Automobiles Sector Update : Era of zonal architecture in advanced SDVs by Elara Capital
Era of zonal architecture in advanced SDVs
Given the rapid adoption of software defined vehicles (SDV) globally, an emerging trend in electrical/electronic (E/E) system is the adoption of zonal architecture over domain. Zonal architecture effectively reduces wiring harness content in a vehicle. Globally, while this architecture was adopted by Tesla and Chinese OEMs, currently several legacy OEM have adopted zonal architecture in their recently launched/upcoming platforms. We see more OEMs adopting it, both in EV and ICE vehicles (as stated by GM) for next-gen more advanced SDVs, which helps with efficient software updates and saves cost by reducing development time, fewer control units, and reducing wiring harness content. While we believe Indian OEMs are some years away from shifting to advanced zonal architecture, we believe it is imminent and structurally negative for wiring harness suppliers like Motherson Sumi Wiring India (MSWIL). We retain Sell
Cracking the SDV code – not a cakewalk; legacy OEMs are struggling: While there are many definitions of advanced SDV, we find Nio’s definition as the most simplistic. To quote, Benjamin Steinmertz, Production Experience Director, Nio Europe, “…SDV is a vehicle that can be shaped or changed via software than hardware. So, the characteristics of a vehicle can be changed via software. While the term SDV today is used for almost all vehicles, there are different levels, and as the SDV level moves higher, vehicle architecture becomes critical. For L3 and above, the adoption of zonal architecture becomes critical to its functionality and efficient “over the air” (OTA) updates. Tesla was the pioneer of SDV, but today Chinese OEMs are catching up fast, as per S&P Mobility. However, legacy OEMs continue to struggle, especially in the software piece (e.g., Volkswagen) albeit catching up at a slower pace.
Zonal vs domain architecture advantages: In domain architecture, electronic control units (ECU) are categorized into domains based on functions while zonal classifies ECU by their physical location inside the vehicle, leveraging a central gateway to manage communications; adds a vehicular compute module. This module is a computer with a large processing capacity to perform computations regardless of function. Some advantages of adopting zonal are: 1) reduction in wiring and hence cut in weight of vehicles, 2) scalability and modularity, 3) higher levels of SDV and OTA updates, and 4) improved reliability & maintenance. For e.g., Tesla’s Model 3 was able to reduce wiring content by 50% while BMW is talking about cutting ~600m wiring and ~30% of vehicle weight after adopting zonal architecture.
Implications on our coverage universe: India’s EV ecosystem is still a few years away from adoption of advanced SDV-related zonal architecture; however, this trend is catching up fast globally, now even with legacy OEM. This may be negative for wiring harness suppliers like MSWIL as adoption of zonal architecture in EV would reduce wiring harness content (mainly low voltage wiring harness), and wiring harness would become a mere part of electrical distribution system (EDU), thereby increasing competition in this space. It also becomes critical for EV in terms of reducing the vehicle’s weight. Our interactions with global auto experts suggest that any vehicle designer, while designing EV architectures, wants to reduce weight and wiring harness is one of the key components they target. We reiterate our Sell rating on MSUMI as we believe increasing content per vehicle in EV may benefit MSUMI in the initial years, but risks associated with technology & platform changes remain, as OEM globally are trying to reduce wiring harness content in a vehicle to trim overall weight, which would remain an overhang on multiples.
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