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Why BMW, Mercedes, VW suddenly team up to build software together
Philipp Raasch
July 10, 2025
Welcome to Issue #75 of The German Autopreneur!
When Apple releases an iOS update, it hits over 1 billion iPhones within hours. Every year, they add 232 million new devices.
VW is the world's second-largest automaker. Still, VW delivered only 4.8 million vehicles in 2024. Great numbers in automotive. But compared to software? Nothing.
All carmakers combined sell only 75 million cars per year. Spread over hundreds of brands.
And that's exactly the industry's software dilemma: Minimal volumes, maximum complexity.
Yet almost every manufacturer develops their own vehicle software. With limited success so far.
Meanwhile, the window of opportunity for traditional automakers is shrinking. There's not much time left to reinvent. Big Tech started pushing into the car domain. And software companies like Xiaomi are suddenly building their own cars.
Last week, the German automotive industry responded. 11 automakers and suppliers signed a historic agreement. They will start developing software together. This alliance could be the start of something big.
Today we'll look at what is planned. And why this move seems positive.
For this newsletter, I spoke with Markus Rettstatt. He leads the cooperation at Mercedes.
AI generated symbolic image
The Automakers' Software Challenge
A modern car contains over 100 million lines of code. More than Windows and macOS combined. The complexity is enormous.
And car software must:
Function for 15+ years without failing
Meet the highest safety standards
Work perfectly with the hardware
Be extremely energy efficient
And honestly? Most carmakers are failing at this. A few weeks ago we talked about Volkswagen and CARIAD. But other OEMs also struggle with the software transformation.
At the same time, software is becoming more important. Software now represents a bigger share of what makes a car valuable. Studies expect software to account for 40% of a car's total value by 2030.
That means: Companies that don't master software lose almost half their value creation to others.
I started as an intern at Mercedes in 2011. Even then, I was creating PowerPoints about the software shift. So the problem was never lack of awareness. It was always the execution.
It's becoming clear: Traditional automakers can't solve this alone.
What Happened?
On June 24, 11 companies signed a letter of intent.
The participants:
OEMs: BMW, Mercedes-Benz, Volkswagen
Suppliers: Bosch, Continental, ZF, Vector, Valeo, ETAS, Qorix, Forvia
They agreed to develop a common software platform called S-CORE (Safe Open Vehicle Core).
The German Automotive Association describes it this way: "The biggest part of vehicle software is invisible to users. These parts can and should be developed together."
Specifically, it's about the middleware stack. The software layer between the operating system and applications. It contains functions like:
Diagnostic interface for troubleshooting and maintenance
Security management for encrypted communication
Communication protocols for data exchange
Mechanisms for over-the-air updates
Customers see none of this. But it's essential for the car to function.
The companies will work together using an open-source approach. The code is publicly accessible. It's managed by the Eclipse Foundation. An independent organization that has overseen open-source projects since 2004.
Why Now?
The initiative comes at a critical time. Three main factors are driving it:
1) Geopolitics
Trade conflicts between the US and China are getting worse. Chinese automotive software will soon be banned in the US.
A disaster for automakers. Because it means: They need two completely separate software stacks. One for the West. One for China.
The result? Double costs. Double complexity.
The beauty of open source: It's exempt from many of these export restrictions. The code is public, anyone can see it. A smart move.
2) Rising costs
Software is becoming more important and expensive for automakers. A real example: A single software module can cost over €1 million. Plus annual fees.
Large automakers can handle this. Smaller manufacturers can barely afford it.
3) Running out of time
The industry is under time pressure:
Apple and Google are expanding their automotive integrations
Xiaomi and other tech companies are building their own cars
New automakers from China and the US are capturing more market share
Traditional automakers have only two options: Keep up with software. Or lose value and market share.
Learning from Past Mistakes
The automotive industry has actually tried to collaborate on software before. There were initiatives like HERE or Catena X.
But they didn't deliver the results everyone hoped for.
This time, they want to do it differently. No months spent writing requirement documents. No PowerPoint presentations. No endless meetings.
Instead: Build code directly. Test it. Improve it.
Markus from Mercedes explains it to me this way: "We focus on code-first. This ensures that actual, working software emerges."
The timeline is ambitious:
End 2025: First functional version (MVP)
2026: Complete software stack for autonomous driving platforms
2030: First production vehicles with the stack
The developers don't work in a shared office. They're connected via code platforms. Anyone can suggest improvements. Quality checks happen together. And monthly updates bring all changes together.
This form of collaboration is standard in the tech industry. For automotive, it's quite new.
Software Isn't All the Same
Software is becoming more important for differentiation. But now it's supposed to be developed together.
This leads us to the question: How will products still differ?
The answer: Not all software is being developed together.
They make a distinction between visible and invisible functions. Only basic components that everyone needs, are shared.
Things that aren't shared include:
Chassis tuning and drivetrain logic
Infotainment, UI, and connected services
Driver assistance systems and autonomous driving
Experts estimate that 40% of development work goes into basic software that doesn't differentiate cars. This project could cut that to 20%.
Companies can then invest the freed resources in real innovations. Features that customers actually notice. That's the real gain of the project.
What Does Open Source Actually Mean?
The code is public. Visible to everyone. Including competitors from China, the US, or Japan.
An obvious objection: If the code is public, can't competitors use it too?
The answer: Yes, they can. But that's part of the strategy.
Markus from Mercedes explains: "Open source means: The code is open. But that doesn't mean everyone gets the same benefit from it. The real value isn't in seeing the code, but in helping to shape it."
This means: Only contributors get to influence decisions.
The initiative is open to new partners. So Japanese, Chinese, or Korean companies could also join. That would actually be positive.
My Take
"Can't you write something positive about the German automotive industry for once?"
I hear this question almost every day. And honestly? That hasn't been easy lately. Because we're going through a really tough time.
But here we go: This is actually positive news.
The insight isn't new: Software is becoming a core capability. What's new is the willingness to actually work together.
It's a bit like growing up. Companies experimented for years. Now the automotive industry has realized: Software requires a different approach.
Will this project succeed? The chances are better than before:
More pain
The approach is more practical
And they know what went wrong before
The key question: Will companies actually stick with it? A letter of intent is nice. But it's not binding.
We'll see.
I'm keeping my fingers crossed that this initiative becomes a German success story. Because we really need one right now.
That's all for today.
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Until next week,
— Philipp
PS: If you find value in this newsletter, please share it with someone who might benefit. Your support helps me continue my independent work for the automotive industry.
