Mercedes-Benz AG has tapped Google to assist with a reboot of software-based features that are expected to generate about 10 billion euros (US$10.6 billion) of additional revenue by the end of the decade.
The new operating system, to debut in about 2025, is scheduled to go into models spanning the entire Mercedes lineup and keep vehicles updated throughout their lifespan, the luxury automaker said on Wednesday.
Mercedes is working with select partners including Alphabet Inc, Nvidia Corp and Luminar Technologies Inc, but said it plans to keep a tight grip on technology to guard against revenue slipping away to tech competitors.
Photo: AFP
“When you build a software house, you don’t have to lay every single brick yourself or put up every single tile in the bathroom,” CEO Ola Kallenius said on Wednesday. “You’ve got to be in control as the architect, but leverage tech partnerships and make sure you work with the best.”
Automakers have tripped up on developing their own software functions that are outside of their decades-old hardware expertise. Last year, Volkswagen AG delayed new electric Audi and Porsche models because it could not acquire an accompanying operating system to work in time.
The jury remains out on who might profit most from the transformation into rolling computers. Software-enabled automotive revenue is expected to reach about US$700 billion by 2030, UBS Group AG said last year.
Mercedes expects to spend 25 percent of its research and development budget on software by 2025. Last year, the company generated more than 1 billion euros in revenue from software-based offerings such as navigation and live-traffic services.
The automaker forecast that this revenue should be in the high single-digit billion-euro range by the end of the decade.
It is cooperating with Nvidia on software and chips, and with Luminar on laser-based radar systems for driver-assistance features, the company said on Wednesday.
Mercedes is also hiring more software talent, and is close to reaching a target of adding about 3,000 new engineers, Kallenius said.
Nearer-term, Mercedes expects 1 billion euros in earnings before interest and taxes on software sales by 2025, chief financial officer Harald Wilhelm said on Wednesday.
That is split across existing infotainment and early offerings for autonomous driving. Mercedes disclosed that its agreement with Nvidia would see the chipmaker take half of net sales for autonomous software.
To keep margins strong through the electric vehicle and software transitions, Mercedes has shifted focus to top-end vehicles such as the G-Wagon sport utility vehicle. While this has paid dividends in the form of huge pricing gains, substantial discounts to flagship electric vehicles in China late last year suggest the company might have run up against limits to this strategy.
Aside from designing navigation technology with Google, which is to be done via a licensing deal, drivers are likely to have access to the YouTube app and hands-free driving in urban environments where regulation allows.
The company is also working on automated driving for speeds of up to 130kph. Mercedes last month said it plans to offer such features in the US for certain vehicles by the end of the year.
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