What will the next decade bring for automotive software and electronics

According to a recent study by McKinsey, autonomous driving (AD), connected vehicles, electrification of the powertrain, and shared mobility (ACES) are mutually reinforcing developments. But how are these drivers going to affect the automotive industry’s value chains, and how can players prepare for the upcoming market developments?

The innovations mentioned above are not only disrupting the automotive value chain, they are also an important driver of growth: in the automotive software (SW) and electrical and electronic components (E/E) market, a 7 percent compound annual growth rate (CAGR) is expected between 2020 and 2030.

This would mean that the SW and E/E market will largely outpace growth in the automotive sector as a whole, which is only estimated to grow at 3 percent CAGR in this decade. As expected, automotive companies now focus on developing these two particular fields.

According to McKinsey, the SW and E/E components market will experience rapid growth with significant variation across the market’s various segments, however, the overall trend moves toward a more centralized architecture.

The electronic and domain control unit (ECU/DCU) segment will continue to hold the largest segment of the market, while ECU/DCU will be used increasingly in the application of autonomous driving. However, efficiency gains will lead to price decreases, counter-balancing growth that might slow down to as low as 5 percent.

Power electronics are expected to produce a 15 percent compound annual growth rate, followed by the SW and sensors segments with 9 and 8 percent respectively. The slowest growth rate is expected in the harness segment as the demand for low-voltage harnesses shrinks and electric vehicle platforms provide a new market for high-voltage harnesses.

The article also note that the days of original equipment manufacturers defining specifications may be nearing an end. This is because neither OEMs nor traditional suppliers can fully define the technology requirements of new systems. As the hardware and software sourcing becomes more separate, the established value pools are expected to break up, reducing barriers to entry, which will allow tech-native companies to enter the field.