In 2010, Apple introduced its first custom-designed processor – the A4 chip. Today it has more than 6,000 engineers working on chip design. Tesla, looking for semiconductors capable of supporting the huge processing demands of its electric vehicles and autonomous driving systems, has taken the same approach. In 2019, it revealed its own AI chip for its Autopilot hardware. AWS has designed its own Graviton processors, because it wanted to offer better price-performance ratios for cloud customers and what was available on the market could simply not deliver on these requirements.

The shift from a complex semiconductor supply chain to a vertically integrated model of innovation – whereby companies own their own processor, integrated circuit design and development process – represents a seismic shift in the industry. Conjuring images of the 1960s, when technology behemoths like IBM owned the entire technology stack, companies across many different sectors are pulling this all in-house to gain a competitive advantage, by creating chips that are precisely tailored to their needs – improving hardware/software partitioning, performance, power efficiency, supply security and differentiation. But, unfortunately for most OEMs, that is simply not an option they can afford.

R&D costs are surging

The cost associated with advanced chip design – encompassing hardware, software, prototyping, qualification,  and application – has witnessed an astronomical surge. A decade ago, developing a 28nm chip cost roughly $50 million. Today, the price tag for cutting-edge chip design is more than 20 times higher. This surge extends to electronic design automation (EDA) tool costs, further complicating the landscape. So, whilst the very biggest companies in the world can spin up their own teams of engineers to do R&D, the majority cannot carry that cost. 

As a result, whilst advanced chip manufacturing largely remains locked to the foundries of TSMC, Samsung and Intel, it is in the research, development, and design process where we are seeing the emergence of new business models to address the need for OEMs to become more vertically integrated in a cost-effective way. That creates fresh opportunities for exciting growth. For example, with chiplets emerging as a modular solution, there is a growing appetite to separate the design, manufacture, and testing of processor components, offering unparalleled flexibility and cost-effectiveness at the design stage.

New collaborative models

One of the most interesting new approaches is the collaboration between OEMs and strategic technology partners for semiconductor research and design. Under this model, the technology partner acts as the OEM’s external semiconductor department or co-owned department, or it engages in co-design activities and the development of co-owned solutions. This approach removes the cost barrier for building an in-house research, development and design function, opening up the option for more companies that can therefore enjoy the benefits of vertical integration outlined above.

It suggests that the future of the semiconductor industry may lie in a service-oriented business model and collaborative design approaches. OEMs will need to engage in co-design and co-ownership partnerships to navigate the evolving landscape and build a strong ecosystem effectively.

That is the change that we foresee – the creation of an industry environment that drives the development of ecosystems between foundries, IP providers, EDA companies, software developers, and OEMs, shaping the future of silicon service engineering in Europe and beyond.

Does Europe need a new approach?

Europe is at the heart of these challenges. Why? Because there is a burning need for collaboration across the continent. There are no more than a handful of European companies that can afford these advanced nodes. Europe must aggregate its strengths to take on that challenge. The good news is that Europe fundamentally has the required technology, talent, resources, projects, and expertise. Promising companies like Kalray, SiPearl, VSora, GreenYellow, Menta, Scalinx, and GrAI Matter Labs and many others offer real hope, but only if we can develop a collaborative ecosystem in Europe that encourages OEMs to partner with companies like this as part of their own move to a more vertical strategy.

This a major challenge for the European Chips Act (ECA) if it is to help bolster Europe’s semiconductor industry. It’s about enabling a new model to match the vertical integration championed by the largest companies in the world, at a fraction of the cost. That is going to require a significant amount of collaborative work to put in place the incentives and frameworks that can support such a seismic shift in a short space of time. With this properly established, European companies will have a fighting chance to successfully gain ground in the semiconductor race.

Towards individualization

Marketing strategies have used technology to shift from broad-based campaigns to targeted approaches using group-level data. With generative AI, we move to individualization, where AI platforms craft unique experiences tailored to each user’s specific needs and preferences. This can incorporate factors like real-time behavior, mood, preferences, goals, and health metrics. To illustrate, while personalization involves targeting segments with credit card campaigns based on transaction history, individualization takes it further. It allows credit card companies to monitor each customer’s financial actions, adjusting credit limits dynamically based on their creditworthiness and current financial situation using AI/ML. This ensures personalized, responsible credit management.

