The evolution of digitally connected cars is posing challenges for automakers, Tier 1 suppliers and other players in the automotive ecosystem as the work to develop software defined vehicles (SDVs) continues.

An AlixPartners survey of 180 senior executives in the auto and technology industries indicated diverse levels of dedication and preparedness for the shift, which touches on safety, cybersecurity and convenience.

Just a quarter of automakers and Tier 1 suppliers said they feel fully prepared for the impending transition of SDVs—with a focus on the early part of the transition – even as they struggle to align on priorities and the nature of partnerships.

Tier 1 suppliers work closely with automakers in the design and development of automotive components, delivering critical parts and systems such as engines, transmissions and electronics directly to the assembly line of vehicle manufacturers.

Roughly two-thirds of Tier-1 suppliers said they plan to collaborate with technology companies, while the percentage decreases to 46% for tech firms and 38% for automakers.

Tech companies predominantly intend to enhance their software-defined vehicle (SDV) capabilities through partnerships, while automakers plan to strengthen SDV capabilities through relationships with Tier-1 suppliers.

Himanshu Khandelwal, partner and managing director in the automotive and industrial practice at AlixPartners, says automakers, Tier 1 suppliers and tech companies must collaborate on a shared vision and on cross-industry standards.

“That means aligning on a features and functions roadmap, deployment timelines and synchronizing software and hardware adjustments to seamlessly blend cutting-edge technology with user safety. Secondly, they need integrated development,” he says. “That means syncing design, modularizing architecture, and doing development collaboratively.”

It also means ensuring seamless integration of hardware and software to mitigate interoperability and compatibility issues, and to enhance overall system performance.

Thirdly, Khandelwal says robust data-sharing with clear rules is critical to safeguard user-privacy and accommodate data-monetization needs.

“It also means fostering trust among users in the evolving data-driven ecosystem,” he explains. “Finally, they need to establish security protocols.”

That requires embedding “security-by-design” in product development, rather than adding it as an afterthought.

To mitigate risks, nearly half (49%) of automakers said they would opt for early-phase testing, while 43% of tech firms and 30% of automotive Tier-1s prefer modular-platform software design testing.

Additionally, 38% of automakers choose model-based systems engineering for software and hardware integration, whereas tech companies predominantly lean towards AI for testing.

Khandelwal notes many legacy automakers operate with established, less-agile processes, struggling to pivot from traditional manufacturing to software-driven innovation.

“Many EV makers, in contrast, exhibit significantly more agility,” he says. “They also differ in business processes and supporting infrastructure.”

While the processes for designing, developing, procuring, manufacturing, selling, and servicing for legacy OEMs have evolved, they still require substantial investment for modernization and transformation.

“In terms of supply chain, legacy automakers face challenges due to their complex, established supply chains that will lack agility in integrating rapidly evolving software components,” he says.

Collaborating better with tech companies and Tier-1 suppliers requires a shift from traditional partnership models.

“Legacy automakers need to do a better job at customer perception,” Khandelwal says. “Balancing customer expectations about brand identity, product offerings, and technology poses big challenges for legacy OEMs as they innovate toward SDVs.”

Using a mix of proprietary software with open-source software in SDVs is not only feasible but becoming increasingly common.

This offers a balanced approach, as proprietary software provides OEMs with reliable and custom software tailored to the automaker’s needs, while open-source software offers flexibility, innovation, and a potential for cost savings.

“The advantages include seamless integration, combining open source and proprietary software demands thorough testing for smooth functionality,” Khandelwal says.

This blend offers the best of both worlds—open source fosters innovation, while proprietary software provides OEM support and reliability.

Proprietary software offers more control over features and user experience, aligning closely with automaker needs, while open source may require more effort for customization – a blend of the two often yield the optimal results.

“Another advantage is security and compliance,” Khandelwal says. “Open source, with rapid updates and community scrutiny, quickly identifies vulnerabilities – however, it may have varying levels of support.”