies being bought \u2013 whatever it happens to be. But I think one of the clear and obvious trends going forward, and is underway, is a shift towards EE systems, and an emphasis for organizations on those, and how to gain a competitive advantage in those areas, whether it\u2019s enhanced, partnering, in the supply base or whatever approach they take in the business models.<\/p>\n\n\n\n Conor:<\/strong> I’m glad that you brought up the EE systems and the EE architecture. I think it\u2019s something that we hit on in the last episode andthe growing importance of those systems. So, I\u2019m hoping you guys could kind of describe why they are becoming so vital for the listener. Why are they becoming so important? <\/p>\n\n\n\n Dan:<\/strong> I think, with electrification, there\u2019s still massive challenges for basic stuff like infrastructure, and definitely incentives. Much of the development that\u2019s kind of happened in that market has been because of government incentives \u2013 whether legislative or financial. When those get taken away, or if those aren\u2019t as pressured, it’s like coming out of COVID, for example, they care more about making money and the economy. And, for OEMs, I think they\u2019re probably going to revert back to creating more petrol engines because they can make more money on those, and they need money. So, it’s going to be interesting. I could definitely see a dip in the EV uptake. I think it is quite visionary in terms of what it\u2019s trying to achieve. It is a hard bet, which is always the case. I mean, I think the breadth of what he\u2019s interested in and trying to do is definitely commendable. On the business side of it, it\u2019s hard to know what to make of it, from a stock market perspective, but also, when you think about all of the incumbents kind of getting going and getting ramped up. These guys are not daft. They kind of know what they\u2019re doing. They\u2019ve been in this market for decades and centuries, some of them, so I wouldn\u2019t put it past them kind of eating his lunch, really. <\/p>\n\n\n\n Conor:<\/strong> What\u2019s your thoughts on that, then? On electrification \u2013 what would you think about it from a US perspective, because I think the US is a slightly different market than Europe, and again, different from China, in particular.<\/p>\n\n\n\n Doug:<\/strong> Here\u2019s the way I think on electrification: I think that we are closer now than ever for there to be justifiable business models, where the players can make money on it. And what I mean by \u2018players\u2019, is everyone who\u2019s supplying infrastructure to the grid \u2013 the OEMs, the service dealerships, the companies that are building brick and mortar battery plants around the world to support this market that\u2019s not there yet. So, there\u2019s a ton of investment on the \u2018come if\u2019, basically, but from a business perspective, supply and demand \u2013 market demand \u2013 will determine whether it succeeds or not. And I do believe it will. I do believe that now we got to the point where the price point of the technology of the batteries primarily is affordable enough to where we are able to have the range of vehicles that the average consumer requires and demands. And it\u2019s at a point more and more so that it can be much more accessible and affordable.<\/p>\n\n\n\n But then the other part is the fact that, quite honestly, the EV vehicles that are being produced now are just awesome. They\u2019re awesome designs because there\u2019s so much freedom with packaging and how to architect the vehicle because a battery pack takes up so much less space and value and there\u2019s so much less restrictive packaging and thermal management around that subsystem or system of subsystems, as opposed to a battery-driven powertrain. And it\u2019s really making vehicles that are very compelling, and that\u2019s why I think the EVs are starting to take on more traction. I do think they are gonna be successful and I think we\u2019re going to see a higher rate of adoption than we have over the last 10 years, because the vehicles themselves are becoming more attractive and appealing.<\/p>\n\n\n\n One thing that I do think, though, where they can have a big impact is, I definitely can understand this bigger global warming CO2 impact might not be as great as we hope. But I do think things like air pollution and reducing that, particularly in light cities, I think electric vehicles have a decent contribution to make to that. Not that it will solve everything, but I think, in that specific use case \u2013 and I\u2019m sure there\u2019s others like it \u2013 they can definitely have an impact on that issue. The other issue is going back to the making of attractive vehicles \u2013 I think that\u2019s probably one of the best things that Tesla has done is the actual experience of being in one of their vehicles and driving it. Fundamentally, I think electric vehicles are just more fun to drive than petrol, diesel vehicles or gas vehicles. The low-speed talk just makes them fun in terms of acceleration. But the other thing which Tesla I think has done so well, is that in-vehicle experience, and the infotainment. When you kind of get into a Tesla, it is like something from the future. And then, when you get back into a more traditional vehicle, it is kind of like stepping back 20 years \u2013 there\u2019s maybe like a small little display there and various bits and pieces, but there\u2019s still lots of buttons, knobs, dials, etc. So, I think even in slightly ancillary ways, Tesla\u2019s done a really good job of pushing the industry forward.