ADAS (especially the level 2 and level 2+ solutions), autonomous driving (level 3 and above private vehicles and urban slow-moving robotic vehicles for ride-hailing & last-mile delivery), connected vehicles, all-electric and shared mobility are mutually reinforcing incredible market growth.
Combined the ACES (autonomous, connected, electric, and shared) mobility are not only disrupting the automotive value chain there by impacting the stakeholders, but also significantly impacting the growth of software, electrical, and electronic components (E/E) market. M14 INTELLIGENCE estimates, the compound annual growth rate (CAGR) of the software and E/E market by more than 8 percent between 2021 and 2030. This space is expected to double by the end of this decade to $500 billion market.
Recent impact of the pandemic has been devastating at many levels across emerging and developed economies, which has dented the anticipated growth of the traditional automotive sales both in passenger and commercial vehicles industry. An average of 1 to 1.5 percent CAGR drop in estimated by our analysts between 2021 and 2030. As a consequence, the impact on the software and E/E market will be insignificant when compared to the impact on the parent market. This is true because of multiple factors.
- Software and E/E architecture remains the biggest focus area for most automotive companies and their decision-making executives
- The industry has witnessed some of the largest M&As and partnerships in the software and E/E market space during these two years which recorded an aggregated capital flow of whooping $100 billion
- The reality of autonomous vehicles driving on public roads for commercial purposes, especially in the form of robotaxis and autonomous last-mile delivery vehicles, is much closer than anticipated. 3 of the top 5 self-driving solution companies already have permits from regulators (California, US and China) to run robotaxi services without safety driver. This means commercial public use of such vehicles is just a step away (considering the trust and safety issues are addressed in time) and this will be the biggest revolution in the public transport space of all time
This piece offers perspective of our analysts on three key pressing questions
- Key specific industry dynamics, enablers and trends of ACES SW and E/E market, and how it is changing the landscape towards 2030?
- The impact of these trends and drivers on the SW and E/E companies both in and outside of automotive supply chain
- Realignment of market strategies required for optimal sustainability and growth considering the upcoming market developments?
- A more centralized E/E architecture and software is the overall trend which will be a key driver for the market growth in coming years (8 percent CAGR by 2030)
- Software market growth is expected to be well over 12 percent CAGR, fueled by autonomous driving with major focus on computer vision machine learning development and cybersecurity
- Sensor market including camera, LiDAR, and radar among others will be growing by 15 percent CAGR. LiDAR sensing will be crucial behind driving this growth
- The ECUs/DCUs will continue to be the largest shareholder in the market size, however, growth will be limited to 5-6 percent CAGR. Although, there will be an increasing use of ECUs/DCUs in the autonomous driving application, price erosion is expected which will counterbalance the growth
- Finally, the power electronics will acquire the high-end position in the market growth at 16 percent CAGR
- Competition on the HW side will be maintained by the OEMs and Tier 1s as that would still be the face of the company in long run. However, on the software side the situation is completely different. OEMs and Tier 1s are repositioning their strategies as they are currently not equipped with the software talent and knowledge of new autonomous systems. The strategies OEMs and Tier 1s following are majorly co-developing technology with new tech entrants either by partnership or acquisition. Almost all the top automotive manufacturers globally have built their software expertise by adopting similar strategies. This has led to clear difference in sourcing strategies at both the HW and the SW end. Although scaling has become less complex, this clear difference in sourcing strategy has led to forming almost no barriers to entry, which consequently has led to sourcing more competitive for the OEMs.
- OEMs are developing cross-functional plan to reduce the cost of ever-growing SW and HW development under control. Same is followed by the Tier 1 suppliers by partnering with the OEMs to define their E/E architecture. While Tier 2 companies are further specializing and scaling within their niche.
- Clearly all the stakeholders in the ACES ecosystem are building their SW delivery and E/E architecture capabilities by embracing technological innovation, by benefiting in partnering with each other rather than competing to sustain and grow within this emerging ecosystem.
SW - software
E/E - Electrical and electronics components