The High-Tech Car Of The Future Is Around The Corner

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It was tailfins and chrome in the 1950s, horsepower in the '60s. But the central design features on today's automobiles revolve around technical advances and digital technology.

Hybrid vehicles stuffed with state-of-the-art electronics are commonplace.Tesla's ( TSLA ) line of luxury electric vehicles are taking shape before the industry's eyes.

Toyota Motor ( TM ) andGeneral Motors ( GM ) are set to introduce zero-emission fuel-cell-powered vehicles in 2015. BMW is reportedly close behind.

Only slightly further away,Google's ( GOOG ) driverless cars are beta-testing their way along an increasing numbers of highways.

And they're not alone. Audi, Toyota, Tesla, Nissan and Mercedes-Benz are also developing driverless vehicles. The reality is still a few years off and faces regulatory obstacles. But large portions of the technology are already in cars today: real-time navigation systems, self parking technology and collision avoidance systems.

"Now we have cars that stop on their own or can tell when a driver is falling asleep," said Bob Conrad, senior vice president and general manager of the automotive microcontroller business atFreescale Semiconductor ( FSL ), a major supplier of microcontrollers used in vehicles. "The more advanced cars have radar-equipped backup cameras, blind spot detection and other advanced safety features."

Welcome to the connected car, a fast-arriving future in which high-tech dashboards and embedded electronics track vehicle data and manage an increasing array of functions in concert with the Internet and wireless telecom networks.

It represents a new world of opportunity and challenge for many traditional industry vendors. And it is fast making the auto industry supply chain a top consumer for high-tech suppliers.

"The connected car is a big thing, said Egil Juliussen, analyst at research firm IHS. "A very wide spectrum of companies compete in this field."

The average car today has about $330 worth of semiconductors. A standard vehicle might have about 26 computer microcontrollers. High-end cars have about 200, not including analog sensors and other types of low-end silicon chips.

Those figures are rising each year, IHS reports. Leading auto industry chip suppliers include Freescale,Infineon Technologies ,Texas Instruments (TXN),STMicroelectronics (STM) andNXP Semiconductors (NXPI).

These supply and, increasingly, compete with traditional tier-one suppliers of components and electronics, led by Germany's Bosch and Continental, Japan's Denso and U.S.-basedDelphi Automotive (DLPH) andVisteon (VC).

Chipping Away At The Future

Some car companies now spend a third of their research and development budget on advanced information and entertainment systems, Internet radio, technology to achieve greater gas mileage and better handling, help providing emergency services and so forth.

The industry is also focusing on integrating advanced human machine interfaces, said Ben Scott, analyst at research firm IHS. This includes gesture control, proximity recognition, heads-up displays and eye tracking.

"Some of this advanced technology is on the road today," he said. "Offering more technology and features ultimately allows car manufacturers to sell more vehicles and raise market share."

Infotainment systems are an area of intense interest. These systems offer all of the capabilities of in-car entertainment systems, but add in hands-free phone capabilities, navigation and location-based services information, touchscreen and voice control, and many more features.

Traditional names like Panasonic and Pioneer are among the top suppliers as well asHarman International (HAR), Continental, Denso andGarmin (GRMN).

But the field is widening. Specially designed graphics chips fromNvidia (NVDA) power the 17-inch touchscreen infotainment and navigation system in Tesla's new Model S. Nvidia processors also manage the vehicle's digital instrument cluster.

In a company statement, Nvidia senior vice president Dan Vivolvi called the Model S "one of the most sophisticated consumer electronics devices ever built."

According to London-based automotive research firm SBD , about 32 million cars will be equipped with infotainment dashboard systems in 2018, up from 4.3 million last year.

In addition, SBD says almost 36 million new cars will be shipped globally with embedded telematics, such as GM's OnStar system or BMW's ConnectedDrive.

The major telecom operators are also actively involved. In the future, analysts say, every car will be connected through a cellular network. Many of the telecom operators are part of an organization called GSMA, which in 2011 launched its Connected Car Forum . GSMA claims nearly 800 mobile operators and 200 other companies in the mobile ecosystem as members.

Over the next five years, GSMA says, there will be almost a sevenfold increase in the number of new cars equipped with factory-fitted mobile connectivity. More than 50% of vehicles sold worldwide in 2015 will have a cellular connection with in-car intelligence that monitors a variety of systems and features.

Embedded telematics is the industry term used to define cellular connectivity with cars and the bundle of data collected about what's happening inside the car, with both the driver and the car infrastructure

These systems are already widely available in packages such as GM's OnStar. Embedded telematics are widespread in the U.S. and the technology is being increasingly mandated in cars all around the world. Governments in Europe, Russia and Brazil are increasingly mandating use of the technology, with China expected to follow.

By 2025, says SBD, 600 million drivers will have some form of connectivity system embedded in their cars.

Smartphone Meets Smart Car

SBD also forecasts that 21 million cars sold in 2018 will be fitted with smartphone integration systems, up from 1.9 million last year. The smartphone systems, such as Ford's Applink or Toyota Entune, typically enable a driver to view apps running on their smartphone on a screen in the car.

"Consumers want to bring their smartphone and tablet experience to the car," said Scott. "Car manufacturers are taking this seriously and are spending a lot of time and money on developing infotainment systems."

The Well-Wired Driver

Five years agoFord Motor (F) joined withMicrosoft (MSFT) to develop in-vehicle connectivity systems, which led to Ford's Sync voice-controlled technology and MyFord Touch touchscreen technology, now in a majority of Ford vehicles sold today. Ford says the innovation is particularly attractive to younger buyers.

Software plays a critical role in all this, which explains why Ford last month acquired Livio, a Michigan-based software developer of smartphone-to-vehicle communication applications. Ford soon expects to have more than 14 million vehicles on the road with smartphone-connected technology, up from 3 million in 2011.

Early this monthNokia (NOK) announced that Mitsubishi Motors North America would include its digital map and navigation technology, called Here, in several different 2014 models.

Nokia announced Here last August. The technology provides drivers with embedded navigation systems with real-time traffic updates, information on restaurants, parking spots, electric car charging locations and other features. Nokia has partnerships with Ford, BMW, Toyota, Mercedes-Benz and others -- part of its entry into the growing field of Internet-linked entertainment and navigation systems.

In 2008, Nokia paid $8.1 billion to buy digital mapping company Navteq. Nokia's Here is one of the three businesses it will keep after Microsoft's $7 billion deal to acquire the Finnish company's cellular handset business.

Once limited to the luxury car realm, car manufacturers are now competing to integrate more advanced technologies even in their most basic vehicles. Wider adoption is also being driven by government mandates for safer vehicles with improved miles per gallon, which is what fueled the earlier development of anti-lock brakes and air bags, for example.

Chipmakers and other suppliers work to develop direct relationships with car companies and to sell to tier-one vendors like Bosch, Continental, Denso and Visteon. Safety and security applications are expected to be the most common services supported by the connected car. This includes emergency calling systems and stolen vehicle tracking.

"Infotainment systems and advanced safety features are standout growth areas," said Freescale's Conrad. "Computer networking in the car, the need for systems to communicate, is also an evolving area."



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: FSL , GM , GOOG , TM , TSLA

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