Mercedes enlists Google’s help in hunt for software billions

MERCEDES-BENZ has tapped Google to assist with a reboot of software-based features it’s expecting to generate just under 10 billion euros (S$14.2 billion) of additional revenue by the end of the decade.

The new operating system debuting around 2025 will go into models spanning Mercedes’s entire lineup and keep vehicles updated throughout their lifespan, the luxury-car maker said on Wednesday (Feb 22). While Mercedes is working with select partners including Alphabet, Nvidia and Luminar Technologies, the manufacturer plans to keep a tight grip on technology to guard against revenue slipping away to tech competitors.

“We made the decision to be the architects of our own operating system — a unique chip-to-cloud architecture — that leverages its full access to our vehicles’ hardware- and software components,” chief executive officer Ola Källenius said, introducing the manufacturer’s updated software strategy in California.

Carmakers have tripped up on developing their own software functions that are outside of their decades-old hardware expertise. Last year, Volkswagen delayed new electric Audi and Porsche models because it couldn’t get an accompanying operating system to work in time. The jury remains out on who will profit most from the transformation into rolling computers. Software-enabled automotive revenue will reach around US$700 billion by 2030, UBS Group estimated last year.

Mercedes expects to spend 25 per cent of its research and development budget on software by 2025. The company generated more than 1 billion euros in revenue from software-based offerings such as navigation and live-traffic services last year. On Wednesday, the carmaker forecast that this revenue will be in the high single-digit billion-euro range by the end of the decade. It’s cooperating with Nvidia on software and chips as well as Luminar on laser-based radar systems for driver-assistance features.

To keep margins strong through the electric vehicle (EV) and software transitions, Mercedes has shifted focus to its top-end vehicles like the G-Wagon sport utility vehicle. While this has paid dividends in the form of huge pricing gains, substantial discounts to flagship EVs in China late last year suggest the company may have run up against limits to this strategy.

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Aside from co-designing navigation with Google, which will be done via a licencing deal, drivers will have access to the YouTube app and hands-free driving in urban environments where regulation allows. The company is also continuing to work on offering automated driving at speeds of up to 130 kilometres an hour.

A precursor version of the new operating system will feature in the company’s revamped E-Class sedan that goes on sale later this year. BLOOMBERG