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James Bryant

Will Silicon Valley Be the New Motor City?

by James Bryant | Dun & Bradstreet Editor

April 3, 2015 | No Comments »

car-headlight-technology_990pxAs automobiles become increasingly connected through information technology applications, more car companies and their suppliers are setting up research facilities in the backyards of technology companies in Silicon Valley. From Belmont to San Jose, automakers are investing in lab facilities as they place their bets on self-driving systems and other technologies that hold the future of the automotive industry.

According to IHS automotive, software already accounts for between 10 and 25 percent of the overall cost of a light vehicle — and that figure is likely to grow rapidly. Moving the metal is giving way to moving the microprocessors. Some industry watchers suggest traditional car companies have already lost technology ground to Tesla — a company that updates vehicle software via the Internet instead of a dealer service bay.

Apple and Google are pursuing their own automotive ambitions, but by setting up shop in Silicon Valley, carmakers are gaining access to the largest tech-talent pool on the planet — including the brain trusts at Google and Apple. Ford recently established an office in Palo Alto, California, and plans to increase its staff there by 400 percent before the end of the year. Other car companies with facilities in the region include General Motors, Honda, Toyota, BMW, Mercedes, and Volkswagen. Tier 1 suppliers like Denso, Delphi, Bosch, and Continental are flocking there as well.

However, auto executives have mixed feelings about tech giants becoming more entrenched in the development direction of vehicle technology. Some are welcoming partnerships between their companies and the legacy tech vendors; others, not so much. Bill Ford Jr. (of Ford Motor) has expressed concern that he doesn’t want his company to become a “handset maker,” with most of the added value being produced by outside software vendors.

But by developing their own technology and software platforms, traditional car companies take the risks associated with stepping outside their bailiwick. The poor customer reception of Ford’s MyFord Touch and MyLincoln Touch connectivity platform (which was developed with Microsoft) forced Ford back to the drawing board (its new platform, Sync 3, is based on Blackberry’s QNX operating system). So even with an established technology partner, things can go wrong and irritate tech-savvy customers who expect a seamless technology experience from their mobile devices — and the car is quickly becoming the ultimate mobile device.

Auto manufacturers’ moves into Silicon Valley are indicative of what Thilo Koslowski, automotive analyst at Gartner, suggests is a battle for control of the automobile’s “brain.”

As Koslowski puts it:

“Among the automakers there will be two camps: those who understand this space, and those who give outside technology companies access to the center stack of the vehicle. Those companies will emerge in the next five years.”

Industry Impact:

Satisfying customer expectations by offering compelling technologies while retaining control of the automotive value chain will continue to present both challenges and opportunities for global light-vehicle manufacturers.


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