In an era marked by rapid technological advancements, the commercial vehicle industry stands on the cusp of a transformative evolution. The decentralized electrical/electronic (E/E) architectures that have long been the backbone of vehicle operations are now being redefined, and so is the software running on them. To master this evolution in E/E architecture and unlock customer value, commercial vehicle OEMs and their suppliers can take a software-centric approach to transforming their capabilities, operations, and organizations.
Modern trucks will soon be sophisticated digital platforms that integrate advanced E/E architectures with unprecedented efficiency, safety, and connectivity potential. These new E/E architectures are characterized by centralized compute units, high-speed data networks, and advanced software capabilities decoupled from hardware. The shift from a decentralized architecture to a central architecture will enable adoption of autonomous-driving technologies, connected and data-based services, real-time diagnostics, and over-the-air (OTA) updates at scale.
What does this mean at a practical level? Commercial vehicle OEMs have historically achieved great success in developing and offering highly modular variants of products to accommodate individual customer needs. In contrast, the rising complexity of a software-defined truck will require a more strongly harmonized E/E system with low hardware variance across derivatives to differentiate on a decoupled software level. OEMs will need to balance the need for customization with the complexity of integration, control, and security to seize the opportunities presented by this next generation of vehicle architecture. To drive value differentiation on the software level, OEMs will need to exert greater control over their software stack and accelerate innovations in response to market demand.
This article discusses implications and opportunities inherent in advanced E/E architectures for OEMs and suppliers. It offers a framework for developing and deploying software as well as insights to help OEMs and suppliers transform their offerings, operations, and business models to respond rapidly to demand for advanced E/E architecture.
OEMs and advanced E/E architectures: Challenges and implications
The commercial vehicle industry follows the principles of modularity to enable customers to customize vehicles according to their specific needs, such as construction, long-haul transport, or urban delivery. OEMs design and assemble vehicles using a wide array of components, mixing and matching them to create tailored solutions. In distributed architectures, each function of the vehicle—such as engine control, chassis controls (including trailer systems), and infotainment or telematics—operates with its own dedicated electronic control unit (ECU). These distributed systems have been built on captive elements: components and subsystems that OEMs source from specialized suppliers and then integrate into a cohesive vehicle platform, primarily at the hardware level.
In contrast, next-generation architectures consolidate control into a few high-performance computing units that manage multiple vehicle domains simultaneously. Integration in a centralized architecture is performed at the software level, with functional software building blocks integrated and deployed on one control unit. Customization can be achieved through specific software building blocks instead of through a customized set of ECUs. This approach requires OEMs to take stronger control of a standardized core software platform comprising middleware, an operating system, and communication interfaces.
While the advent of fifth-generation centralized architectures poses challenges to the modular approach that has been central to vehicle design, it also brings significant advantages. For example, centralization helps OEMs manage increased functional complexity, allows for more frequent development and update cycles—including OTA updates—and provides the ability to support advanced technologies such as autonomous driving, electrification, and enhanced connectivity.
The shift from distributed to centralized architectures brings OEMs into new territory, requiring them to reevaluate supply chains, internal capabilities, and product development processes. Customization, a straightforward process in modular systems, is more complex in centralized systems, because changes to one part of the system can have widespread implications across multiple layers. OEMs’ previous reliance on suppliers means they must build or acquire new competencies in areas such as software development, system integration, and cybersecurity to ensure compliance with evolving regulatory standards (see sidebar “The evolution of electrical/electronic architectures”).
Integrating advanced E/E architectures: Key OEM and supplier considerations
To incorporate fourth- and fifth-generation E/E architectures into their business models and operations, OEMs and suppliers must build their capabilities to specify, develop, and integrate their own and other suppliers’ software into one domain or central control unit. Managing this complex process with a large number of suppliers and internal stakeholders can present specific challenges, including a heightened need for cross-functional collaboration, because all domains share the same computer hardware in fifth-generation architectures. And because domain and central computers will need to be updated over many years, companies will need to forecast future demand for hardware resources.