Deploying sophisticated generative AI operationalizes, at scale, the insights generated from AI/ML algorithms. This optimizes resource allocation, improves customer engagement, and growth and efficiency strategies. According to Capgemini, 58% of organizations integrate generative AI into marketing, and 50% of financial services firms allocate budget to it . How does this technology enhance business and customer outcomes for financial institutions?

Generative AI’s technological prowess and operational capabilities will lead to a paradigm shift in how businesses can be ran efficiently. To extract the maximum value out of generative AI applications, a leader must understand the technology and how it can enhance existing business processes, along with clarity on the outcomes it can create. Banks and financial institutions will need to rapidly adopt these technologies in a volatile, competitive environment to ensure that customers’ demands for greater personalization and convenience are met quickly and effectively.

At the heart of our era’s digital transformation—powering everything from satellites to energy-saving lights, from our connected world to the GPS we use to get away from the world for the weekend—all the changes we’ve lived through come down to tiny, intricate semiconductor chips. Today, the semiconductor industry is undergoing a quiet revolution, one that will have profound effects on the digital world. 

In this article ,we’ll be exploring the opportunities facing chip companies at this turning point, along with some of the challenges along the way We’ll answer the questions:

• What’s driving this softwarization shift?
• What opportunities will this give rise to?
• How has this transformation affected other industries?
• How can we take full advantage of these changes?
• How will we know if we’re on the right track?

Market opportunities and present approach 

 The first question is, what horizon are we looking at? If your core mission is simply to manufacture the best chips possible, your horizon will be different than that of a company whose mission is, for example, to support its customers’ needs. Whatever your mission may be, expect opportunities everywhere.  

More custom chips… More custom applications…  

More custom everything, in fact, and chips are no exception. Multiple trends are driving the need for more specialized chips, often called Application-Specific Integrated Circuits (ASICs). This includes demand across industries, from automobile, life sciences, healthcare, and telecom to entertainment, space, manufacturing, defense, and the list goes on! 

It all starts from the need for semiconductor companies to pursue the strategy of expanding into several adjacent industries for these crucial reasons: 

• Diversification of revenue streams: Diversifying into multiple industries reduces dependence on a single market, thereby mitigating risks of market volatility. 
• Leveraging core competencies: Semiconductor companies can capitalize on their existing strengths and technologies to offer solutions in related industries, maximizing the ROI of their research and development investments. 
• Growth opportunities: Adjacent markets often provide significant growth opportunities, especially as emerging technologies and trends (like IoT, AI, or 5G) create new demands and opportunities (R&D) across various sectors. 
• Economies of Scale: Operating across multiple markets can lead to economies of scale in manufacturing and R&D, reducing costs per unit and increasing overall efficiency. 

In other words, semiconductor companies (a.k.a Semicoms) create customized hardware tailored to specific industry solutions. This involves designing and manufacturing chips with particular features and capabilities that cater to the needs of different sectors such as automotive, healthcare, or telecommunications. This is what we call a ’hardware-centric’ approach. 

In the HW-centric approach, the focus is on creating a product that meets the industry’s unique hardware needs first, and the primary value lies in the physical chip capabilities, with software playing a ‘supporting but an important role’ which is essential to bring out the full potential of the hardware….Well it’s the intermediary that makes the hardware te accessible and useful to the overall system by providing the necessary interfaces, controls, and customizations. 

Then, what’s the challenge with this approach? 

1. Long lead times. Time-consuming design and manufacturing processes due to the complexity of custom HW – often leading to missed time-to-market targets. 

2. Rigid solutions/fixed functionality. HW with fixed functions designed for specific tasks within an industry, with limited flexibility for updates or changes once the HW is deployed. 

3. High HW costs. Significant investment in design, prototyping and fabrication of industry specific HW. 

4. Software (SW) costs still constitute a significant portion (up to 40%) of the overall budget, yet there’s no effective corresponding revenue model. 
   • SW is seen as an essential part of the HW, expected to be included in the purchase price of the chip. 
   • SW is viewed only as a cost – the cost of doing business, necessary to make the HW operable and appealing to customers, rather than as a product or service that could be sold independently. 
   • SW updates, bug fixes, and support are usually provided as part of the post-sale services with no additional charges. 
   • SW customization possibilities are limited by the HW – hence there are very few opportunities for additional SW-based revenue. 

