When Car Company Tries to Be Software Company

Software Is Hard

One theory about the future of the car industry is that car companies need to become software companies. The idea is that cars are becoming iPhones on wheels, and the real money won't be in selling the metal box once, but in selling high-margin software subscriptions for things like self-driving features forever. This is a great theory, but it has a small, nagging problem: a lot of the car companies are finding out that they are not very good at being software companies.

Take Stellantis, the giant that owns Jeep, Chrysler, and a dozen other brands. It has been working on a fancy "Level 3" autonomous driving system that would let you take your eyes off the road to watch a movie, which sounds nice. But according to a new report from Reuters, Stellantis has now shelved the program, citing high costs and limited customer demand. Here's Reuters:

The strategic shift around AutoDrive is the latest sign that Stellantis has struggled to execute on its tech ambitions. The automaker is now increasingly relying on suppliers to deliver software that it hoped to keep in-house, four people familiar with the matter said.

Stellantis said it will focus its internal work on what differentiates the final product for customers, while working with select suppliers to ensure access to the best technology at competitive costs.

These strategic shifts are becoming prevalent in the industry as automakers pick which technologies to pursue, said Stuart Taylor, chief product officer at software consultancy Envorso.

This is not an isolated incident. Ford and Volkswagen famously poured billions into their self-driving venture, Argo AI, before shutting it down. GM’s Cruise unit is still trying to recover from its own costly implosion. It turns out that building a reliable, complex software stack is a fundamentally different business than running a global manufacturing and supply-chain operation, and the old-line automakers are struggling with the immense costs, the brutal talent war with Silicon Valley, and their own corporate inertia.

So what do you do if you've promised Wall Street you’re becoming a tech company, but you can’t quite figure out the tech part? You pivot. Stellantis is now increasingly relying on suppliers to deliver the software it once hoped to build itself.

This is a quiet retreat from the "we will be a tech company" battle cry. The car companies are going back to being… car companies, masters of integrating complex parts from various suppliers into a final product. The difference is that the most valuable part of the car—the brain, the soul, the thing that generates all that juicy subscription revenue—might now be made by someone else.

The Tariff-Proof Business Model

The essential fact of the modern global economy is that it is booming and busting at the same time. The headline numbers, compiled by FactSet, look great: total net profits for the world’s publicly listed companies rose 7% in the second quarter to $1.2 trillion, the fifth straight quarter of growth. But that top-line figure papers over a stark and brutal divergence. The global economy has effectively split into two separate tracks moving in opposite directions: a high-speed lane for artificial intelligence and technology, and a breakdown lane for almost everyone else.

One way to think about it is to look at the winners and losers. The tech and semiconductor sectors are single-handedly carrying the global profit numbers. The information and technology sector saw its net profits surge by a staggering 58%. Memory chip giant SK Hynix saw profits soar 70%. TSMC was up 60%. Meanwhile, the physical economy, battered by tariffs and economic uncertainty, is getting hammered. From Nikkei Asia:

In contrast, tariff-sensitive industries suffered, with automakers' net profits dropping 37%. Germany's Mercedes-Benz saw its net profits plummet 70% because of tariffs on its exports, while Ford Motor fell into the red on higher import costs for auto parts and its struggles in the electric vehicle sector.

Energy and materials companies have also been hit by the tariffs. Fears of an economic slowdown pushed down crude oil prices, leading Chevron and ExxonMobil to report falling profits. U.S. chemical giant Dow posted its third straight quarterly loss on weak exports and soft markets.

This two-track economy is a direct consequence of the defining forces of our time. The AI boom is a structural technology shift, creating new markets and demand cycles. This digital economy, which deals in largely intangible goods like software and cloud services, is relatively insulated from the friction of border taxes.

The physical economy, however, is directly in the line of fire. Cars, chemicals, and oil are made of atoms that must be shipped across borders, making them acutely vulnerable to tariffs and supply chain disruptions. This divergence highlights a new reality: a company's resilience may now depend less on its market position and more on whether its core products are made of bits or atoms.

Forecasts for the third quarter predict this divergence will accelerate, with global net profits climbing by an even stronger 19%, with tech once again maintaining strong momentum. This raises a critical, unresolved question for the "real" economy. Many companies have so far been cushioned from the worst of the tariffs by strategically building up inventories. The central issue now is what happens when those inventories run out. Companies will soon be forced to choose between hiking prices or continuing to absorb costs. That choice will determine whether the bust in the physical economy deepens, and whether the pain that has so far been contained to corporate balance sheets begins to spill over to consumers.

The Scoreboard

• AI: Musk’s xAI sues Apple, OpenAI alleging anticompetitive scheme harmed X, Grok (CNBC)
• AI: Apple internally discussed buying Mistral, Perplexity, the Information reports (Reuters)
• Security: Security researcher maps hundreds of TeslaMate servers spilling Tesla vehicle data (TechCrunch)