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Qualcomm's gains with automakers landed it on Automotive News rankings at No. 80. Infotainment started shift While automakers largely left software development to suppliers for decades, the evolution of the traditional supplier-automaker relationship had already begun by 2001. Siemens VDO Automotive, the navigation supplier, was using Microsoft's Windows CE operating system in iDrive's control display, a significant entry point for big tech.
As the automotive industry pushes toward software-defined vehicles, automakers and suppliers are shifting their relationships and working dynamics.
Suppliers formerly owned the vehicle's hardware and software. Now, to varying degrees, many automakers have brought software development in-house, leaving traditional suppliers to redefine their value and make choices about what to offer automakers.
"The majority of automakers are doing some level of insourcing to say, 'The intellectual property that has lived with you as the supplier all along — actually we need that to live with us to maintain future competitiveness,' " said Alex Oyler, director of SBD Automotive, North America. "We need to be able to invest and iterate on that intellectual property faster than you can as a supplier."
The repositioning has opened up new potential revenue streams and business models for suppliers.
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Software revenue is increasingly important to Robert Bosch, which ranks No. 1 on Automotive News' annual list of the world's largest suppliers. And the same trend is showing up in the chip producers that make the semiconductors that enable software. Qualcomm's gains with automakers landed it on Automotive News rankings at No. 80. It sold $2.9 billion to automakers in 2024, up 55 percent from 2023.
But this trend laid bare inefficiencies and redundancies in the value chain, exposing risks.
Even well-positioned companies, such as those that have been selling proprietary software, may need to build open-source solutions for different automakers and other developers making applications. True SDVs will receive new functions over the air and drivers will be able to choose applications across a broad developer ecosystem.
"You need to combine these things and still live in both roles. It is a challenge," said Moritz Neukirchner, a senior director at Elektrobit, an automotive software company.
"I think it's doable, but it also requires a mindset shift, and this is simply an organizational challenge for many suppliers."
Infotainment started shift
While automakers largely left software development to suppliers for decades, the evolution of the traditional supplier-automaker relationship had already begun by 2001.
That's the year BMW launched iDrive, a central control system for vehicle functions such as navigation and infotainment. Siemens VDO Automotive, the navigation supplier, was using Microsoft's Windows CE operating system in iDrive's control display, a significant entry point for big tech.
Ford and Microsoft announced in 2007 they would develop SYNC, an infotainment system.
By 2012, Tesla had developed its software in-house, a departure from complex supply chains and traditional manufacturers' reliance on Tier 1 suppliers for hardware and software design.
Eventually, a combination of Tesla's success and coronavirus pandemic supply chain snarls led automakers to increasingly bring software development in-house.
They began to design, develop and test more electronics and software components.
Automakers went from one extreme to another, first letting suppliers build "black boxes in their vehicles that they didn't understand," and then trying to do everything themselves, which has been costly and impractical, said John Heinlein, CMO at Sonatus, an automotive software company.
"Then they realize it's not easy," he said. "It's a very different approach than they've done before, so you're going through this sort of ebb and flow evolution."
In more recent years, automakers have returned to outsourcing certain parts of the software stack, acknowledging that differentiation in the SDV will be at the application level.
"No end customer has ever bought a car because it has the coolest operating system," Neukirchner said.
Do it all or specialize
With each automaker at a different stage of software definition, many suppliers have had to do it all.
We had to adjust from "having one business model, a classic approach where the OEM specs out the feature and functionality what they want, and we then propose a complete system with all the necessary components," said Stefan Buerkle, regional president for the Cross-Domain Computing Solutions division at Bosch for the Americas.
"Now, we basically offer every step in the value chain depending on the customer preference in that specific project."
That can include sourcing single components, designing hardware, working with build-to-print companies, building mixed models of hardware and base software, and providing the complete solutions of the past.
Suppliers can also choose one area of focus. They can optimize their businesses to deliver commodities, for example, becoming contract manufacturers and leveraging existing manufacturing footprints. They can choose a service- or licensing-based model where they build software and development tools, license software and offer professional services.
Automakers and suppliers are still working out this new way of collaborating, said Cameron van Orman, chief strategy officer of the automotive solutions vertical at Planview, which uses software to help organizations with project planning and management.
"They communicate as if it's 1980," he said. "Software is superiterative and dynamic and [many companies] have very fragmented collaboration processes," such as flying to conference rooms for in-person meetings or "super risky" ways of sharing ideas, such as using Google Sheets.
Software is only getting more important, and a lack of speed can be costly.
The consulting firm McKinsey and Co. reports that 64 percent of automotive software development efforts lead to cost overruns — and can also slow down other parts of manufacturing.
"It touches every piece of the vehicle," said Ben Ellencweig, a senior partner at McKinsey. "These are massive, massive costs."
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