Volkswagen will buy semiconductors from Qualcomm in the future

Dusseldorf In the development of automated driving, Volkswagen has a long-term commitment to the American chip company Qualcomm. The automaker will use the specially developed “System-on-a-Chip” (SoC) for automated driving from 2026 across all brands worldwide. The Handelsblatt found out about it from business circles. Volkswagen declined to comment on the information.

After BMW and Mercedes-Benz, Volkswagen is the latest German automaker to engage in long-term chip cooperation. Like Volkswagen, BMW works with Qualcomm. Mercedes trusts Nvidia.

Wolfsburg’s decision is a surprise. In the industry, Intel’s subsidiary Mobileye has so far been seen as the favorite for cooperation with VW, as the two companies have been cooperating on various driver assistance systems for a long time.

The contract with Qualcomm runs until 2031. The first chips will be delivered to VW in 2025. According to insiders, the volume of the contract amounts to a good billion euros.

VW will install automated driving software on the Qualcomm chip, which the automaker is currently developing with Bosch. In a second step, the software planned for automated driving at so-called level 4 should also run on the chip. At this level, vehicles can drive autonomously on the highway at all times.

The decisive factor for the agreement is the pressure to innovate that Volkswagen and the entire automotive industry are under when it comes to connectivity and autonomous driving. According to business circles, Qualcomm is an “accelerator”. Thanks to the chips of the American group, the car manufacturer can more quickly market the software that it has developed with Bosch.

VW: Diess visits San Diego

A few days ago, Volkswagen CEO Herbert Diess visited Qualcomm’s headquarters in San Diego, USA to sign the contract. There, Diess, together with Qualcomm CEO Cristiano Amon and Qualcomm Automotive boss Nakul Duggal, agreed on the terms of future cooperation.

The fact that Diess is personally traveling to the United States for the negotiations shows the importance of cooperation for Europe’s largest automaker and its CEO. For the 63-year-old man, the agreement with Qualcomm is a success with a nice signal effect. It may show critics that the VW Cariad software unit’s future automated driving venture is finally making progress.

Criticism of Diess and Cariad had recently increased within the band itself and outside. Since the start of the year, Diess has taken over operational supervision of the software unit as VW boss. With Dirk Hilgenberg, boss of Cariad, he develops the software strategy of the VW group. Now both are under special observation and corresponding pressure to succeed.

For a long time, Cariad was accused of not being able to keep the given schedules. Internally, the resistance of individual brands in particular seems to be great. According to insiders, Stuttgart-based sports car manufacturer Porsche is not entirely convinced of the Cariad’s capabilities. Because the software for new models is not ready in time, their market launch is sometimes postponed. Even vendors Cariad works with on software development criticize the slow progress, as Handelsblatt recently reported.

The delays at Cariad are now openly acknowledged at Wolfsburg. There have been issues with various software projects over the past year. At that time, Audi CEO Markus Duesmann was still responsible for the new software unit. The company says things are moving faster now.

Tesla and Co. ensures increasing competitive pressure

The fact that at least the issue of the chip for automated driving has now been clarified should give further impetus to further software development within the Volkswagen Group. The Wolfsburg constructor is running out of time. Because faced with competitors like Tesla and newcomers from China, like Xpeng or Nio, who are already arriving on the European market with ready-to-use software systems, the competitive pressure is enormous.

Volkswagen and other German automakers will need to catch up on automated driving software and car operating systems in the next two to three years to stay competitive. Volkswagen and Co. can only meet this time window if they get hardware help from major chip companies.

Bosch Developer

The world’s largest supplier makes a pact with VW for automated driving.

(Picture: Bosch)

Autochips, in turn, are becoming increasingly important to the entire chip industry: their market share is expected to reach 14% of the entire chip market by 2030, or six percentage points percentage more than last year. According to calculations by consulting firm McKinsey, revenues in this area will triple to around $160 billion by 2030.

Despite ongoing semiconductor supply shortages, global auto chip sales jumped 28% to $52 billion in 2021.

>>> To read also: Herbert Diess under pressure: criticism of VW Cariad software unit mounting

Unlike BMW and Mercedes, VW is pursuing a particularly ambitious plan. While the southern German competitors are developing the automated driving software together with the respective chip companies, the Volkswagen subsidiary Cariad relies on Bosch as a software partner. A few months ago, the VW Group and the world’s largest automotive supplier entered into a corresponding cooperation agreement.

According to the group, Bosch was therefore involved in the decision to buy chips from Volkswagen at Qualcomm. Because the jointly developed software must be closely coordinated with the hardware, i.e. the chip, so that maximum performance can be obtained from the chip with minimum power consumption. This procedure is familiar in the world of smartphones, where Apple uses its own chips for its iPhones, for example, which are customized for the respective software.

VW CEO Herbert Diess

Competition in e-mobility poses major challenges for car managers.

(Picture: Volkswagen AG)

The chips that Volkswagen will buy from Qualcomm for automated driving in the future were still entirely developed by the American computer group. But that should soon change, the VW Group wants to develop semiconductors itself so that it can use them in its vehicles as needed. News can be expected this year, according to business circles over the weekend.

By choosing Bosch as a software partner, VW hopes to gain more control over development – ​​and increase sales. Critics claim that competitor Mercedes, for example, entered into a “gag deal” when it decided to cooperate with Nvidia in terms of hardware and software.

From 2024, when the first jointly developed systems hit the market at Mercedes, more than 40% of the revenue that Mercedes generates with software packages for automated driving functions will end up at Nvidia.

Volkswagen also chose Qualcomm so as not to become too dependent. “Because unlike other chipmakers, Qualcomm was the only company to offer us cooperation on an equal footing,” said a person familiar with what is happening at VW. Volkswagen’s contract with Qualcomm is not based on a “revenue sharing” model like Mercedes, but rather the Wolfsburg-based company pays per chip.

The deal should still be worth it for Qualcomm. Because semiconductors must be used in all VW Group vehicles worldwide. The automaker currently sells nearly nine million cars a year and thus has greater market power than rival Mercedes, which delivered around 2.5 million vehicles in 2021.

>>> Read here, how the increased use of software is also accelerating vehicle development

However, Diess and Hilgenberg face difficult discussions within their own group. Above all, brands that previously developed their driver assistance systems based on other chip manufacturers now have to adapt. This might offend Audi developers in particular. The Ingolstadt-based company has been cooperating with Qualcomm competitor Nvidia for years.

As early as 2017, Audi and Nvidia had developed a system for the A8 luxury sedan that would enable Level 3 automated driving. At this level, vehicles can drive autonomously on the highway at low speeds for long periods of time.

VW: Despite the agreement with Qualcomm, many things are still open

However, the feature was never activated because regulators did not cooperate. In 2020, Audi buried the project. Audi engineers will now have to switch to Qualcomm chips.

Qualcomm chip

VW will cooperate with the American group in the future.

With the Qualcomm deal, Volkswagen has cleared only the first of several hurdles. It is still unclear which chip Volkswagen will use in high-performance computers for the future self-developed automotive operating system. The automaker is currently negotiating this with the three major US suppliers: Nvidia, Qualcomm and Intel.

With the future car operating system, Volkswagen wants, among other things, to create the conditions for vehicles to be able to communicate via the new 5G mobile communication standard. The planned “VW.os” operating system is also to be used in all Volkswagen Group vehicles from 2026. Cariad is also responsible for the development of this operating system.

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This article was first published on May 2, 2022 at 4:00 a.m.

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