So, as a semiconductor company that needs to pursue the strategy of expanding into several adjacent industries whilst still leveraging a HW-centric approach, we can summarize the UN-DESIRED challenges as follows: 

1. Costly and time-consuming design and production. Today’s business model necessitates designing and manufacturing a diverse array of chips, each tailored to specific industry requirements. This process is not only expensive but also time-consuming, involving extensive hardware and software development for each unique industry solution. The high cost of design and production is a major concern, especially as we navigate the risk of missing crucial market deadlines. 

2. Software development as a cost center. Despite the considerable investment (nearly 40% of overall ) in software development to support these industry-specific solutions, it doesn’t translate into direct revenue generation….so Software, in this model, is a cost center rather than a profit center. 

3. Rigidity and lack of adaptability. The solutions the industry today offers are inherently rigid. They come with fixed functionalities, which means any significant change in industry requirements or standards necessitates a new round of costly and time-consuming chip development. This lack of flexibility in chip offerings limits the ability to adapt to evolving market needs without incurring substantial expenses and facing the same risks. 

4. Scalability challenges: Scaling production up or down to meet fluctuating market demands is a major hurdle in my current operation. With each industry requiring distinct chip designs, rapid adjustment of production volumes becomes complex and costly, affecting my ability to respond to market dynamics efficiently. 

5. Environmental concerns: The current approach also raises sustainability issues due to the frequent development of new hardware thus also increased material use and waste. This conflicts with global environmental sustainability trends, pushing us to consider more eco-friendly production methods. 

Some additional considerations include: 

• Supply chain dependencies. Reliance on a complex supply chain for diverse hardware production is a vulnerability, particularly in times of unprecedented disruption. 
• Inventory and logistics complexities. Managing a broad spectrum of customized chips leads to intricate inventory and logistical challenges. 
• Rapid obsolescence: The pace of technological advancement can quickly make our hardware obsolete, demanding continual innovation. 

Moving from hardware-designed to Software-defined 

Softwarization for Semiconductor depicts the desired future based on the adoption of a “software-centric” approach  

In a software-centric approach, the objective is to develop a more standardized limited array of base chips that can be customized for various industries and solutions through software. The idea is to reduce the number of unique hardware designs and instead leverage software to provide industry-specific functionalities – moving the “logic” from silicon to software where the base hardware is standardized and simplified, the software layered on top is what provides the industry-specific customization. 

Finally, the software-designed custom silicon is validated against industry frameworks for performance and functionality., The integrated solution of (hardware plus software) still needs to meet the stringent performance and functionality standards of specific industries.

An “industry framework” in the context of semiconductor products and software refers to a set of standards, regulations, guidelines, or specifications that have been established by industry groups, regulatory bodies, or standard-setting organizations. These frameworks are designed to ensure that products and services meet certain levels of quality, performance, safety, compatibility, and interoperability within a specific industry. It can include (but is not limited to):

• Technical Standards: Specifications for product design, materials, processes, and performance. For example, in telecommunications, standards like 3GPP or IEEE define how devices should communicate and interoperate.

• Industry-specific software protocols: For software, frameworks might include coding standards, architectural guidelines, and protocols that are widely accepted in specific industries.

• Compliance checklists: In some industries, there are comprehensive checklists or guidelines that products must adhere to for legal or market access reasons.

• Interoperability guidelines: Standards ensuring that products from different manufacturers can work together seamlessly, common in areas like home automation (e.g., Zigbee or Z-Wave standards) or data technology (e.g., USB or Bluetooth standards).

• Quality certifications: Benchmarks for product quality and reliability, such as ISO 9001 for quality management systems or the Automotive Quality Standard IATF 16949.
• Security protocols: In industries where data security is paramount, like finance or healthcare, there are specific standards for data protection and cybersecurity (e.g., HIPAA for healthcare data in the U.S., or PCI DSS for payment card security).