<\/p>\n\n\n\n Conor:<\/strong> They raised the bar on what an EV could be. I think, before that, there were a lot of people making almost kind of cutesy, little vehicles like the smart car, but electric. They\u2019re small, very much designed for urban commuting, and not going on a highway ever, at all. Not very attractive, not really that spacious, or anything. And Tesla said, \u201cWell, why can\u2019t an EV be cool?\u201d And that\u2019s one of the biggest things they did.<\/p>\n\n\n\n Doug:<\/strong> But Dan, to both of your points \u2013 if you go back to one of the points I made earlier, when I go out to buy a car, I look at the style, design, driving, handling \u2013 those are factors for me. And Tesla addresses both of those markets I talked about. They address the younger market because those buyers can sit in the car, and see it\u2019s state-of-the-art technology, and it\u2019s automatically connected, right? And the center stack represents devices that they\u2019re used to interfacing with day in \u2013 day out, so it\u2019s almost intuitive. You don\u2019t need to learn where buttons and certain features are located. You know, in the past, if I went from one brand to another brand, even within the same OEM, the IP was laid out differently, the button configurations were laid out differently even on the steering wheel. So, you had to relearn things. Whereas Tesla, it did seem to be almost intuitive just because of the way we interface with consumer electronics on a daily basis. And now, you see OEMs that panned the design years ago, are now being fast followers. And at mid-level price points, we\u2019re seeing these very integrated center stack consoles, in many cases doing away with a traditional IP or instrument cluster in front of the driver, maybe just a more limited set of data there. And, in many cases, the traditional instrument cluster itself \u2013 that electromechanical device with drivers and motors and the PCB and dedicated displays and heat sinks, which is a relatively complicated and expensive device, is essentially being obsoleted by this more integrated center stack display that quite honestly was seen for the first time on a Tesla, and it\u2019s becoming more of a standard type of cockpit interface now. So, yeah, it\u2019s interesting to see how technology and the design implementation \u2013 the user interface implementation \u2013 is being adopted across the industry like that.<\/p>\n\n\n\n Dan:<\/strong> Yes, and one of the other things I think Tesla did is one of their revolutionary features, which maybe pushes us towards talking a bit about something around EE architectures, and that is over-the-air updates. I don\u2019t own a Tesla, but from speaking to Tesla owners, that\u2019s one of the things that seems to give them the most delight, is just that your vehicle is different and better now than it was six months ago. I think that future-proofing vehicles, as they\u2019re kind of being designed five years in advance, is a really interesting challenge from an EE architecture point of view, in terms of that balance of putting in enough technology. So, maybe there\u2019s a little bit of redundancy immediately for the first vehicles that are sold, but knowing that two to five years down the line that\u2019s going to come to life when legislation catches up, or when software catches up, or functionality or what have you. So, I think that\u2019s quite an exciting thing.<\/p>\n\n\n\n Doug:<\/strong> That is a great point. That\u2019s actually one of the main enablers for new business models that most of the OEMs, if not all the OEMs, are pursuing now and trying to drive revenue after the point of sale. And over-the-air updates is the only way to do that \u2013 or one of the only ways to do that. And it\u2019s like you say, those updates are continuous. Consumers or drivers of Tesla today have a much better efficiency or range on their vehicles \u2013 almost 10% more than they did when they first bought vehicles because of software algorithms that have been updated based on monitoring of actual drive cycle usage of users on the road. That\u2019s a very impressive capability. And I think, Dan, you might have even mentioned to me before that, during a hurricane in Florida, Tesla modified software algorithms to improve the range in all the vehicles that were leaving the state due to the hurricane evacuations. Stuff like that is just incredible. And then, Rivian \u2013 you can easily go on YouTube and if you search for Tank Turn, Rivian demonstrated one of their prototype vehicles \u2013 they didn\u2019t add any hardware, it was purely a software feature addition, but they were able to demonstrate a 360-degree tank turn type of rotation of one of their pickup trucks, just like you would see in a military vehicle. And they implemented that feature 100% via software. And the hardware to do it was already there, present in the vehicle. They didn\u2019t modify anything in that regard.