What Automakers can Learn from Silicon Valley

Auto Makers Must Be As Nimble As Software Makers to Survive

Automotive development has never been as challenging as it is today. Innovation cycles are becoming shorter. At the same time, the share of electronics and software in vehicles is increasing just as significantly as the number of variants.

Against this background, decades-old development processes and tools no longer work as engineers are forced to adapt to fast-changing customer requirements.

In 2012, the world’s top 17 auto makers spent more than $65 billion on research and development. We estimate that auto maker R&D spending industry-wide exceeded $130 billion – an amount roughly equivalent to Hungary’s gross domestic product.

Research and development systems have become key to auto makers remaining efficient and effective, since they will be forced to invest roughly an equal amount to develop internal combustion engines in parallel with electro-mobility. On average, R&D accounts for 4 to 5 percent of their total costs, and this share will only continue to grow. Indeed, it is feasible that auto makers will need to spend 10 percent or more of their revenues on R&D sometime in the coming decades. This means R&D costs could impact more than 80 percent of the total cost structure for auto makers in the near future.

What Automakers can Learn from Silicon Valley