Audi Puts Its Future Into High (Tech) Gear

Over the last decade, the car became fully networked internally. Over the next decade, it will become fully networked with its surroundings. That’s the goal driving Ricky Hudi, head of electrics/electronics at Audi AG, a unit of Volkswagen. Hudi joined Audi in 1997, and likes to joke that being born in Silicon Valley has made him the right man for the job — if for no other reason than he holds dual U.S. and German passports (his parents moved back to Germany when he was three months old).

Hudi says electronics is the motivating force for innovation in modern automobiles, from the engine to the gearbox to the driver experience. So Audi works closely with semiconductor and software companies to bring research ideas into its cars. But getting into position to create a connected car, the car as social medium, took a good deal of planning and time and a major restructuring of how the premium car manufacturer works with its supply chain, mixing traditional automotive suppliers with technology companies. In an interview with MIT Sloan Management Review contributing editor Michael Fitzgerald, Hudi described the transition Audi is making and his perspective on the future of the auto industry.

To what extent does Audi think about the car as a social medium?

The car and social media belong together. Not long ago the car was the least networked part of our life. We started to change this and we offer interaction now, well integrated in our user human-machine interface (HMI) concept into the car. By the end of this decade, I’m convinced that every premium car around the world will be 100% networked. It will be part of the [Internet] and offer customers the functionality they want.

Audi potentially will have access to totally new kinds of customer data. Is that considered important to Audi?

We do not gather data from the device. The contract is completely customer-focused. It is a classic Android account with a Gmail account.

Did you talk about setting it up so Audi would have more access to that data?

Customer data are not in our focus. The Audi Smart Display’s main focus is to give the customer a better user experience. But what is in our focus is the data [that] we can deliver for our cars, [to improve how] cars interact together.

I’ll give you an example: since 2011, we have had online traffic conditions in our cars, done with INRIX. We send out anonymous information from our cars to see how traffic is moving, and every three minutes we give customers anonymized information about where cars are moving, where there is a traffic jam. We have big potential for doing applications where cars inform each other whether there is an alert or additional information. That is our main focus.

Is extending the brand by bringing Audi into the house part of the strategy?

The consumer should have the flexibility to use the entertainment system in the car and also take it to the home. It is a very modern way of connecting the consumer world with the automotive world. We say they rationally belong together, and this is another step where we fuse them together. In 2010, we were the first car manufacturer to offer a Wi-Fi hotspot in the car. This is another good example where we fuse consumer devices with our cars.

How did you break free of the traditional five- to seven-year product development cycle?

Look at our modular infotainment platform, introduced with the new Audi A3 in 2012. This is a paradigm shift in bringing the technology of consumer electronics as fast as possible into the car. We used to make a specification and get in contact with first-tier infotainment suppliers like Harman or Bosch or Alpine. They would propose a kind of systems approach, and we would evaluate it and work together to realize the infotainment system.

The problem is, the approach they proposed always had a time delay, typically five to seven years, from the latest and greatest consumer electronics. Imagine all the path-changing things coming from the consumer world, like navigation, like speech recognition, connectivity, HMI. We thought [it] was no longer possible to continue doing it this way, so we separated the hardware into slow-moving and fast-moving parts within such a system, and we also separated the software.

We work with technology partners from the consumer world, like NVIDIA, for the fast-moving parts, and the slow-moving parts we’re still doing with the traditional first-tier automotive suppliers.

When you have separated these fast- and slow-moving parts, and you have a powerful technology partner like NVIDIA as your chip supplier, you also need the software running on the computer. For that reason we founded e-Solutions, a joint venture together with Elektrobit, a Finnish company. We are now able to completely follow the cycle of consumer electronics, where every one and a half to two years we are able to bring an over-the-air update of a new entertainment platform. But it took time to build up all the competencies and necessary pieces. We started building on this idea in 2003.

You mentioned that one obstacle was bringing together these technology providers, to start and launch a joint venture. What about internally? What kind of pushback did you get, and how did you overcome it?

