All,
My kingdom for a horse, Shakespeare would say. A record sales year but for some chips.
The auto industry has been crippled by a chip shortage.
The most popular models, and the assembly plants that make them, are being shuttered for weeks at a time as car companies scramble to find chips.
And the chip suppliers, you can't blame them. When Covid hit and demand for new car sales came to a sudden stop, those chip suppliers shut down automotive chip lines to replace them with profitable chips -- the ones that go into computers and smart phones and the like. (The margins on automotive chips are so thin; suppliers can make a lot more money on consumer electronics).
Nobody foresaw that the auto industry would spring right back. We are now looking at a record year for sales in the United States at more than 18 million units a year -- if the industry could find a steady supply of chips.
The obvious answer? Make more chips. Pronto. But Tom Jellicoe of the British engineering firm TTP has a different solution, one that looks underneath the surface of the problem at the root cause.
"It's time to stop papering over the cracks, I think, and really deal with the underlying challenge," Jellicoe said on our podcast, Are We There Yet? "This idea of what has been referred to as a software defined car has been thrown around for a while now. Right? Everyone's (published) really nice white papers about this idea that you have common hardware platform and the (software) features of the car ... Maybe we've reached the tipping point for that. This chip crisis is kind of a symptom of the change that's needed."
There are, on average, about 100 computers in your car and 2 miles of wiring to relay all the signals. Tom is thinking of a newer, simpler architecture, with fewer computers -- maybe ultimately just one supercomputer, although that's a long way off. One need to look no further than Tesla for a clue on how to do it.
"I'm in no way a financial analyst and I'm far be for me to fully explain the valuation of Tesla, but, when we speak to our automotive clients, they're terrified at the pace of which Tesla can upgrade and change the features in their car," Jellicoe said. "There's a lot of things that Tesla has done differently and seem to be paying dividends. There are definitely lessons to be learned there, and I think one of them is software defined features, right? Tesla offers over the air updates, which can change effectively how the car runs. That is exactly a step in the direction of a software defined vehicle."
My former bosses at Delphi, Jeff Owens and Glen De Vos, have been talking about a similar concept for years. The problem is that established car companies such as GM, Ford, VW and Toyota have so many products, built on so many platforms, with a rat's nest of add-on features and wires, that it is hard to stop abruptly. They would have to do away with all their current offerings and start over. It's like smoking, I imagine. It must be hard to quit cold turkey. But maybe the move to electric vehicles gives the older car companies a chance for a reset around these new architectures, driven by software and not mechanical engineering.
So how did we get in this mess we are in?
"They've gone from being a mechanical assembly to an electromechanical assembly," Jellicoe said. "All of these systems have been added to the car. There's tons of features in a car now, and as they've been added over the years, each time a new system is added, it has its own control unit with its own chip in it. Over time, there's just been more and more complexity added in. And each of these systems, when they get added into a vehicle, has to be cost reduced, you know, it has to be as cost effective as possible."
At one point in my GM career, we had more than 100 nameplates. 100! That's crazy.
"So you mentioned this hundred systems in a car and a hundred nameplates at GM, you know, that's 10,000 different chips, right?" Jellicoe continued. "So, think how many cars GM makes in a year. It's not ordering huge amounts of each of those chips. You know, some of them will be fairly specific and limited to a few models. So it's so many different components ordered in actually relatively small quantities. By centralizing that and going to a smaller number of common platforms, then your purchasing power goes up. You start finding yourself closer to the front of the queue with the semiconductor supply."
Car companies can go one of two ways. They can be like the Nokias and Motorolas and Ericksons, locked into their feature set on a mobile phone, holding tightly to the past, or they can be like the Apple iPhone. A entirely new way of thinking about smart phones.
"TTP has been around for more than 30 years," Jellicoe concluded. "we're a consultancy business that helps companies adapt to changes in technology, converting breakthroughs in science and engineering into successful products. If you go back to the disruption in the mobile phone industry in the early 2000s, there were a handful of mobile phones suppliers. There were a lot of tricky processes in making and designing phones. Nokia, Erickson, Motorola, these sorts of companies, but no one else really had all the pieces of the puzzle to make that phone. This was kind of unpicked and democratized and suddenly, consumer product companies were able to hit the market with phones. TTP actually played a small role in that. We had a spin-out called TTP Comm that provided IP blocks to allow companies who weren't specific communications companies to develop mobile phone handsets. And there's a kind of period of democratization, which has led to all the great features that we have in our phones now. And we still operate in that business model today. We'll be looking to provide a similar role through this transition to software defined vehicles."
And the next time there is a chip shortage, maybe it will be the smart phone guys that are scrambling.
P.S. President Biden must have heard me!
Two weeks ago, I took the side of GM on tax credits for EVs not being capped at 200,000 units. I said push that to 10 million units at a $7,500 tax credit. When we get there, we can shut off the government subsidies. President Biden is going well beyond that. He is asking Congress to put $12,500 tax credit on the hood of any electric vehicle priced under $80,000 and made in the United States. And, that subsidy will be in place until EVs make up half of the US new car fleet. This proposal would also end tax credits for fossil fuel. That works for me. Now, let's just see what Congress does with that proposal.
Scott