When Carroll Shelby retired from racing with a heart problem in 1960, his doctor told him he had 5 years to live. Carol said, “I figured so what. I might as well try to build a car that I dreamed of”. And, he did. Shelby’s AC Cobra dominated over Corvettes and defeated Ferrari in the World Manufacturers’ GT championship (1965).
Now, the $2+ trillion dollar auto industry is going through the biggest disruption in its history, and the stakes are high.
This is the industry that underpinned the industrialized economy. The first industrial revolution (1765) was founded on mechanization. The second industrial revolution of 1870, brought forth the internal combustion engine and the automobile that created millions of jobs, trillions of dollars of economic activity, and over 45 million kilometres of roadway infrastructure covering more physical space on this planet than any other industry. It was a revolution in mechanical innovation, automation and design that captured our hearts and changed everything.
For the last 100+ years, the automobile has been primarily a mechanical innovation. When Carroll Shelby build his company Shelby American in 1962, he moved to California so he could tap into the talent pool of hot rod makers in the area, welders, fabricators, machinists, and mechanical engineers. There wasn’t a single line of code in the AC Cobra.
The first line of code in a vehicle appeared in 1977 in the GM Olds Tornado to control spark timing.
Today the average car has more than 100 million lines of code and it is has become a big mess of distributed complex software systems, like an old house with too many additions built-on over the years. Because of this mechanical centric design, suppliers slowly upgraded each “mechanical-only” system with it’s own software, sensors, and ECUs tacked on to improve functionality while still fitting into the overall mechanical design of the automobile. Take out the old mechanical windshield wiper system and install a new intelligent rain-sensing system, for example. At each step, the approach seems to make sense until you step back and see that the automobile now looks like a member of the Borg collective with burgeoning layers of bolt-on systems and no leader. An average car now has more than 100 ECUs and sub-systems, which has added layers of cost and complexity.
Even with all these new systems and all this new code, the automobile has remained a mechanical design at its core. The most basic motion control systems are still mechanical. Drivers grab onto a mechanical steering wheel that is physically linked to the front wheels through a rack & pinion. Torque is still mechanically distributed from the motor to the wheels through drive axels and limited slip differentials.
This is all going to change.
The heart of the car is no longer the roaring combustion engine, pumping fuel and air into its veins and sparking it into motion through mechanical innovations.
The heart of the car is now software.
The automotive industry is now a software business.
When Carroll Shelby wanted to build the Cobra, there were no off-the-shelf parts available, so he had to famously convince Ford’s Lee Iacocca to say, “just get that guy out of here and give him a couple of engines”.
Today, the market value of over 100 years of ICE engine design and transmission design expertise is exactly zero. Zero. Years of expertise in controlling fuel delivery, spark delivery, in integrating timing position sensors, O2 sensors, intake air temperature, cam position sensors and much more are all irrelevant now. This doesn’t necessarily spell the death of existing automakers as they have built a lot of value in their brands, distribution channels, large scale manufacturing assets and their engineering talent, but the basis for competitive advantage has shifted overnight.
The same thing happened in the computer industry. The money was originally in hardware manufacturing. From making multi-million dollar liquid cooled IBM mainframes to DEC mini-computers, this was the business to be in. But now computer hardware is a commodity and all the value has moved to software. What hardware does Salesforce.com use? Or Facebook? Or Google? Nobody cares. What’s in my iPhone? I don’t care. The value is in the software and the overall design.
A car is now a software product at its core.
As the electric vehicle transition continues to unfold, hardware will follow the price/performance curve of the consumer electronics industry. This is great news. For example, I have an electric motor in my office that I can hold in one hand that produces 135 hp and is small enough to fit inside a wheel hub, eliminating thousands of parts, space and weight, but more importantly, it is a software controlled device with incredible precision and performance. This motor can react faster than any mechanical drivetrain today.
Then we also have the IoT revolution’s powerful array of sensors, allowing a car to accumulate so much data about its changing environment and its own motion dynamics that it can become predictive.
Add to that 5G communication, cloud computing, artificial intelligence, and you can see that we are just scratching the surface of things to come.
The automotive industry is now a software industry.