We realized the gap between consumer electronic cycles and car electronic cycles was getting too big. This was the starting point of the discussion. Our traditional first-tier suppliers were too slow, and it was too complicated to be quick and innovative that way. So in 2009, we made the proposal at the board level, the CEO/CTO level and the marketing board level and finance side.

We had no resistance from the top or the other departments. We were surprised that we got the approval so quickly. You always get some questions, but it went really perfectly with the mobile infotainment platform. That was, in retrospect, absolutely convincing — [a situation] where our CEO and CTO and top management fully stood behind the step. They saw that we’re playing in a completely new Champion’s League, where we’re directly dealing with NVIDIA and Qualcomm and Google. In 2012, we introduced our modular infotainment system in the A3. In 2014, we’re bringing the virtual cockpit in the new TT. Next year we are bringing the Audi Smart Display based on an Nvidia Tegra chip. This cycle was, five or seven years ago, impossible even to think about.

What drove the recently announced Open Automotive Alliance with Google?

Our partnership with Google goes back to 2004, to sync Google Earth with the car. Since 2009, we have these features in our cars, and have had a big success with that in the United States. Today, 80% of all smart phones around the world have Android, so it was obvious that it would be an appropriate way to interface the devices with the car. We are designing the interfaces now, and next year, we’re going to have the first cars on the road where these devices are interfaced to the car. The customer already has an Android and Google account coming with his smart phone, and needs no additional account to bring this access to the car.

How does something like the Audi Smart Display come about, internally?

On the development side, we talked about what the next generation of rear seat entertainment is. No tablet fits to the car in a way that guarantees it will still interface to the car when it is updated, or won’t have problems with high and low temperatures and so on. All the existing rear-seat solutions are fixed, they’re not mobile. We want to be able to cope with the consumer technology cycles. We have partnerships with NVIDIA and we have our e-solutions joint venture, so why shouldn’t we make a smart tablet that perfectly interfaces to the car? Because of our earlier success with entertainment systems, it was easy to convince people internally. We built a prototype last fall. And this was so convincing in appearance and basic functionality, we first decided to bring it to market very quickly and to show it at 2014 CES.

Will this be transformative for customer relationships? It gives you access to customers in a way you’ve never had before. Is that part of your thinking?

The major idea behind it is to give our customers innovative and unique functionality they don’t get at other car manufacturers. Even if they would get it from another car maker, we always try to make ours better integrated into our cars.

What does Audi gain from the car becoming a social medium?

Customers do not want to leave the network of their lives behind when they get in a car. They want to use their time wisely, to adjust to changing schedules and commuting conditions. And the Audi is now in a position to keep them connected. In the future, our cars will take even great strides to gather, analyze and present vast amounts of information and personal updates available on the Cloud.

Typically, car owners have relationships with dealers more so than the manufacturer. Does the car as social medium change that dynamic?

Having more socially connected cars will help our customers communicate better with dealers in terms of services they need or appointments they want to schedule. We are working on tools that help Audi customers find a faster route to a car [that is] configured the way they want it. This way, Audi, our dealers and our customers can always remain in a closer loop of communications than ever before. But Audi is not intruding on a dealer’s relationship with a client.

Do you interact with counterparts at Volkswagen’s other units?

We interact in a very, very efficient and near-perfect way! It would be silly if we didn’t realize the symmetries in the huge Volkswagen group. We have identified and defined all the systems of the car in modules. In areas like switches or connectors — things that are not relevant for the brand or image of the car — we work perfectly together. We also devise work responsibilities so that some parts, our colleagues at Volkswagen are handling, and others we are handling at Audi. But in systems where it’s necessary to differentiate by directly appealing to the customer, those are handled by each brand.

What’s been the most challenging facet of trying to achieve digital transformation?

You have to identify the best technologies in the world and have the confidence to integrate them as fast as possible into systems. I’m in the great situation that electronics inside the car, inside Audi, have already gone through a lot of the transition process to bring them up to speed with the international way of thinking, the international way of development. We’ve had a development lab in Silicon Valley since 2001. Since 2008, I also have a development center in Beijing. I have a small office in Korea and in Tokyo.

How we interact and develop in the worldwide network with Audi headquarters here in Ingolstadt gives us a lot of open-mindedness and flexibility.