New functions fueling the growth of European automotive electronics depend more on software than hardware, and in the next decade software likely will pass wiring harnesses as the second most expensive component of a car after the engine, industry experts say.
Some 6% of the cost of a European car already is software, says analyst Andrew Lee of Frost & Sullivan, and it will grow to 15% by 2015.
“More complex software will enable systems to do more, rather than new hardware development,” he tells suppliers and auto makers at the International Automotive Electronics Congress 2006, a French interpretation of North America's Convergence 2006 Transportation Electronics Conference that was held in Detroit recently.
“Hella (KGaA Hueck & Co.) has said it will have more software engineers than all other kinds of engineers put together in the next 10 years,” he says.
Electronic growth is being pushed mainly by safety improvements such as blind-spot detection and lane-departure warning systems, Lee says, but also by additional entertainment features such as satellite radio and 3G Internet access.
An ultimate goal might be expressed by the Car2Car initiative, in which European government and industry are trying to develop a system of car-to-car communication.
Michel Morisseau, director of IT prospective at Renault SA and a Car2Car participant, says it is impossible today to outline the price of a C2C module. The cost of the global positioning satellite technology, radio and other hardware required will be nothing compared with the cost of the software used to filter and analyze messages from other cars, the infrastructure, and the car's own sensors, he says.
Smart electronic controls such as those used for engine management and electronic suspensions will rise from €3.2 billion ($4.1 billion) in 2005 to €8 billion ($10.1 billion) in 2016, according to Lee. The market for the wire harnesses that connect all the electric/electronic elements, meanwhile, will grow from €6 billion ($7.6 billion) today to €7 billion ($8.9 billion) over the same period.
Software can bring new features from existing sensors. For example, a rain sensor could be used to illuminate headlights in a tunnel. As new sensors and new control units are added, the possible new combinations of data increase exponentially.
“We don't have enough people now to do all the embedded software needed,” says Jochen Langheim, marketing and R&D director for Visteon Corp. in Europe. He says Visteon subcontracts work with software providers for non-competitive functions.
“We build internally what needs to be competitive, like our radios, but not a USB connector,” he says, citing one example.
Because new features will be based on software, Langheim says, startups have a chance to get into the auto industry. Such has been the case with voice recognition, for example. Small companies end up being purchased or aligned in joint ventures.
“We do partnerships with people who have a technology but don't have the ability to integrate it in the car,” says Rainer Kallenbach, executive vice-president-automotive electronics research and development at Robert Bosch GmbH.
But the main way electronic suppliers expand their software resources is hiring cheaper labor in low-cost countries. Bosch has 3,000 software engineers in India.
Visteon is moving 50% of its R&D to low-cost countries by 2010, and Valeo SA plans to have 30% of its research in such places by 2008.
Freescale EMEA, a chip maker, has its heavy research and development in Germany, France and the U.K., Senior Vice President Denis Griot says.
But countries in “the new Europe, like Czech Republic and Romania, are where we go more for software development,” he adds.
Developing strong software centers in Asia could be a risky business if those developing talents become new competitors one day. But for now they are young subsidiaries.
“Software quality in the low-cost countries is behind Western Europe,” assures Claudio Valesani, European business manager for automotive electronics at STMicroelectronics.
Software engineers in India today tend to update older programs rather than invent new ones.
Today's situation won't last, however.
“China up to now has not been very environmentally friendly,” says Dominique Roussel, vice-president of StrategyAnalytics in France.
“But living with the smog daily in Beijing is changing that for the government and consumers.”
He says China will begin production of hybrid-electric vehicles in 2007, and South Korea will start building HEVs in 2009.
“In 2013, China and the ROW (rest of the world countries) will become the second market for electronic modules behind Europe and ahead of NAFTA (North American Free Trade Agreement zone),” Roussel says.
One fact slowing the arrival of automotive electronic innovation in Asia is the youth of the industry. Most of the hundreds of thousands of new engineers coming out of Chinese and Indian universities don't drive.
“It is easier for people who know how to drive cars to invent new functionality,” Bosch's Kallenbach says. However, he says, his company already is getting innovation from its engineers in Asia, and “it will speed up. They are starting to become new car guys.”
Although adding engineers overseas dilutes the relative weight of the European R&D centers, suppliers expect Europe to remain the leading market for automotive electronics.
For example, Roussel says, the Bluetooth wireless communication module is expected to be in 58% of new cars in the Asia/Pacific region in 2010, 57% in North America and 69% in Western Europe.
“Europe will remain the leader in electronic innovation,” says analyst Lee. “The technology will stay in Europe; all the technology will come from Europe. R&D is staying here, although manufacturing is moving to Asia.”