At his farewell dinner, the retiring CEO of Volkswagen (FRA:VOW, Financial)(VLKAF, Financial), Herbert Diess, said, “Where we are struggling through, that will be the same for everybody else.”
Diess was referring to the issues that Volkswagen has been experiencing with the technology in its vehicles, from freezing touchscreens to buggy driver-assistance programs and unexpected delays. Issues with the automaker’s software unit have been causing delays to crucial new models, which is the main reason why Diess was ousted in favor of new CEO Oliver Blume, who the controlling Porsche-Piech family believes will be able to create a better management structure and company culture for innovation.
While many traditional automakers have been able to quickly re-tool factories to produce EVs and batteries, the bigger hurdle comes on the software front. Once they develop the designs, they know how to mass-produce the cars and batteries, but so far, their software efforts have been hit or miss.
In the race to produce market-winning EVs, automakers are packing tons of new digital features into vehicles, but as with any tech industry, it is difficult to stay ahead of the pack as competitors constantly seek to one-up each other. Most manufacturers are going to have a hard time achieving a fast enough pace of software development while ensuring a smooth user experience.
This brings up an interesting possibility: perhaps most automakers will eventually give up on their own software development endeavors and decide to outsource the whole software issue by licensing a vehicle operating system from a third party, just like smartphone manufacturers use the Android operating system developed by Alphabet’s (GOOG, Financial)(GOOGL, Financial) Google.
An Android-like option for EVs
There are already several companies aiming to become the “Android of EVs,” though it is not yet clear how successful each of them will be.
To no one’s surprise, one of the top contenders is Android itself. Google has lately been talking up its “Android Automotive” platform, which General Motors (GM, Financial) is already on board with and plans to use in all of its vehicles starting with the Hummer EV. Polestar (PSNY), Volvo (OSTO:VOLV A, Financial) and Renault (XPAR:RNO, Financial) also used Android Automotive, and Ford (F, Financial) and Lincoln plan to switch to it in 2023.
Foxconn (TPE:2354, Financial), the company that makes Apple’s iPhones, also aims to become the Android of EVs. It launched its MIH Open Platform to help automobile companies make EVs in 2020. The MIH Open Platform is more than just a software platform; it is a set of tools that can be used to design almost an entire electric car. The other caveat is the car would then be manufactured by Foxconn, which makes it very different from the Android business model.
Some will still follow Apple’s example
For now, many EV makers are still doing the same as Volkswagen in trying to develop their own in-house operating systems. As time passes, we will likely see some give up and make the switch to Android Automotive or another third-party operating system, but others will be successful and will not need to rely on the third-party route.
Those who successfully develop a market-winning EV operating system will have a choice between letting other companies license it like Android, or keeping it within the company like Apple’s iOS.
As the first hugely successful luxury EV maker, Tesla (TSLA, Financial) will likely keep its operating system to itself in order to preserve the prestige of its brand. If Tesla were to license out its operating system, it would lose a lot of its exclusivity, which is where the company derives a huge chunk of its value from. Plus, Tesla is still broadly considered to have the best operating system among EVs, so it would be foolish to share that success with others just to make a quick buck.
Apple plans its own foray into EVs
Ironically enough, Apple’s foray into EVs is getting its start via Apple CarPlay, which can replace a car’s existing interface with Apple’s CarPlay interface and software. In a complete reversal of its iOS strategy, which relies on developing the operating system and devices and keeping everything in-house, Apple CarPlay relies on its software piggybacking on cars made by other companies.
According to Apple, “Every major automobile manufacturer currently offers models that support CarPlay or is planning to introduce them.”
It seems like Apple is setting itself up as a more direct competitor to Google when it comes to EVs. However, it would not be Apple if it did not endeavor to master the hardware side of the EV business as well. Apple has long been in the process of developing its own cars, which are rumored to be EVs that will feature self-driving and be able to compete with Tesla and other modern EVs. Rumors suggest the non-so-secret secret car could be announced in 2022 and launched as early as 2025, though as rumors of an Apple car date back to 2014, investors should take anything that is not an official company communication with a grain of salt.
While the public does not yet have any meaningful information on the Apple car, we do know the company might end up partnering with a contract manufacturer to build the car instead of a big automotive company. As Apple’s talks with major automakers reached a stalemate in early 2021, Bloomberg speculated that it could partner with Foxconn and Magna International (MGA, Financial) instead.
Takeaway
It is a difficult and time-consuming endeavor to make one of the market’s top EV operating systems and keep it up to date with the latest features. As the EV industry evolves, it seems likely more and more automakers will do as GM and Ford are doing and switch over to third-party operating systems.
Quite a few companies already use Android Automotive or offer both Android Automotive and Apple CarPlay as options. It is possible that some automakers may stick to one or the other, but at the moment, it comes down to consumer preference in many cases. The big exceptions will be companies like Tesla that offer superior operating systems and cars made by companies that also sell their operating system to others (such as the hypothetical Apple car).
