For a century the internal combustion engine has been a primary source of value and innovation in the automotive industry. Today, we are entering a new automotive age, when cars will be differentiated by functionality enabled by semiconductors and electronics.
This shift places semiconductors — the building blocks of a car's internal computing engine — at the heart of a new ICE age in automotive innovation. One with profound implications as the new vehicle ICE will sit at the center of automotive safety, comfort and user experience.
Often talked about in the industry today are four megatrends: electrification, autonomy, connectivity and mobility as a service. What is not discussed or well understood is how each requires dramatically higher semiconductor content in vehicles. Cars are becoming supercomputers.
These computers with their integrated and bespoke software applications increasingly will define a car's value in safety, convenience and infotainment. Instead of thinking about horsepower, consumers likely will be most interested in cars with the best onboard computers and electronic systems.
This shift is forcing an intensifying convergence of the semiconductor and automotive industries, one that we at KPMG believe will result in massive growth for the automotive semiconductor market, taking it from $40 billion this year to $200 billion by 2040.
The road to $200 billion, however, will not be a straight line. It will require new kinds of collaboration models between the players across the supply chain and the integration of new players such as software suppliers. Automakers, parts suppliers and semiconductor companies will face critical choices.
- Should automakers change the way they engage semiconductor companies?
- How should semiconductor companies craft investment and partnership strategies to capitalize on the four megatrends over the coming decades?
- What is the optimal research and development strategy?
- How big a role will mergers and acquisitions play vs. in-house innovation?
These are just a handful of the critical questions facing executives. We believe that the opportunities for automotive semiconductor suppliers and the whole automotive supply chain are great. But the journey from now to a world where electric, autonomous and connected cars are commonplace will require many difficult decisions. Those able to strike the right balance stand poised to lead in the new ICE age.