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Bezos’ rule on making beer applies to automakers

Cruise LLC is tired of paying through the nose for semiconductors, so General Motors Co.’s self-driving car division decided to start designing chips itself. It’s a bold move, but one that could see the automaker lose direction.

Just 18 months ago, semiconductor giant Nvidia Corp. featured the Cruise Origin Robotaxi as a case study of using graphics processing units in cruise cars “to process in real time the massive amounts of data its fleet collects on the chaotic streets of San Francisco. ”

Now, that relationship appears to be broken due to the high cost and low headroom of using “a GPU from a famous vendor,” Carl Jenkins, the California-based company’s chief hardware officer, told Reuters recently. self-driving cars. Nvidia was not named directly, but it is one of only two GPU vendors and the other, Advanced Micro Devices Inc., is not a player in the automotive industry.

Cruise isn’t the first automaker to use, then throw away, Nvidia. Three years ago, Tesla Inc. announced that it would develop a chip for its fully autonomous computer (FSD) on its own. At the time, Nvidia followed up with a detailed blog post explaining why chief Elon Musk got his assessment of the performance differences wrong.

In fact, Cruise, Tesla, and Nvidia all have strong arguments as to why their chip is superior. And it’s understandable that automakers are frustrated at paying high costs for chips when they have little ability to customize the product or negotiate the price. But auto industry leaders must assess their core competencies and make tough decisions before embarking on the path to independence.

For this, they can take inspiration from Jeff Bezos and the Luxembourg beer industry. According to a now-famous speech by the founder of Inc., brewers in the European nation once produced their own electricity because it was a necessary input in the beer-making process, and they couldn’t. obtain from a centralized power supply. Grid.

Unfortunately for the brewers, as he pointed out in a 2008 speech, this heavy work was undifferentiated – all the electricity is the same – but had to be done at a world-class level. The sooner they could outsource power generation, the sooner they could focus on brewing.

“The fact that they generated their own energy didn’t make their beer taste better,” Bezos said. His exhortation continues to resonate strongly today: focus on what makes your beer taste better.(1)

Automakers have to do that same math, and it’s getting more and more expensive. The cost of developing a new chip has increased 10 times over the past decade as semiconductor manufacturing advances. Before even being sent to production, each component must be designed, verified, tested and prototyped. That upfront cost now stands at $540 million for the latest 5-nanometer manufacturing node, compared to $50 million for the older 28-nanometer technology that was first available 11 years ago, according to a report. McKinsey & Co.(2) analysis

One of the main reasons Nvidia can bear these costs is that it makes $27 billion a year in revenue selling chips for use in computer graphics cards, artificial intelligence servers, data centers and self-driving cars. Designing chips is what Nvidia does, and so semiconductors are Nvidia’s beer.

Tesla and Cruise, and every other automaker, have to ask themselves what differentiates their product from its competitors. Drivers make their choice based on many factors, including engine power and performance, exterior appearance, interior design, safety and accessories. Going forward, FSD will be just another feature for buyers to consider.

Designing their own chips won’t solve the current short-term supply shortage, although it will allow automakers to better customize components for their own needs instead of buying off-the-shelf products. Chances are the performance will be better than what third-party vendors can deliver, but that doesn’t mean the end product they sell – the cars – will be significantly better. Alphabet Inc.’s Google took the path of independence many years ago, betting that the benefit of designing custom chips for its vast data centers – and moving away from Intel Corp. – would make the investment profitable. The difference here is that the data stored and retrieved from Google’s servers is what the world’s largest search engine buys and sells.

For automakers to be confident that their semiconductor bets are worth it, they must not only believe that self-driving features will be a major factor in a customer’s buying decision, but that their own in-house developed chips are key to this differentiation. It’s a big challenge.

After years of development and grappling with ever-increasing costs, chances are automakers will eventually discover that even though their own chips are superior, they don’t make beer better.

More from Bloomberg Opinion:

• China has painted itself into the semiconductor corner: Tim Culpan

• A new normal divides the global chip industry: Tim Culpan

• Big Data’s Past Disrupts Our Future: Allison Schrager

(1) Bezos is often quoted as saying “Focus on what makes your beer better”, but that exact phrase was not uttered in his 2008 speech.

(2) These figures are disputed by renowned chip industry analyst Dylan Patel, but the broader issue of escalating costs persists.

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology in Asia. Previously, he was a technology reporter for Bloomberg News.

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