<\/p>\n\n\n\n It is very powerful. But it also is very dangerous, right? We know that there\u2019s statistics out there, there\u2019s over 100 million lines of code on current vehicles \u2013 we know that that\u2019s going to increase \u2013 there\u2019s engineering bodies out there that estimate for every 10,000 lines of code in a vehicle, there\u2019s as many as 15 bugs or defects. So, clearly, it\u2019s a very large concern for the OEMs. Those over-the-air updates are going to become even more critical, because that\u2019s how they provide patches, fix gaps in their security. It\u2019s going to be a very complicated challenge for them. There\u2019s different levels of regulations around those updates. If they\u2019re offering new features, those have to be validated and proven out and approved, right? If they\u2019re providing fixes or patches, those don\u2019t need to be validated per se, on a system-level basis. And then, also, these OEMs are trying to reuse legacy data. They\u2019re trying to take legacy data and build on it because system complexity is evolving. They\u2019re using standard data, or off-the-shelf data that\u2019s readily available from third parties. And they\u2019re also obviously custom developing their own software code. So, there\u2019s a myriad of software environments that are coming together. And then, you always have to worry about external threats: people trying to access the vehicles and modify their performance characteristics or just steal data. So, it\u2019s a very complicated environment for our customers these days.<\/p>\n\n\n\n Conor:<\/strong> Vehicles as a service \u2013 it\u2019s kind of what we\u2019re trending towards.<\/p>\n\n\n\n Dan:<\/strong> Yes, it\u2019s interesting, isn\u2019t it? That kind of continual development of more features getting thrown in, but it\u2019s that sort of race of the jewel thing of more features coming, but it creates more overhead in the development process or the validation or the homologation of vehicles. And, it reminds me, in a company I used to work for, we had this constant battle with really aggressive light-weighting \u2013 wanting to get the vehicles lighter, but balanced against more and more features being demanded and added into the vehicles. You\u2019re on this kind of ever-losing battle to try and get the vehicles lighter whilst adding in loads of more functionality. And a lot of that\u2019s driven by hardware, which is obviously where the weight challenge is. But it\u2019s interesting, in that specific case, you\u2019re freed from some of the hardware dependencies, and actually, you\u2019re getting new functionality just through software. For example, it’s ideal if somebody has an idea post-SOP, of how you can use that vehicle better, or in a new or an interesting kind of way, bringing some new feature for the customer, and you can simply implement that into the software and push out to customers. But none of that stuff is free, is it? You know, like you\u2019re saying, there\u2019s validation, homologation challenges, there\u2019s service, there\u2019s support, there\u2019s all of those things that kind of need to go behind the scenes.<\/p>\n\n\n\n Doug:<\/strong> So, what you\u2019re touching upon there is the requirements \u2013 tracking and traceability. I mean, you\u2019re going to be talking about continuous revision in code or portions of your code, continuous threat from external entities, regularly known phenomenon among software referred to as \u2018software shifting or drifting\u2019, that can take place over time, which means it performs a little bit differently in conjunction with the hardware it interfaces with. And then, a lot of these updates, if you\u2019re making a significant system-level update to a vehicle, you need to be able to back up and revert to the prior revision of software or version of software in case there was a bug or glitch in that latest software that was released. So, the management of that full EE system from the hardware interoperability with the electrical connection systems that bring all the modules and devices together. <\/p>\n\n\n\n And then the software that\u2019s running on all of those separate ECUs or multicore ECUs, has never been more complex than it is now, and it\u2019s