Volkswagen maps out software-centric future

Automaker Volkswagen highlighted its plans to put software at the heart of its business, as it revealed details of its “New Auto” ten-year strategy.

The company, which reported a 12% decline in revenue to €223bn in 2020 after selling 16% fewer vehicles last year, set out a number of targets to help it reposition for growth in the rapidly changing automotive space.

The company’s CEO, Herbert Diess, stated his belief that sales of battery electric vehicles (BEV) will outstrip internal combustion engine (ICE) cars by 2030, and he expects the company to be fully climate neutral by 2050.

But the most interesting aspect of the announcement was how critical Diess views the group’s software business, with a strategy based around four core platforms. The first is the Scalable Systems Platform (SSP), which will see the consolidation of three ICE-platforms to two BEV-platforms, to one unified architecture to support the development of products across the whole product portfolio. VW will invest €800m into a new R&D facility in Wolfsburg, where the core of the SSP platform and its modules will be designed.

VW’s software division CARIAD will lead the development of three other platforms that will form the OS backbone across all group vehicles. The E³ 1.1 platform allows for upgrades and over-the-air updates of the MEB product portfolio, such as the Volkswagen ID.4. In 2023, CARIAD plans to release E³ 1.2, which will support a new unified infotainment system and over-the-air updates for Audi und Porsche vehicles. And in 2025, CARIAD plans to release E³ 2.0, which will include a unified operating system for vehicles from all Group brands, and take a big step towards autonomous vehicles, with drivers able to fully hand over the steering to the car.

Diess’ expectation is that by 2030, up to 40 million vehicles will be operating on these software platforms, and that software-enabled sales has the potential to represent as much as one third of its group revenue over the same period.

PAC’s View: We are seeing more and more examples of major corporations successfully building differentiating internal software platforms, and in some cases they are turning them into market-facing plays. Retail group Ocado has become a leading player in the grocery fulfilment robotics space, with clients including Sweden’s ICA and Casino in France. UK energy challenger Octopus has struck multi-million euro deals to sell its Kraken customer management platform to clients including E.On, Origin Energy and Tesla Power.

These companies have taken advantage of their early-mover advantage to sell their IP to non-competing peers that are willing to invest in a proven market solution to catch up. But building a software business that meets the needs of your internal stakeholders as well as external clients is a major challenge over the long term. GE is a good example of a hugely successful corporation that has struggled to nurture some of its more promising software assets in recent years. It is easy for the level of energy and excitement around software products to drop off after a while, and without a constant commitment to investment, sales effort and above all, innovation, IP can quickly wither on the vine.

One major challenge for Volkswagen will be to transform its 660,000-strong workforce to support this shift in strategy, with Diess acknowledging that half of its employees are involved in traditional car production today. This will require huge investment and VW’s ability to leverage its existing skills base will be crucial with the war for talent in areas such as interface design, intelligent automation and data science, only likely to intensify in the years ahead.