Insight

Automotive Semiconductors: The new ICE age

The future of automotive innovation: the coming transition from internal combustion engine to the internal computing engine

Gary Silberg

Gary Silberg

Partner, Deal Advisory & National Automotive Industry Leader, KPMG US

+1 312-665-1916

Scott Jones

Scott Jones

Partner, Deal Advisory & National Semiconductor Leader, KPMG US

+1 408-367-7002

Bala Lakshman

Bala Lakshman

Managing Director, Strategy, KPMG US

+1 214-840-4005

The internal-combustion engine (ICE) has long been at the epicenter of the automotive industry. But a new automotive age is dawning. Cars of the future will be differentiated less by their engines, valve displacement, and zero-to-sixty acceleration and more by the functionality enabled by semiconductors and electronics.

Indeed, semiconductors will be at the heart of automotive innovation, safety and functionality. Collectively, they will be the internal computing engines (the new ICE) of our cars.

Semiconductors take a front seat

In the coming years, the computing engine of our vehicles will move from the back seat to the front seat; as important to performance and the customer experience as ICE engines of the past. As the user experience shifts from driving to riding and sharing, automotive brands will be more and more distinguished by the safety, convenience, and infotainment provided by all the semiconductors under the hood—and throughout the vehicle.

The change has profound implications for the automotive industry and semiconductor business. Future growth in the global automotive semiconductor segment will dwarf that of recent years. Sales of automotive semiconductors rose at a compound annual rate of approximately 9 percent from 2013 to 2019 and now stand at $42 billion. The market is served today by more than 100 suppliers. Yet, as cars become more and more like “computers-on-wheels”  the sector is expected to quadruple to more than $200 billion by 2040, driven by the megatrends of electric vehicles, autonomous driving, and mobility as a service.

Implications for industry dynamics

Market growth of this magnitude will require:

  • New kinds of collaboration models between players across the supply chain
  • Critical strategic and technical choices, and
  • Novel competitive/cooperative models to deal with the software players that are becoming critical to providing software-defined solutions.

In a new white paper, “Automotive Semiconductors: The new ICE age,” KPMG considers the unique forces behind the convergence—from electrification to MaaS. We describe parallels in other industries that have been transformed by technology and software-defined hardware, including mobile phones and personal computing. If the advanced automobile market evolves like other tech sectors, we can expect to see a lopsided contest for value capture that could lead, in turn, to a few winners and many losers.

Be prepared

The technology capabilities so widely in evidence today were built on incredible successes and even more failed ventures and alliances. The next 20 years will be no different. The position of some of the dominant players in the semiconductor and automotive industries in no way guarantees their success, or even their existence, in the coming decades.

To be among the winners and benefit from a forecast $200-billion market, companies will need to prepare for the new automotive ICE age, an age where the Internal Computing Engine becomes the locus of value and innovation.