The automotive industry is standing at a pivotal crossroads, facing unprecedented pressure from shifting consumer expectations, heightened regulatory demands, and rapid technological disruption. As legacy brands scramble to keep up with nimble challengers, it’s clear that the traditional model of vehicle development — rooted in full in-house production and vertically integrated systems — is no longer sustainable.
The Innovation Imperative
Today’s market demands faster innovation and sharper differentiation. But the very pace required to compete clashes with how automakers have historically allocated their time, money, and talent. To navigate this landscape, it’s time for automakers to apply a concept more often seen in productivity circles than boardrooms — the Pareto principle.
Understanding the 80/20 Equation
Simply put, 80 percent of a vehicle’s market differentiation now comes from just 20 percent of its features. While traditional powertrain systems and under-the-hood engineering remain vital, they no longer move the needle in a marketplace driven by user experience, software, and design. It’s the high-touch elements — intuitive infotainment, advanced driver assistance systems (ADAS), over-the-air updates — that define how customers perceive value.
To stay relevant, automakers must channel their energy into these vital few areas. That means reassessing which capabilities to keep in-house — and which to entrust to partners better equipped to deliver efficiently and at scale.
Time to Let Go of Old Assumptions
There’s a deeply ingrained belief in the auto industry: that building key systems in-house is synonymous with quality and control. But in the face of today’s capital-intensive demands, this mindset often translates to inefficiency. Engines, transmissions, and similar components — while complex — rarely define buying decisions anymore, unless there’s a breakthrough innovation involved.
Opportunity Cost in Motion
Resources spent on reinventing commoditized systems represent missed opportunities elsewhere. Every hour and dollar devoted to low-differentiation systems is time and money not spent on software innovation, consumer-facing design, or mobility services. In a world where brand loyalty is eroding and competition is global, focusing on what truly sets a brand apart isn’t just strategic — it’s essential.
The Case for Strategic Partnerships
Instead of duplicating efforts across OEMs on low-differentiation components, the smarter path forward lies in partnerships — with trusted suppliers that offer scalable, brand-agnostic solutions. These relationships offer more than just cost savings — they deliver agility.
Flexibility in a Fast-Moving Market
Third-party providers make it easier for automakers to adjust course when the market shifts — whether in response to new emissions regulations, evolving ADAS standards, or consumer demand for new tech. Offloading the production of standardized systems minimizes retooling costs and enables a swifter pivot in product strategy.
But this only works when partnerships are viewed as true collaborations — not just transactional supply deals. Vehicle development is an intricate dance of packaging, integration, and system optimization. That level of complexity requires early and sustained engagement between OEMs and partners, with shared goals and a commitment to co-developing better outcomes.
Refocusing R&D Where It Matters
The world’s top 40 automakers collectively invest more than $75 billion in R&D annually. By refocusing that investment on what actually drives consumer preference and market differentiation — and outsourcing the rest — companies can move faster, launch smarter, and lead more boldly.
- Free internal teams to innovate in software, interface design, and user experience
- Shorten development timelines and reduce capital tied up in redundant engineering
- Enhance product adaptability by integrating modular, supplier-driven systems
Looking Ahead
The winners in this next chapter of automotive innovation will be those who know what to let go of. Brands that embrace the 80/20 principle, and apply it rigorously across product development and operations, will create room to focus on what matters most — building vehicles that captivate, connect, and convert.
As the industry reinvents itself, letting go of long-standing assumptions about what defines a car — and who needs to build every piece of it — may be the boldest move an automaker can make.
By Matias Giannini, CEO of Horse Powertrain