Advantages of Softwarization

Our Desired Future is to gain the following advantages

1. Efficient and cost-effective design and Production: Adopting a software-centric approach, the Semiconductor company streamlines its business model by developing a limited array of versatile base chips. These chips can be customized for various industries through software, significantly reducing the cost and time involved in hardware development. This approach allows for quicker iterations and a more efficient production process, effectively addressing the risk of missing market deadlines.

• Software development as a revenue generator: In this future model, software development transitions from being a cost center to a key revenue stream. By offering customizable software solutions, feature upgrades, ongoing service subscriptions, and developing a robust ecosystem for third-party applications, Semiconductor companies can monetize their software development efforts more effectively. This ecosystem approach not only allows for direct revenue generation through licensing and platform fees, but also enhances the value proposition of their products, creating a ‘platform effect’ that attracts more users and developers, thereby expanding market reach and creating new revenue opportunities.

• Flexibility and adaptability: The ability to update and customize software for different industry requirements means Semiconductor companies (Semicoms)  can adapt to market changes swiftly, without the need for time-consuming and expensive hardware redevelopment. This adaptability allows them to respond rapidly to evolving industry needs.

• Enhanced scalability: The standardized hardware base in a software-centric approach simplifies scaling production to match market demand. The need for distinct hardware designs for each industry is eliminated, making it easier and more cost-effective to adjust production volumes, enhancing Semicom’s ability to respond efficiently to market dynamics.
• Sustainable and environmentally friendly: This future-focused approach aligns semicoms with global environmental sustainability trends by significantly reducing the frequency of new hardware development. The focus on software updates and longer-lasting hardware reduces material use and waste, promoting a more eco-friendly production model.

Additional Considerations:

• Reduced supply chain Dependencies: The reliance on a complex supply chain is diminished as the demand for diverse hardware production decreases. This shift reduces semicoms vulnerability from supply chain disruptions, creating a more resilient business model.

• Simplified inventory and logistics: By minimizing the variety of customized chips, inventory and logistics management becomes more straightforward, reducing operational complexity and cost.

• Slower technological obsolescence: With a software-centric approach, the lifecycle of hardware is extended. The ability to continually update and adapt the software reduces the pressure of rapid hardware obsolescence, allowing for sustained innovation and relevance in the market.

Overall

Transitioning to this futuristic software-centric approach transforms key aspects of operations, positioning a Semiconductor company to be more agile, cost-effective, environmentally conscious, and capable of generating new revenue streams.

As a direct consequence of this Software based transformation, a semiconductor company can offer tailored products and services to its industry customers thereby enhancing their value proposition and increase its differentiation in the market.

In essence, for semiconductor companies, the software-centric model means access to cutting-edge, customizable technology solutions that are sustainable, cost-effective, and come with comprehensive support, all of which are crucial for staying competitive in today’s fast-paced market.

Twenty years ago, we bought mobile phones for their hardware. Since then, a lot has changed, and now, embedded software delivers the primary value – offering entertainment, navigation, augmented reality, productivity apps, and so on.

However, such software does not work alone. It requires the phone’s hardware (connectivity, cameras accelerometers, etc.), and a cloud ecosystem to download new apps and share data. But it is the software – the operating system and firmware on the phone – that runs the show.

As a result, consumers now have sky-high expectations of technology. And if industrial companies can’t deliver products with a similar software-driven user experience, they will lose these customers. Manufacturers of cars, planes, trains, satellites, solar panels, cameras, home appliances, and so on are all undergoing a similar shift driven by embedded software.

That shift has huge implications – not just for the product itself, but for the company designing it.

Ever more products become software-driven

Let’s start with the product. Take a car or a plane – products that are increasingly software-driven. Both are developing software for automation and route optimization on the one hand, and to improve user experience and entertainment on the other.

They are not alone. Trains need one type of software with smart signal controls for optimal route planning, and another type that allows users to order food from the buffet car on their phone. Satellites must make real-time decisions about trajectory, data capture, and energy management. In-home batteries must control energy in and out, and track what they sell back to the grid.

Embedded software drives a change in organizational thinking

Embedded software is not entirely new in these industries – cars and planes, for example, have long had bits of control software. But its scale and sophistication are now skyrocketing.

