Given the rising sales of battery electric vehicles (BEVs) worldwide and an industry interest in autonomous driving, it’s not surprising that electrification and autonomous technology were top of mind for company representatives and investors attending our 2021 Auto Tech Bus Tour.
But peeling a layer back, what became clear is that software is eating the vehicle. Not only is it increasingly important to enable electrification and autonomous, but Auto Tech companies are thinking about how to use software to differentiate and improve the user experience.
Moreover, there is a belief that software can create new business models and opportunities. As such, it’s likely that investors will shift their focus from development of BEV platforms to software-enabled platforms.
Here are three themes among our takeaways from the 2021 Auto Tech Bus Tour:
1. The auto industry could become a software-first sector
Our discussions revealed that many Auto Tech companies are prioritizing software development. This includes using software to develop better BEVs, to create a better customer experience in the vehicle, and in some cases to move up the stack on automated driving capabilities. Still, others are pursuing efforts to use and monetize the data on these vehicles to offer differentiated services.
2. Investors may prioritize mobile software platforms
“As Auto Tech continues to innovate electrical architecture, sensors, and connectivity options, we expect investors to pursue opportunities within software-enabled platforms.”
—Joseph Spak, Equity Analyst, RBC Capital Markets, LLC
As Auto Tech continues to innovate electrical architecture, sensors, and connectivity options, we expect investors to pursue opportunities within software-enabled platforms. Electrification is ultimately just an evolution of what powers the vehicle from Point A to Point B. Software-enabled platforms can potentially transform auto business models – a shift from just selling units to selling less cyclical, recurring, higher margin software enabled services. The vast majority of vehicles on the road today have decentralized compute and don’t do over-the-air (OTA) updates of vehicle functionality (more can do infotainment OTA). But, there are nearly 1.5 billion vehicles (and growing) on the road globally and close to 280 million vehicles on the road in the U.S. Utilizing the data on the vehicles and software, there is an opportunity for automakers and other companies to record recurring, high margin revenue streams.
3. Slow behavioral change may delay adoption
We believe the software opportunity in mobility has the potential to be immense, but behavioral change to adopt a new business model could take time. Meanwhile, consumer hesitance may hamper full adoption of EVs and automated vehicles. In addition, although innovations continue, autonomous technology has also proven to be a challenging endeavor.
Joseph Spak authored “RBC Capital Markets 2021 Auto Tech Bus Tour Recap,” published on June 4, 2021. For more information about the full report, please contact your RBC representative.
