Volkswagen is Seeking to Develop a Larger Percentage of its Vehicle Software In-House
German automaker Volkswagen AG is ramping up its efforts to develop the software and operating system (OS) for its future vehicles. However, rather than relying on third parties to develop the majority of code that will underpin millions of future Volkswagen vehicles, the automaker is looking to develop a bigger percentage of it in-house.
During a presentation in Ingolstadt, Christian Senger, CEO of Volkswagen's newly formed Car.Software division, Senger stresses the importance of owning a bigger piece of the software stack powering its vehicles.
"By 2025, we want to increase our own share of our cars' software to 60 percent," Senger said. "Today the proportion is less than 10 percent."
Volkswagen launched Car.Software in January of this year as an independent unit responsible for developing the code for its future vehicles. The new unit employs around 3,000 digital experts and a budget of more than 7 billion euros ($7.8 billion). By 2025, the automaker wants to have more than 10,000 software experts working on the OS for its vehicles.
Senger admits that many global automakers often outsource a majority of the software development process, but doesn't want Volkswagen to take this approach going forward.
"It's out of the question for us. We can and we want to develop our software platform ourselves," Senger emphasized.
Herbert Diess, Former Volkswagen CEO and current Chairman of the Management Board of Volkswagen Group, said last year at Volkswagen's annual press conference in Wolfsburg, Germany that "Software will account for 90 percent of future innovations in the car."
Volkswagen is seeking to retain control of the entire vehicle architecture, including the electronics, as a way to ensure long-term competitiveness in the connected and autonomous car space.
In addition, the data generated from the connected vehicles of the future is one way automakers can generate additional revenue streams. Volkswagen is seeking to control a majority of it, so the company can have better control over revenue-generating digital services that Volkswagen plans to offer to its customers.
In a January 2019 blog post, Deiss wrote, "The car will become the most complex internet device we have known so far, the car will become a software product. For that reason we have to become a software-driven car company."
Senger agrees with that sentiment. "For this reason alone, we cannot give third parties complete access to data in our vehicles," Senger said.
As a company that builds millions of vehicles each year, another reason Senger said Volkswagen can keep its advantage with economies of scale.
"Software develops its potential with the increasing number of vehicles. This applies to cost advantages, but also to learning from data. We have this scaling advantage on our side," said Senger.
With around 11 million vehicles sold in 2019, the Volkswagen Group has excellent prerequisites in terms of size. "Volkswagen is in the best position to develop its own software platform."
With the advent of autonomous driving, automakers are partnering with third party companies that are developing the hardware for autonomous driving, such as cameras, radar, and lidar, as well as robotic controllers for steering and braking. However, connecting these advanced systems to an existing vehicle's OS is a big challenge for automakers, unless they have more control of the base software that links it all together. These individual systems require thousands of lines of additional software code.
Volkswagen plans to develop the core OS, but may seek an open source approach to enhance elements of it.
"The operating system is not something that we will control on our own. We will define its core and then quickly include open-source components, to create standards. This will create opportunities for partnerships," Senger said.
Senger said it has received many inquiries from other carmakers about whether they can participate in the project.
Adopting an open-source approach to development with external partners is a new approach in the auto industry, Senger said. "This is almost unimaginable for traditional carmakers. But this is the key breakthrough opportunity."
"We are in the process of looking at the opportunities," Senger said, adding that Volkswagen wants to create an entirely new vehicle operating system, rather than integrate legacy software from rivals.
Much of the development of autonomous technology is happening in Silicon Valley, as automakers partner with tech companies and startups working on self-driving cars.
"There is a race to create automotive operating systems. We are seeing that many non-automotive players are building up competence in this area," Senger told Reuters.
By 2025, VW wants to design the electronics and vehicle architecture. By doing so, VW will be following what electric automaker Tesla has done from the start.
Volkswagen board member Thomas Ulbrich said in March that U.S. California-based Tesla has a 10-year head start on its rivals building fully-electric cars with software that can be updated over the air.
Following in Tesla's footsteps, VW future software architecture will also support OTA updates, so VW customers can download new products at any time and keep their vehicles up to date.
Volkswagen is also developing its own Volkswagen Automotive Cloud ecosystem together with Microsoft that will securely link together the connected vehicle, the cloud-based platform and the company's digital services.
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