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Volkswagen to Invest $4 Billion in a Operating System for Connected Cars

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【Summary】German automaker Volkswagen announced it will invest 3.5 billion euros ($4 billion) by 2025 to build digital businesses and products including a cloud computing-based platform to connect vehicles and customers to offer services such as car sharing. VW plans to be a world leader in e-mobility services.

Eric Walz    Aug 23, 2018 1:55 PM PT
Volkswagen to Invest $4 Billion in a Operating System for Connected Cars

The cars of the future will be connected devices on wheels and Volkswagen is investing billions to build its own operating system to connect its cars, customers and digital service offerings together within a secure cloud-connected ecosystem.

German automaker Volkswagen announced it will invest 3.5 billion euros ($4 billion) by 2025 to build digital businesses and products including a cloud computing-based platform to connect vehicles and customers to offer services such as car sharing. VW plans to be a world leader in e-mobility services.

"We will be a device and software company," Michael Jost, the VW brand's strategy chief, said at a Berlin press conference introducing the car-sharing program. He emphasized that software and services, not just the car itself, will differentiate automotive brands in the future. "To deal with this development, we need to reinvent the automobile."

The German automaker said on Thursday it was working on a new software operating system for its entire lineup called "vw.OS", which will be introduced in VW brand electric cars from 2020 onwards. These new vehicles will have a completely new electronic architecture designed for autonomous driving functions, VW said in a statement.

"We have a clear vision, we will continue to build vastly superior vehicles. But going forward, our Volkswagens will increasingly become digital devices on wheels", said Jürgen Stackmann, Volkswagen Brand Board Member for Sales. "Our customers will become part of an ecosystem that we have named ‘We'. This system complements the Volkswagen experience on wheels and enables customer to take their world into their vehicle."

New cars typically have 60-100 sensors installed on them. Rather than having all of these different sensors and controllers operating independently within each vehicle, the new cars from VW will connect the various sensors using the new proprietary software operating system.

VW said it was easier to do over-the-air software updates for cars if the operating system was designed in-house, rather than depending on third-party software supplied by the different vendors providing various sensors. OTA updates pushed directly to the vehicle saves a customer from having to visit a dealer to have it performed.

VW said it expects to generate around 1 billion euros in sales by 2025 from offering new digital services including car-sharing, parking and parcel delivery services.

These digital services include smartphone applications like "We Park" into car infotainment systems and connecting vehicles with vendors like Amazon, so the e-commerce giant can unlock a VW vehicle and deliver a customer's order right to where their car is parked.

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Volkswagen also said it would launch its own car-sharing business, called "We Share", in Berlin using a fleet of 2,000 electric cars in the second quarter of 2019. The We Share service will expand in European markets as well as selected cities in the U.S. and Canada, the carmaker said.

Volkswagen is joining other automakers including Ford, General Motors and Mercedes Benz looking to develop branded mobility services to attract customers, as personal car ownership is expected to decline.

Electric automaker Tesla has a similar ecosystem in place for its owners. All of Tesla's cars are connected to its secure cloud, allowing the company to push OTA updates to its vehicles, check for faults, provide directions to the nearest EV charging station, monitor how many miles each vehicle is driven (and where), including the miles traveled while in ‘Autopilot‘, which is Tesla's autonomous driving system.

Volkswagen new OS is less about the car itself, and more about the digital services and personalized experience it can offer to customers. In the future, the suite of digital service offerings may be what attracts and keeps customers loyal to a specific automotive brand, not the vehicle itself.

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