The underlying motivations for the shift toward centralized E/E architectures are largely similar for commercial vehicles and passenger cars—namely, the desire to enable OTA updates, reduce system complexity, and increase the use of common software. In addition, most platform development processes for commercial vehicles and passenger cars are similar, including foundational aspects such as middleware, platform layers, and customer functions enabled through software features.
There are also notable differences between passenger car OEMs and commercial vehicle OEMs when it comes to centralized E/E architecture and software:
- In passenger vehicles, software is focused on enhancing driver safety, comfort, and entertainment. Advanced driver-assistance systems (ADAS) and infotainment are important but are generally considered value-added features. In commercial vehicles, on the other hand, software is an essential component of core, business-critical functions in the vehicle. For example, fleet operators rely on telematics for tracking, operational reliability, fuel efficiency, and more to conduct business operations in a safe, compliant, efficient, and cost-effective manner.
- Software features for commercial vehicles focus on reducing total cost of ownership via capabilities such as predictive maintenance, adaptive cruise control with efficiency enhancements, and energy recuperation for electric trucks.
- The complexity and scale of commercial vehicles necessitate longer development cycles in which architectural evolution happens much more gradually. In addition, OEMs partner extensively to bring the necessary capabilities onboard because the breadth of applications and requirements for commercial vehicles exceeds what can be developed in-house by OEMs.
Market potential for commercial vehicle players
As the trucking industry transitions to centralized E/E architectures, changes to onboard and off-board vehicle components—hardware, operating systems and middleware, the application layer, and the connected cloud environment—will add significant value for customers. OEMs will have the opportunity to drive customer value through new functionality, such as ADAS and autonomous driving, and by deploying additional functionality OTA throughout the vehicle’s life cycle. Further, centralized E/E architectures can reduce the complexity of commercial vehicle hardware systems, making trucks more reliable and efficient—critical factors for fleet operators. For suppliers, the shift from multiple distributed ECUs to centralized hardware presents a chance to offer software independent of hardware, but it also bears the threat of potential margin pressure from standardized hardware and reduced business opportunities because of integrated ECUs. Standardized operating systems and middleware, meanwhile, simplify vehicle diagnostics, software updates, and system interoperability while enhancing cybersecurity for all players.
Aftermarket services potential
The opportunity for growth associated with advanced E/E architecture extends beyond the sale of trucks and underlying components. There is also a burgeoning market for aftermarket services including software updates, connected services, and data analytics. Companies that can provide end-to-end solutions for managing these complex systems stand to achieve significant gains.
By providing software updates, maintenance services, and cloud-based solutions, OEMs and suppliers can maintain long-term relationships with their customers, ensuring ongoing revenue after the vehicle’s initial sale. At the same time, customers benefit from extended vehicle lifespans and the ability to continuously update and improve their vehicles without the need for new hardware. This enhances the long-term value of the vehicle and ensures that it remains competitive with newer models.
Notable avenues for potential aftermarket growth include the following:
- Software updates and subscription-based services. As trucks become increasingly software-centric, the demand for regular software updates and upgrades will increase. This presents a potentially lucrative opportunity for OEMs and suppliers to offer subscription-based services and generate recurring revenue.
- Data monetization. The data generated by advanced E/E systems can be monetized in various ways. Fleet operators can leverage this data to optimize their operations, reduce downtime, and enhance safety. In addition, based on the combined potential value derived from various data-driven services and applications within the automotive industry—including connected car services, predictive maintenance, fleet management, and other innovative solutions that leverage vehicle data—the automotive data–enabled services market could be worth $3 billion to $4 billion in the European Union and the United States by 2035, according to McKinsey analysis.
- Predictive maintenance. Predictive maintenance, enabled by real-time diagnostics and AI algorithms, can significantly reduce operational costs and improve vehicle uptime. This service can be offered as part of a comprehensive fleet management solution, creating additional revenue streams for OEMs and suppliers.
