Daimler, the world’s third largest car firm by revenue and parent company of Mercedes, recently announced plans to replace its network of software suppliers with in-house employees. This major restructuring strategy is aimed at cutting personnel costs by 1.6 billion USD, according to Bloomberg, and regaining control over the data which Daimler’s fleet of connected vehicles will produce. According to business consultancy McKinsey, this data could be worth as much as 750 billion USD by 2030 industry wide. Much like competitors Volkswagen (VW) or BMW, Daimler is keen to own this data which could be key to understanding its customers, developing diversified future products and increasing profits.
Daimler are looking to develop a comprehensive software package that will cover their entire product line-up, from the hatchback A-Class to the luxury S-Class saloon. By developing this software with in-house employees, Daimler will have complete ownership and control of the data harvested from all their products. This will enable the firm to analyse, respond and protect customer’s data without the influence or restrictions of external partners such as Siemens, Microsoft or Nvidia. Daimler has already begun this process through terminating their collaboration with BMW to develop autonomous driving technology.
Rival German manufacturer VW is also consolidating their software development under their new subsidiary called Car.Software, aiming to produce 65% of their software by 2030. Currently, 90% of the firm’s software development is outsourced to suppliers so VW is planning on committing 7 billion EUR and 5000 employees to meet their target. These announcements come after the greatly anticipated VW electric ‘ID.3’ deliveries were delayed by software issues, with some test drivers experiencing up to 300 errors a day. The delays to the deliveries of these electric cars could be extremely costly as the firm is now only ‘a gramme or so’ under new EU carbon emission limits, according to chief executive Herbert Diess, posing the threat of serious financial fines . Bringing their software development under their subsidiary enables VW to cut costs, directly control their software development and also own the produced data, potentially enabling the firm to avoid costly mistakes such as those made with the ID.3.
These decisions from Daimler and VW aim to close the gap between themselves and Tesla, a firm leading the market in terms of automotive software development. Tesla customers are delivered wireless software updates every 14 days which often include new features, such as 360-degree blind spot monitoring. The benefits for Tesla are also clear as over a million of its vehicles continuously collect data, which can be used to develop their autonomous driving technology, a feature for which Tesla leads the market in. Tesla’s capability to collect and analyse data whilst simultaneously providing wireless software updates to customers is unmatched by any of the other more established manufacturers.
Tesla’s extensive data collection has also enabled a diversified business strategy which now includes insurance products. Detailed telematic data, such as acceleration, braking or even broken car lights, allows the creation of distinct driver profiles which can be used to build risk models with improved accuracy. Tesla knows the risks of each of their insurance customers and as a result of the extensive data analysis, the firm can offer customers varied monthly insurance premiums at prices which undercut competitors.
The potential benefits to customers are clear and the research indicates that 60% of consumers are willing to forgo even personal data if new safety or convenience features are released, according to McKinsey business consultancy. Automotive companies also stand to gain, with in-house development of software enabling full control, reduced costs and full ownership of data.
Automotive companies faced a large drop in demand caused by the COVID-19 pandemic, and how they progress forwards with their development of appealing connected vehicles is crucial to their long-term survival. Car manufacturers are driving for more and exclusive ownership of data so that they can understand their customers or, as Tesla has done with insurance, diversify their product offerings to increase profits.
By Talyor Alexander
Sector Head: Dan Aliwell