A Capgemini Research Institute (CRI) survey – of 1,350 $1bn+ revenue companies with goals to become software-driven – found software accounted for 7% of revenue in 2022, but was expected to rise to 29% by 2030. That same report also found that 63% of Aerospace & Defense organizations believe software is critical to future products and services, with industries from automotive to energy making comparable claims.

But getting there will mean some big changes at these organizations.

Unlike a phone – which was designed to be a single integrated device – cars, planes, satellites, drones and other industrial systems were originally designed with multiple ECUs (electronic control units), each running multiple pieces of software. Each ECU was developed separately by different parts of the organization.

But now there is a need to integrate everything. For example, autopilot won’t work if its underpinning software can’t communicate seamlessly with the separate control units for sensors, steering, and brakes.

The importance of transversal software

Doing this in the current siloed way would create unmanageable complexity. Software needs to be ‘transversal’ – ie. developed consistently across the organization, rather than in silos. There must be a centralized team defining strategy, and managing and developing embedded software as a product across the organization. This must all be done with the same standards to facilitate interoperability, scalability, upgrades and reuse – whether it’s a landing control system, energy management system, in-flight infotainment, or smart cockpit. This transversal operating model makes software teams the backbone of software-defined organizations, continuously developing software solutions across the company.

That doesn’t mean all software must be connected to the final system, or that everything will be developed in the same way. Software can be very different. For example, rear-seat entertainment software can offload some data-heavy functions to the cloud, and developers can launch beta versions to get user feedback. On the other hand, high-integrity software for braking must do everything on board, work every time, and be separate from any hackable entry points into the system.

There are separate development tracks for different software components, so that less safety-critical software can quickly get to market, while more safety-critical parts can be carefully managed through verification and validation (V&V), and certification. But all development tracks should be within a centralized software team, which works together, sharing a consistent system architecture, standards and learnings, and creating products the entire business can access once complete.

A positive example

Consider Stellantis, which owns multiple car brands, including Opel, Peugeot, Dodge and Fiat, among others. It has invested in developing three core software platforms: one which is the backbone of the car (STLA brain), one for safety-critical assisted driving (STLA AutoDrive), and one for the connectivity and cockpit services (STLA SmartCockpit).

It implemented centralized software standards that are systematically used across all brands and models. This is similar to a trend we’re seeing across all markets – ‘platforming’. The platforming approach leverages generic components (computer vision, voice command, navigation services, etc.) that are applied to several projects, products and use cases – sometimes used with customizations to different brands and marketings – all without needing to build, test and certify everything from scratch.

Innovate or fail

All of this requires a major shift in thinking from organizations. But they must make this shift to survive.

And largely, they are. The auto industry is taking the threat from Tesla (and its advanced on-board computing) seriously. They may soon be pushed to move faster by software-driven Chinese competitors, like BYD and Nio, whose car interiors can transform into immersive cinemas at the push of a button. Industries from aviation to energy are no longer complacent – all recognize that embedded software is critical to their future. And all know they must undergo radical organizational change to turn legacy hardware into future-proof, software-driven products.

See how embedded software is helping industries transform their business – and how Capgemini can help along your journey.

Most manufacturing plants these days work just fine. Each stage of the production process performs its appointed task, and passes its work on to the next.

Which is as it should be, at least as far as it goes. The trouble, though, is that much of data issued by these pieces of equipment is siloed in their individual ecosystems. It means that, while traditional operational excellence practices will still deliver, there is no way to make the most of process-wide insights in real time.

Technologies can be enablers, but they come with their own additional constraints. For example, integration through data (including semantic layers) is promising, but it requires significant effort for a sometimes unclear return on investment, especially at plant level.

What’s more, budgets aren’t limitless. It can be hard to prioritize competing digital or physical investment initiatives, especially considering the accelerating impact of IT on operational technology (OT).

We believe this conflict of interests might find a solution in the effective convergence of the IT and OT worlds, enabled by real-time access to multiple data sources brought together with AI. This isn’t tech whizzery for the sake of it: it’s about developing an approach that can result in new applications, with a solid operational and financial basis leading to tangible business outcomes.