Growth estimates by market segment
The market potential for advanced E/E architectures in the commercial vehicle industry is vast amid mounting demand for the autonomous, connected, and electric vehicles that require such systems to operate effectively. As OEMs and suppliers transition from modular to centralized operating models to meet this demand, growth estimates for the global commercial vehicle E/E architecture market point to a 6 percent per annum growth rate from 2024 to 2030, when it could reach nearly $20 billion.
The heavy-duty-truck segment is expected to lead the sector with about 50 percent of value ($10 billion) by 2030, followed by the bus segment at around 30 percent of value ($6 billion) and the medium-duty-truck segment at around 20 percent ($4 billion) of the total market.
Electrification of trucks will drive high growth in power electronics such as inverters, converters, power distribution units, and battery electronics, while more sophisticated ADAS and the introduction of autonomous driving (AD) will boost growth in the ADAS/AD sensor segment. Wire harness and control unit segment growth, meanwhile, is lower, as cost savings are expected from a reduction in the number of control units needed for fifth-generation architectures (Exhibit 1).
To capture the identified market potential, suppliers will need to develop comprehensive go-to-market strategies that consider both the E/E architectural components and the software solutions deployed. For example, they might strengthen sales, marketing, and customer support strategies tailored to the unique features and benefits of the software solutions.
Preparing for the future of E/E architectures: Transitioning from modular to software-centric
Indeed, the evolving landscape of E/E architectures in commercial vehicles presents significant implications and opportunities for OEMs and suppliers. To thrive in this new era, companies must adapt their traditional modular approach to a software-centric development approach. This will require them to familiarize themselves with the various dimensions of software development and deployment. We have defined a holistic framework to address the essential considerations within each of the four dimensions of software development (Exhibit 2).
Each of the framework’s four dimensions focuses on a specific set of challenges and considerations:
- What software is developed: ensuring that software requirements address competing priorities while maintaining efficiency in development; for example, balancing user-centric design with streamlined hardware and software integration
- Where software is developed: creating organizational and operational structures that support new software development needs
- How software is developed: implementing agile and development practices to support innovation and efficiency
- How software development is enabled: enabling tools and infrastructure to track and guide progress toward efficiency, performance, integration, and quality goals
Companies must carefully consider the competitive and strategic implications of this change and the other organizational and operational transitions needed to support advanced E/E architectures and the smart vehicles they enable. The software development framework can serve as a foundation upon which OEMs can build a new approach, as exemplified below.
What software is developed: Creating the right architecture
OEMs must invest significantly in R&D to remain competitive, developing new hardware as well as focusing on software innovations. Companies can position themselves for success in this critical realm by starting with the right road map and offerings, as discussed below.
- Define a clear R&D and software strategy. OEMs will need to adopt a software-centric development approach that places software at the center of vehicle functionality, updates, and customer experience. This can be achieved by prioritizing the development of software that enables OTA updates, real-time data analytics, and AI-driven features that enhance vehicle performance and user experience.
- Establish a software-centric architecture. OEMs should focus on enabling vehicles that are defined primarily by their software rather than their hardware. Developing a flexible and scalable software architecture can help facilitate continuous improvement and feature enhancement throughout a vehicle’s life cycle. This approach can enhance the value proposition of vehicles and open up new revenue streams for software updates and enhancements.
- Reduce architecture complexity. Decoupling hardware and software, standardizing, modularizing, and adopting service-oriented architecture can help to manage the intricate integration of an increased amount of software and hardware.
- Apply user-centric design. Limit software development to essential features valued by customers, focusing on usability and functionality.
- Improve management of software requirements. Adapt processes to ensure efficient management, prioritization, and end-to-end tracking of software requirements.
Where software is developed: Building the right organization
To ensure continued success, companies must establish organizational and operational structures conducive to innovation and collaboration in software development.