never been more essential that each of those domains truly understands the impact they have on each other, as vehicle architectures are being developed. All the major OEMs are going through that right now because you can\u2019t support this over-the-air functionality \u2013 the redundant utilization cases that are required in autonomous vehicle development. And there\u2019s a myriad of examples that we can provide, but that\u2019s what the OEMs are struggling with right now because they are developing brand new architectures to support that level of feature and functionality because the vehicles of today, and the historical vehicles, just aren\u2019t capable. <\/p>\n\n\n\n Dan:<\/strong> Yes, it\u2019s interesting, isn\u2019t it? Because it\u2019s like that next level of driver for real proper systems engineering, and all of the different domains having a clear sight of what each other are doing, and being able to trace and analyze system-level impacts where you make a change in one bit, whether it\u2019s a network signal, or a wire or a software code, and being able to see the ripple effects of that backup into the requirements and what other systems that kind of impacts. It feels like it takes that to the next level, again, and puts yet more kind of impetus on being able to do that system-level design and proper architectural design and let that drive software, electrical and electronic development.<\/p>\n\n\n\n Doug: <\/strong>You\u2019re basically talking about breaking down the silos or blurring the boundaries. We know that that is a historical challenge. Many of the newer companies that we see have flatter organizations, and the responsibility or scope of the engineering teams at times is much broader than what we\u2019ve seen historically. And that\u2019s, in large part, due to the breadth and scope that they want to have when they take into account the overall vehicle architecture and development. It\u2019s a more holistic approach, as opposed to a series of disparate or parallel development cycles that are brought together at the end, which is the historical way the vehicles have been developed. But obviously, that\u2019s not going to be conducive, and it\u2019s going forward. And part of that is because the OEMs have a lot of differentiation coming from the software and that\u2019s a specific strategy for many of these OEMs. They feel their brand differentiation is going to be provided via features or functionality that is software-driven. They basically want to commoditize all types of hardware wherever possible so that they have two or three suppliers that can supply the respected unit, ECU and they can put it into their architecture. And it doesn\u2019t matter which supplier it came from because it\u2019s the software that\u2019s running out and that differentiates \u2013 and that software is coming from in-house. So, this is driving new value propositions all the way through the supply chain too, on what value they bring, and where they derive their profit from ultimately, because profit is indicative of the value you bring to your customers. So, my point is that device suppliers are essentially being squeezed into a commodity manufacturing role, potentially, unless they move upstream, or they develop capabilities that are needed and important to the OEMs that they don\u2019t have themselves.<\/p>\n\n\n\n Dan:<\/strong> Yes, and there was a really good quote from one of our IESF Munich events in 2019, I think. There was a keynote speaker there \u2013 it was Strategy Analytics \u2013 who was basically saying that all of the people in the OEM value chain, from OEMs down to whatever tier supply you\u2019re looking at \u2013 one of their biggest challenges is going to be defining or redefining who they want to be, and where they want to play, where you have tier ones who are just component suppliers wanting to move into B-system integrators, or whatever level that is. The OEM is picking up some of the costs of IC development and technology. But what really stuck with me, was he was saying that companies need to really define themselves as to who they want to be. Otherwise, they will just get pushed and boxed into a certain area, because everybody else will be making land grabs for new bits of the business, and expanding into new operations.<\/p>\n\n\n\n Doug:<\/strong> Yes, I don\u2019t disagree with that. I think that\u2019s a real struggle. And, some companies have been doing what they\u2019ve been doing, and they\u2019ve been doing it very well, for a very long time \u2013 and they might not be as well equipped to modify their business model. But, others are moving very aggressively and very strategically. So, like I said before, it\u2019s a very fun time to be in the industry just because of how much is going on. And every day, there\u2019s something happening, something different changing. So, it\u2019s very dynamic, and I look forward to the next five to ten years.<\/p>\n\n\n\n