Future Says S5E1 Recap: Examining Automotive’s Electrified, Software-Defined Future

EY's Constantin Gall, our latest guest in Future Says season five, has been working in the European automotive industry for almost 20 years. He has seen businesses, technologies, and approaches rise and fall. If there's one thing nobody can doubt, it's that today's automotive industry looks a lot different than it did nearly two decades ago. But to Gall, the change and evolution is part of the fun. "This is what excites me and keeps me in the industry," he says. "Next to life sciences, automotive is one of the industries that's most transforming. And there's more to come."

Helping Automakers Define Their Future

Within EY, Gall serves as a managing partner for broad swaths of the western European automotive industry. In his role, he helps automakers "define their future," including by identifying these companies' unique selling points, business strategies, and value propositions. "It's a very interesting time for the industry, a lot of transformation is happening," he says.

Within today's European automotive market, Gall says that there's a lot of self-evaluation taking place. Automakers know the market is changing fast and are trying to determine how to best meet modern challenges and demands. European automakers are even re-evaluating the nature of what it means to make cars - are these companies solely "hardware" companies, or does their reach extend further into software and beyond? "What's top of mind [for these automakers] is answering the question: What are we going to be? Are we going to be a hardware company, one that specializes in the vehicles themselves? A software company? I think there's a very lively debate right now around how to position vehicles in an ecosystem where we all pretty much live on our smartphones," he says.

But there's one thing Gall doesn't see changing: the huge role automobiles will play around the world. "The vehicle is still a very significant part of our day-to-day routine," he says. But what this role will look like in the future is an open debate: will it be traditional personal ownership? Will it be car-sharing fleets? Only time will tell, he says.

The Promise and Ongoing Challenges of Electrification

The electrification of the automotive industry isn't anywhere near complete, but it's progressing, Gall says. Though progress hasn't been linear, there have been clear achievements - and there are still many challenges to solve.

For automotive brands, one of these challenges is solving how to restore the brand loyalty that was once exalted in the heyday of past generations. Gall says that brand loyalty is down since, when it comes to electric vehicles (EVs), consumers are more willing to experiment with new brands and new vehicle types. "When [consumers] make that leap, they're not as bound to traditional criteria," Gall says. "It's almost like an experiment, which makes you more open to explore different value propositions, different brands, and different vehicle types."

Costs are one big factor behind the decrease in brand loyalty. As European government subsidies for EV production and distribution have dwindled, many European brands have eliminated "budget" EV options because margins were too tight. "For the average person, affording one of these premium EVs is challenging," Gall says.

But costs aren't the only reason progress on widespread electrification has been uneven, according to Gall. For one, producers have been forced to deal with a myriad of challenging global external market pressures in the last five years, including inflation, material shortages, and labor shortages. Moreover, the initial push to develop EV charging infrastructure has slowed, and in some cases, fallen into disrepair. "In both the U.S. and Europe, there was a first wave of a very rapid setting up of charging grids and outlets," he says. "But what people forgot was to maintain them. This makes it very painful to be an EV owner."

As a result, "You now have the first generation of customers that are coming to the end of the traditional EV ownership life cycle - but what you don't see are enough repeat buyers. So a lot of people that bought an EV are going back to hybrids or internal combustion engine (ICE) vehicles. The EV experience is not sufficiently convenient [for consumers right now]," Gall says. "It's not that e-mobility won't work, it's just not yet at the state of maturity to where it's better than ICE vehicles. It's going to be very interesting in the [coming] years to see how things unfold."

Software Leaps and Sustainability Initiatives

Related to the rise of electrification and EVs is the rise of the concept of the "software-defined vehicle." This has been enabled by next-generation machine learning, high-performance computing (HPC), and data analytics tools. These technologies have transformed how cars can operate both now and in the future for both automakers and consumers. "With artificial intelligence (AI), the entire R&D approach can be shortened significantly and made simpler," Gall says. "The rise of this software-defined process saves the OEM time, money, and that updates can be delivered over the air."

And on the consumer side, Gall says AI-powered predictive insights could be a game changer. For example, if you connect your car to your calendar, it can analyze your grocery habits and know that you have a dentist appointment on Wednesday. If you normally get your groceries during Tuesday rush hour, it can suggest that you instead get them during your Wednesday appointment because there's a grocery store near the dentist. It could then calculate how much time, energy, and congestion you saved by optimizing your driving. "This kind of predictive optimization could be a very strong use case - after all, we're all time-compressed these days," he says. It would also help drive better energy use and support global sustainability initiatives.

Speaking of sustainability, Gall says the industry has made great strides but that challenges are still present. He says that automakers have made great strides in understanding and minimizing their "phase 1" emissions, and that they're getting better at quantifying "phase 2" and "phase 3" emissions. That said, these initiatives aren't cheap. "The challenge is that, as of now, these [sustainability] optimizations are increasing input costs quite a bit," he says. "Car prices are already so high these days that there's only so much you can add on top of that. As such, the margins these companies are making are not high enough to support all the [sustainable] things they'd like to do. At the end of the day, they're in a commercial undertaking and they need to make profits to stay in business."

Looking ahead to the next couple of decades, Gall says that we're likely to see automakers place a premium on hyper-personalization and modularity. When we think of vehicles now, he says, we assume that what we drive off the lot will always be what we have - the same features, same software, etc. But OEMs now want to create an ecosystem where the car can flex and change over time to always serve customers' needs. Undoubtedly, Gall says, next-generation technology - and next-generation talent - will play a vital role in changing an industry looking to reinvent itself for a cleaner, more sustainable era.

To listen to the full episode with EY's Constantin Gall, visit https://web.altair.com/analyzing-automotives-electrified-future. To check out the rest of Future Says season five, visit https://altair.com/future-says. And be sure to subscribe to Future Says on Spotify, Apple Podcasts, Amazon Music/Audible, YouTube Music, and Podcast Addict.

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