Why Detroit is moving to Silicon Valley

Software, not hardware, will define cars

Ford Motor Co., the company that started the automobile assembly line and was arguably most responsible for Detroit's car industry, chose Palo Alto, Calif., this year for its latest automotive research and development facility.

General Motors opened its Advanced Technology Silicon Valley Office in Palo Alto to develop an HTML browser for its Cadillac CUE in-vehicle infotainment (IVI) system.

Since 2011, BMW, Honda, Hyundai, Mercedes-Benz, Nissan-Renault and Toyota have all opened R&D centers in Silicon Valley.

Nissan is focused on developing autonomous vehicles at its Silicon Valley facility, while Honda's operations there are working on human-machine interface technology, big data, connected vehicles and cybersecurity.

"I think just about everybody is there. You need to be there to learn about what's going on. You can't learn those things remotely," said Egil Juliussen, research director at IHS Automotive.

mark fields autonomous driving Ford

Ford CEO Mark Fields poses with the autonomous Fusion at the company's research lab in Palo Alto, Calif.

Not only are the companies opening up R&D facilities, they're also recruiting rock star security and system engineers from the mecca of computer development, said Jon Allen, a principal at Booz Allen Hamilton, a management and technology consulting service.

Meanwhile, a former mid-level Apple engineer heads Ford's new Palo Alto R&D center, just down the street from electric-car maker Tesla Motors.

"This isn't your grandfather's automotive company any more. The [car makers] are moving away from simply being hardware manufacturers to becoming software developers," Allen said. "Fundamentally, the auto industry cannot be seen as just auto makers any more. They're mobile developers."

"And, look at who Apple is hiring. They're hiring auto executives," Allen added.

Earlier this year, Apple hired Doug Betts, a former Fiat-Chrysler executive in charge of global quality, fueling speculation that Apple is working on its own autonomous car.

The Wall Street Journal and other sources published reports that Apple plans to ship its own a car in 2019, and that the company has been hiring auto industry veterans for the secret project (code-named Titan).

Automakers are staking a claim in Silicon Valley

In some ways, Silicon Valley is becoming the new Detroit, but instead of hardware -- chassis and engines -- its product is a software-defined vehicle.

Software is the key differentiator in the functionality of automobiles. The average vehicle today has about 50 computer processors that control everything from engine control units (ECUs) to Advanced Driver Assistance Systems (ADAS), such as parking assist and adaptive cruise control.

Ford Silicon Valley self-driving car

General Motors opened its Advanced Technology Silicon Valley Office in Palo Alto to develop an HTML browser for its Cadillac CUE in-vehicle infotainment (IVI) system.

ADAS and fully autonomous vehicle technology are the sweet spots for Silicon Valley software developers, whose code can tie together the myriad of cameras and sensors needed for a car to drive itself.

Google has been testing self-driving "pod" cars on California and Texas roads over the past year. Analysts, however, have been quick to point out that it would be a costly risk for Google to set up its own car manufacturing facility. Instead, it would make more sense for Google to partner with automakers, licensing the autonomous software and enabling sensor technology.

Ford, for example, is expected to announce a joint venture with Google to manufacture self-driving vehicles. While likely not an exclusive deal, Ford would build the vehicles, and Google would supply the majority of the autonomous technology.

"It does make sense that Ford and Google would work together," Juliussen said. "Ford has been more interested in car mobility as a service than any other [automaker]. With Google having the most advance software for driverless cars, it makes sense that they would work together."

If the joint Ford-Google venture is for real, it will likely launch a flurry of activity by other carmakers to partner with Google or other software developers to expedite their own autonomous vehicle offering, Juliussen said.

Along with its purported partnership with Google, Ford this month plans to test a fully autonomous version of its Fusion Hybrid near its Palo Alto R&D facility.

Ford also is partnering with software company Pivotal to speed the development of connected car technologies, which allows vehicles to communicate with other vehicles on the road, as well as public infrastructure around it.

Google self-driving pod car Creative Commons Lic.

Google's self-driving "pod" car has been in testing on California and Texas roads over the past year.

This reflects "Ford's commitment to Smart Mobility, the company's plan to take connectivity, mobility, autonomous vehicles, the customer experience and data to the next level," it stated in a press release about its Fusion Hybrid plans.

In-vehicle infotainment

Another opportunity for Silicon Valley software developers is the in-vehicle infotainment (IVI) or head unit space. IVIs contain navigation systems, work as the displays for video cameras mounted around a vehicle, offer in-vehicle cellular communications and house music and video entertainment.

While the leading IVI OS today comes from QNX Software Systems (now owned by Blackberry) in Ontario, one of the fastest growing OSes is Linux, developed in Silicon Valley.

The GENIVI Alliance, a nonprofit automotive industry group, has also developed an IVI open-source development platform based on Linux.

"The software is really how all the functionality in a car is created. That's why it defines the car now. You used to do that with hardware," Juliussen said.

Software development, however, is becoming increasingly expensive as the number of electronic systems in a vehicle grow.

The creation of infotainment (and other electronic systems) software is a major part of total automotive development costs, making up 40% to 50% of the total expense. Development of an IVI system, for example, costs an auto maker $20 million to $50 million, depending on features, Juliussen said. As a result of the high cost, carmakers are seeking partnerships with Silicon Valley software developers to reduce their R&D expenses. Ford's expected joint venture with Google to build self-driving vehicles is one such example. 

Software saves carmakers money

Besides added features, software also creates value for automakers in other ways. For instance, over-the-air (OTA) or remote software updates, which are now emerging in the auto industry, will lead to savings for automakers by lowering the cost of recalls.

Chrysler had to recall 1.4 million vehicles in July because of a cybersecurity problem  at an estimated cost of $140 million. The company was unable to offer owners an OTA update and owners had to take their vehicles to a dealer for the upgrade.

A dealer-based recall costs carmakers about $100 per vehicle, according to Juliussen. "Remote software upgrades would probably have cut those costs in half and maybe more," he  said.

In addition to autonomous driving technology, smartphone application programming interfaces (APIs) are becoming a big business opportunity for Apple, Google and other mobile tech companies.

New software interfaces, such as Apple CarPlay and Google's Android Auto, are allowing IVI's to mirror smartphone functionality and offer a new range of in-vehicle mobile apps.

Automobile software's value comes primarily from being intellectual property -- especially when it is embedded software that is part of a system within an even larger system, according to Juliussen.

"This is very different from PC software, where it is sold to an end user at a relatively high price and the revenue can be calculated," Juliussen said.

CarPlay and Android Auto are already drastically undermining the native IVI system makers, according to Jeremy Carlson, an IHS senior analyst.

"This is one of the biggest disruptions to the [IVI] space. Even if you look back on personal navigation devices, this is much more fundamental. Being able to bring content into the [IVI] with smartphones ... really does fundamentally change what consumers want in the center stack."

Juliussen agreed, saying: "Apple and Google will to a large extent take away most of the business from automakers through cloud-based services over time."

Copyright © 2015 IDG Communications, Inc.

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