- Define a clear make-or-buy strategy. Defining a strategic make-or-buy decision framework entails identifying which software components should be developed in-house and which should be outsourced. Outsourcing areas that fall outside an organization’s core strengths may enhance capabilities and speed up development cycles. Establishing a robust procurement process that ensures the quality and reliability of third-party software is also vital.
- Attract and nurture top software talent. To attract and retain critical top software talent, OEMs can consider investing in centers of excellence that focus on software development and delivery. Ideally, these centers would be strategically located in regions with access to skilled talent. Additionally, partnerships with universities and technical schools can create a pipeline of skilled professionals.
- Transform organizational structure. By transitioning away from developing functionality and software in fragmented silos and forming cross-functional teams dedicated to software projects with strengthened horizontal capabilities, OEMs can benefit from seamless integration between software and hardware development processes and promoting a culture of continuous learning and improvement. Overarching software development teams may need to be integrated into vehicle project organizations to promote cross-platform reuse and alignment with vehicle development timelines.
- Navigate a complex strategic partnership landscape. Given the decoupled software and hardware architecture and fragmented vendor landscape, strategic partnerships will become rather complex, and defining clear make-or-buy strategies and forging strategic partnerships with software vendors will be key. Joint ventures between OEMs could provide one path to lowering development costs.
How software is developed: Optimizing processes using best practices
Following the established software development principles discussed below is essential to ensure quality, reduce time to market, and realize process efficiencies.
- Implement agile at scale. Implementing agile methodologies at scale in the vehicle development process helps maintain operational efficiency by coordinating multiple teams, fostering collaboration, and enabling rapid adaptation. This approach delivers incremental value via fast software and hardware innovations and ensures cohesive progress across complex projects.
- Decouple hardware and software development. Managing the separation of hardware and software development processes poses a challenge because it requires overcoming technical and organizational barriers to enable independent innovation cycles and agile software updates. OEMs can adopt a two-speed development process in which hardware and software development cycles are decoupled, enabling faster software updates and iterations by removing any constraints posed by hardware timelines.
- Increase test automation and mature continuous integration. As hardware and software development processes are decoupled, the need for rigorous and efficient testing processes grows. Increasing test automation helps manage the expanded scope of testing required for both hardware and software components. It accelerates testing, improves accuracy, and ensures that all components meet high reliability and performance standards. Maturing continuous-integration processes is vital for integrating new software and hardware in commercial vehicles. Frequent updates and early issue detection facilitate smoother integration, enhance system performance, and ensure rapid deployment of new features.
How software development is enabled: Maximizing performance and infrastructure
Enabling successful software and hardware launches and deployment requires an advanced and robust software development infrastructure.
- Upgrade to a standardized, state-of-the-art software development toolchain. Fast-paced release cycles place immense pressure on the development toolchain. A key challenge is building a standardized, state-of-the-art toolchain that supports continuous integration and continuous delivery (CI/CD) practices, enabling seamless integration of software and hardware updates. This requires investment in new tools and platforms that can handle the increased complexity and volume of data generated by modern vehicles while also ensuring cybersecurity and regulatory compliance. Investing in modernization of the toolchain accelerates development, reduces errors, and improves software quality.
- Implement performance management. By setting metrics and benchmarks for productivity and quality, OEMs can monitor and enhance their development processes. Data-driven insights from performance management help address issues early, maintain high standards, and ensure the software meets the rigorous demands of commercial applications. This leads to more reliable and effective software solutions.
Shifting OEM and supplier processes, organization, and capabilities from a modular, hardware-centric approach to a software-centric approach with centralized E/E architectures is a complex endeavor. But given the growing demand for leading-edge commercial vehicles with best-in-class efficiency and performance, this shift represents tremendous economic potential for OEMs and suppliers. Leaders should focus on preparing their organizations today to maximize their competitive advantages tomorrow.
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