VW's high-tech bombshell

FRANKFURT — In a move that bucks the industry's general direction in vehicle development, Volkswagen Group has begun informing its global suppliers that they will be off the hook for almost all the software required to operate the advanced parts and technologies running through Volkswagen's cars.

Volkswagen has decided to put itself on that hook.

As to why, look no further than the need for onboard computing. The growing morass of technologies and sensors, wires and computing resources is taking over the automobile. Volkswagen says an average VW vehicle now has about 70 electronic control modules — basically standalone computers — running software from as many as 200 suppliers, all of which have to be integrated by the company to make the vehicle operate correctly.

Volkswagen's goal: Reduce those 70 computers to three. Each will be powerful enough to handle the processing necessary to run its portion of the automobile, using software largely developed in-house that can be easily updated over the air, regardless of the hardware it's running.

And all of it would run off a single electronic architecture.

"We are separating hardware from software," said Christian Senger, the Volkswagen Group board of management member who oversees the automaker's digital activities, including software development, and who has been tasked with this strategic new move.

"Product perception [and] customer satisfaction are more and more dependent on software, so it's a natural step to change the organization and to focus on software as a core competency.

"We are super expert in parts management," he added. "But we had more or less delegated the integration of software to our Tier 1 suppliers. So for us, a lot of software was just a black box — and we see that this doesn't work anymore. So now it's really getting the teams together and defining this new tool chain."

The decision will cost VW billions of dollars, by its own estimates, and require it to hire between 5,000 and 10,000 software engineers globally over the next several years to build an all-encompassing software universe in-house, Senger said.

He believes the returns on the initial investment could be staggering.

It will result in the development of what the automaker is calling a VW operating system, similar to the background software that operates smartphones and computers.

It is a reversal of the way things have been headed for the past decade.

Global suppliers have been scrambling to staff legions of software engineers to keep up with ever-advancing auto components, such as brakes that predict a collision and cameras that detect when a driver's eyes are droopy. Brake and safety supplier Continental last year said it employed 15,000 software engineers and planned to continue hiring 1,000 more a year.

To accommodate it all, Volkswagen has eight unique electronic architectures across its many brands. This year, VW CEO Herbert Diess created what the automaker is calling its Car.Software Organization, and appointed Senger to lead the effort to simplify it.

"We need to get out of the complexity," Senger said, "out of having many [electronic computers] and into a few single, strong ones. And this is the only way for having updatability in the future.

"Customer expectations are that cars are like smartphones," he said. "They become individualized more and more as long as you use it. You get updates. This all works quite safely."

The effect of Volkswagen's new in-house plan on suppliers around the world could be significant. The price tag of every new-generation component system includes the cost of its engineering and the software to make it operate. Those costs have become a part of suppliers' revenue base — and VW now says it will not need suppliers to do that.

But Senger said the reaction to the news wasn't what anyone expected when Volkswagen invited major suppliers to an event this summer to explain the plan and what it might mean for their relationship with the automaker.

"We showed some cars for motivation, and then we presented what it means," Senger recalled. "We laid out the strategy, and, cutting down to the bone, I told them 'I really only need half of you.' "

Their reaction?

"Most of them said, 'What can I do to be part of the new setup?' " Senger said. "Even the big suppliers today see that we have so much inefficiency, that we are spending huge [sums] for just troubleshooting. This is not motivating, and there's nobody earning money on this."

Egil Juliussen, principal analyst for automotive technology with IHS Markit, said Volkswagen's software strategy makes sense, and is probably something other automakers and suppliers should consider.

"The car is more and more software-defined," Juliussen said. "Software has some unique characteristics, in that the cost is primarily in the development phase. But once you've paid for it, [each successive copy] becomes very profitable."

Indeed, some other automakers are starting down this path, though they are not as far along as Volkswagen, said Martin Schleicher, executive vice president of business management with Continental subsidiary Elektrobit, a large software-focused auto supplier with products in more than 100 million vehicles globally.

The automakers' motivation is clear, Schleicher said.
"We have had this paradigm for the last 10 or so years that if you introduce a new function into a vehicle, you also add an ECU," Schleicher said. "And this really breaks that paradigm."
Elektrobit is working with Volkswagen on the project. Schleicher said VW has broken down the architecture into three domains, each based on a high-performance electronic control unit. One is an integrated cockpit computer. The second is for automated driving and safety. The third is a high-performance body controller and gateway.

The Volkswagen ID3, which the automaker revealed this month in Frankfurt, is equipped with the three high-performance electronic control units, though they will work in parallel with the existing electronic architecture on the new battery-electric vehicle until Senger's moonshot is further along.

Juliussen said Volkswagen's software platform, once developed, could be used across most of the 10 million-plus vehicles it sells globally each year, modified at relatively little cost for different models and enhanced for future generations of vehicles.

But not all automakers buy components and software together from suppliers. Some customers choose to develop software for system components, while others buy both and concentrate on integration.

Each strategy can have benefits and drawbacks. Fiat Chrysler Automobiles tried to develop software in-house for a new nine-speed automatic transmission for the 2014 Jeep Cherokee. The experiment ended with a monthslong quality hold that cost the automaker hundreds of millions of dollars, and cost the executive in charge of the program his job.

Volkswagen's rollout will take time, Senger said. Over the next two or three years, VW's in-house software teams will work in parallel with the traditional way Volkswagen has assembled vehicles and integrated software into their designs.

"Once we have the new," Senger said, "we will phase out the existing architectures."