The question is how to get there. Considering all the constraints and the many state-of-the-art technologies; can everything be brought together?

Key factors

Here at Capgemini, we believe that edge computing is the current direction of travel. It’s where we believe the most effective convergence of IT and OT will happen, combining the strengths of both worlds and delivering the “real ‘real-time’” promise, at scale, and at the required pace of innovation.

We also believe that in time, NT and intelligent networks will provide an additional mobility aspect to the edge that will trigger additional value. Therefore, moving to multi-access edge computing (MEC) may be a reasonable bet.

Third, the integration or interoperability of all systems at the edge will be the key for scaling, taking solutions far beyond beyond localized initiatives in closed ecosystems.

Intelligent Edge Application Platform

As a result, we’ve developed an intelligent Edge Application Platform (IEAP), which pulls everything together in layers – infrastructure, data, and applications – and which fosters the interoperability of siloed systems, opening new business opportunities while managing the convergence of IT and OT. Available as a managed service or as a packaged client solution, it can help tackle macro manufacturing issues at plant or company level, such as risk prevention.

Needless to say, multiple data sources converge on this MEC platform, and specific edge-native AI algorithms are also designed to handle vast amounts of real-time data and make sense of it all. The approach doesn’t merely collate and organize, but presents information in insightful and actionable ways to reach tangible business outcomes.

Introducing Margo

There is a but, though, and it’s a big one. Couldn’t it be argued that the development of IEAP itself constitutes the creation of another silo – a set of practices and technologies that work well together on their own terms, but to the exclusion of others?

Well, yes. That point could indeed be made. Which is why Capgemini has formed a consortium with other major industry players to create an open-source standard that everyone can use. It’s called Margo, and it has just been launched and hosted by the Linux Foundation.

Our partner founding consortium members, ABB / B&R, AVEVA, Microsoft, Rockwell Automation, Schneider Electric and Siemens, have endorsed the approach, and have collaborated to visualize a shared destination in the industrial automation space, together with the conditions that will need to prevail.

Once this initiative goes live, other vendors will be free to participate and to become compliant with the proposed new standard. It will mean they won’t need to have specialist knowledge of the infrastructure of their fellow vendors. It will also mean that their services will be able to access a wider spectrum of infrastructure, since their participation in the project will automatically make everything open and interoperable. That, after all, is what establishing a standard is all about.

And of course, Capgemini has ensured that the Intelligent Edge Application Platform is compatible with the standard.

A game-changing moment for manufacturing

This can be seen as a watershed moment – as the point at which the manufacturing world has changed, at which factory floor systems are moving from working locally and in isolation to operating at scale, at AI-driven levels of efficiency, and – perhaps most crucially of all – in a unified manner, with full interoperability and communication.

These are exciting times. It’s an opportunity not just for all the participating vendors addressing this market, but for every manufacturer they serve. All of them – vendors and manufacturers alike – will be able to find new ways to innovate, to diversify, to operate, to optimize, to serve their customers, and ultimately, to succeed.

And because the consortium is already broadening and building momentum, we can do more than merely hope for greater improvements. We can expect them.

The factory of the future is closer than ever. Working together, we can all start to build it right now.

Current initiatives in France and their dynamics

1.  The ecological bonus

As I discussed in an earlier article, this French government initiative originally encouraged the purchase of electric cars in general, but it was recently updated to address the carbon footprint of the electric car’s whole lifecycle from design and manufacture to sale.

The revised scheme encourages consumers to buy vehicles that are more environmentally friendly in terms of overall decarbonization, not just emissions on the road. In addition, the bonus is available only for vehicles costing less than €47,000.

These recent changes disqualified almost 40% of cars on the French market from the bonus scheme. Leading models affected included MG Motor’s MG4, Tesla’s Model 3, Dacia’s Spring, and the Kia Niro.

In order to remain competitive, some OEMs whose models are excluded by the new rules have been quick to take compensating actions. Two options have emerged here. First, BMW, Audi, and Peugeot have lowered some prices to less than €47,000 to qualify for the bonus. Second, where a car didn’t score high enough on sustainability to earn the bonus, some manufacturers have offered a discount instead. Both changes will tend to heat the price competition already happening in this market area.

