The future of automotive innovation: transitioning from the Internal Combustion Engine to the Internal Computing Engine
In advanced automobiles the Internal Computing Engine replaces the Internal Combustion Engine
For a century, the internal-combustion engine (ICE) has been the source of value and innovation in the automotive industry. Today, we are entering a new automotive age, when cars will be differentiated by the functionality enabled by semiconductors and electronics. This shift places semiconductors—the building blocks of a car’s “Internal Computing Engine”—at the heart of automotive innovation. That, in turn, is forcing a convergence of the semiconductor, computing, and automotive industries.
The change has profound implications for both the automotive industry and the semiconductor market, according to a new KPMG white paper, “Automotive Semiconductors: The new ICE age.”
Automotive semiconductor sales were about $40 billion in 2019.1 But four trends – autonomy, electrification, connectivity, and mobility as a service (MaaS) – will raise the semiconductor content of cars by as much as ten-fold. This, we estimate, could raise automotive semiconductor sales to as much as $200 billion by 2040. This figure includes only “onboard” chips, not those needed for the infrastructure (e.g., chargers, cloud computing) to support advanced autos, which will drive semiconductor demand, too.
Automotive semiconductors are already one of the fastest growing segments for the global semiconductor industry. And advanced cars can be seen as the convergence of other applications which continue to remain top-of-mind for global semiconductor executives –5G, Artificial Intelligence (AI) and Internet of Things (IoT).
As cars become more and more like “supercomputers-on-wheels,” new forms of collaboration will emerge between players across the supply chain. Novel competitive/cooperative models will likely arise to deal with the new reality. In particular, automakers and semiconductor companies will need to work with the software players whose technology will be critical for advances vehicles.
The race is still wide open but, if the advanced automotive market evolves like other tech sectors, a lopsided contest for value capture could ensue, with a few winners and many losers. Success will depend on successfully developing the Internal Computing Engine as the locus of value and innovation, requiring optimal integration of hardware and software from the car to the cloud.
1 IHS Markit, 2019