Ford Motor Company, General Motors, Volkswagen Group, Fiat Chrysler, Renault-Nissan, Toyota and their network of Tier 1 suppliers like Bosch, Continental, Magna, and Delphi are now in the software business — they just have to figure out how to inhabit that reality.
In 1999, I was the CEO of a software company that enabled online video over high speed IP networks. I remember meeting with executives from Blockbuster video to share our vision for the future of video distribution. Some of the Blockbuster execs understood where the future was going, but they overestimated the strength of their market position and underestimated how fast things move when you have a fundamental infrastructure change. They had the world’s largest physical distribution channel for home movie rental. They had all the content provider relationships and license agreements in place which was hard to break into (much like automotive OEMs and their supply networks). They had the #1 consumer brand for home video. They thought they could use their market position to control the transition to online, but it overran them and they no longer exist.
I think the whole auto industry now clearly sees what is afoot, but which companies will execute and make the transition?
A New Heart — Integrated Vehicle Dynamics and Motion Control
The F-35 Lightening jet has 8 million lines of code, a lot less than most cars. The F35 isn’t just a collection of 100’s of software sub-systems bolted-on over time but rather it *is* a software controlled aircraft. The software fuses together all sensor data to form a clear picture of the environment and battle space. It gathers pilot input and manages all flight controls in software (fly-by-wire). There is no mechanical linkage between the pilot and the flight control surfaces. The pilot can’t deterministically control the flight surfaces. When a pilot wants to perform a vertical takeoff, for example, she doesn’t need to develop the skill to delicately maintain flight stability — the software controls the whole process, safely and in all conditions.
Future automobiles will also achieve a performance, safety and resiliency level that will make current cars appear dangerous by comparison. And they are dangerous. At 1.3 million deaths per year, it is the leading cause of death outside of medical diseases like cancer and heart disease.
In future automobiles, all vehicle motion control systems will be software mediated. Steering (drive-by-wire), braking, suspension, and torque distribution systems will be integrated into one software-controlled system that will gather driver input (human or autonomous), fuse sensor data, and make decisions much faster than humans can react (and faster than mechanical systems can respond), to deliver much more precise and safe control of a vehicle’s motion. Today’s ADAS systems have come a long way, but are still very limited, slow and reactive compared to these future capabilities.
Autonomous driving gets all the media attention, but there is a lot more going on that will transform the heart of a vehicle long before your steering wheel disappears.
The Birth of Craft Automakers
I remember visiting the US MillerCoors HQ in 2009 when I was CEO of Radian6 (acquired by Salesforce.com in 2011). MillerCoors produces some of the largest beer brands in the world. They were wrestling with how to respond to the emerging craft beer industry and its growing consumer demand. Their competitive moat was built on mass brand marketing and large scale brewing operations. It was extremely difficult for a new entrant to try to displace them given the sheer investment dollars required to build a mass market brand, or to build a large scale brewing facility. But then everything changed.
The same thing will happen in the automotive industry. Currently, factories cost billions to construct, which requires automakers to make cars that will appeal to millions of customers just to break even. Elon Musk said designing the Tesla was the easy part. Building the factory was really hard.
But this too will change. As the value shifts to software, and as hardware follows the consumer electronics price/performance curve, the cost of entry will drop.
New craft automakers will emerge that will take advantage of standard components and advanced additive manufacturing processes (3D metal printing) to enter the market with significantly lower barriers to entry. Instead of needing a $2 billion dollar factory with expensive tooling and stamping equipment, these entrants will be producing cars with <$100 million additive manufacturing systems, standard components, and commercial (and open source) software systems. With constantly changing consumer needs and the pace of technology change, it will become a disadvantage to have to keep playing the high volume game and sell the same vehicle model for many years just to repay the up front costs. Craft automakers will be able to succeed with niche volume sales, an advantage that will drive more diversity and innovation than we are seeing today in a necessarily risk averse market.
This won’t all happen overnight. No one really knows how it will all turn out. But it will be dramatic to watch one of the most important and largest industries in the world go through the biggest disruption in its history.
I’m placing my bet on software.
Marcel LeBrun is Chair of the Board of Potential Motors, and a tech executive and entrepreneur (former SVP Salesforce.com, former CEO & co-founder Radian6).