Note, though, that manufacturers whose cars did not initially qualify for the current version of the ecological bonus also have the option of applying for a review of the score. To do so, they need to provide convincing evidence that their actual emission values are better than the location-based values used by the initial assessment. Ideas like battery passports are relevant here.

2.  Social leasing

Alongside the ecological bonus for car buyers, the French government has introduced a long-term leasing offer for electric cars priced at just €100 per month. The first wave of the scheme, which ended on February 14, 2024, was a spectacular success, not least with younger drivers. In total, 50,000 electric cars were leased – double the initially anticipated 25,000 – and a total of 90,000 applications were received.

Although successful, the scheme is quite costly. The French government provides a one-off €13,000 subsidy for each leased vehicle; unsurprisingly, this year’s scheme had to be halted, leaving around 40,000 disappointed applicants. A new wave of leasing will open in 2025, according to the government’s website, but we don’t have details yet.

Given their costs, incentive schemes need to be carefully assessed and compared, to ensure that the optimum mix of incentives is chosen. That necessitates an objective, quantitative assessment of the costs and benefits of each scheme, together with modelling of alternative approaches.

3.  Manufacturing small, affordable small cars in Europe

It’s not just the French government that’s taking action. France’s OEMs, too, recognize that customers’ budget constraints are a limiting factor for electrification and that affordable models are needed. 2024 looks set to mark a turning point in that respect, with leading French OEMs introducing new, high-quality electric models at competitive prices.

As announced at the recent Geneva International Motor Show, the new Renault 5 electric will be available from September 2024 for approximately €25,000. In October, the new Citroën ë-C3 electric will go on sale for around €23,300; details are already online. If these vehicles benefit from the ecological bonus, as hoped, then actual prices could be as low as €20,000, providing unprecedented accessibility.

Let’s hope that these new vehicles are the first of many. In a “letter to Europe” published in March 2024, Luca di Meo, CEO of Renault Group, proposed promoting small, affordable cars and vans made in Europe. He envisages cooperative projects between manufacturers to develop and market these vehicles; consumers can be encouraged to buy them via benefits such as reserved parking spaces, cheaper parking and reserved charging points, along with bonuses.

In technical terms, producing this new affordable generation of vehicles looks likely to present challenges of its own, many of them around “lightweight” – reducing the weight of vehicles and batteries to make them more economical to run. This requires expert knowledge of the latest materials and design techniques.

Building on initial experience

With initiatives like these, France is advancing toward the dream of putting electric vehicles within the reach of every citizen who needs a car, including the younger generation.

Of course, there are still challenges to overcome. Today’s more affordable prices are, to a large extent, the result of state subsidies. With many other demands on state funds, these subsidies are always going to be limited, so other ways to achieve affordability are needed. A related challenge is that in response to the ecological bonus in particular, fierce price wars are being waged between OEMs, involving not only European manufacturers but also some based further afield. That means margins are being severely squeezed. For businesses to remain viable, and for governments to achieve their goal of decarbonization, this picture must change. Instead of price-cutting, we need schemes and actions that encourage OEMs to compete through innovation to deliver genuinely affordable, sustainable e-mobility. And this has to happen at a time when some manufacturers have been putting back the scheduled release dates for new electric models. To bring about the required shift, governments may want to consider a range of different interventions in addition to those that incentivize consumers: for example, offering investment aids to help OEMs improve the sustainability of manufacturing processes, particularly concerning batteries.

Clearly, success within a single country is not going to achieve global climate change objectives. Proven ideas need to spread rapidly from country to country and from continent to continent.

At all levels, focus needs to be maintained. In the EU, the coming months promise to be exceptionally busy, with the European Parliament elections from June 6 to 9 and the subsequent establishment of a new commission in Brussels. It’s to be hoped that automotive sustainability initiatives are not deferred as a result.

Meanwhile, for individual OEMs, the current price war mustn’t be allowed to distract attention from long-term strategy. As with many innovations, profitability from e-mobility won’t arise immediately, but patience (and flexibility) will be rewarded. It’s also important to keep a close watch on the marketplace – for example, we’ll soon have the opportunity to study the impact of affordable models such as Renault’s R5 and Citroën’s ë-C3.