As some electric vehicle companies issue formal warnings that they might not survive and others navigate bankruptcy, the automotive industry must sort out a new problem child: the orphaned vehicle that relies on software.
In an era where each new model contains proprietary software, company failure and insolvency have grave implications for vehicle functionality. Gone are the days of mechanics swapping carburetors and other parts between brands and relying on aftermarket providers.
The age of the increasingly software-defined vehicle leaves software updates and patches out of reach for third parties, and automotive manufacturers that no longer exist cannot be compelled to fix software issues that are critical for safety, even if NHTSA issues a recall, experts say.
“It is an extremely challenging situation when you don’t have an owner and a responsible party to take care of all these things,” said Himanshu Khandelwal, a managing director in the automotive and industrial practice at AlixPartners. “Forget about the repairs”; who is going to be testing “the software for the vehicle, doing all the verification, validation and then doing some fleet testing before pushing it to the vehicle?”
Many new vehicles, including electric ones, employ software to control all or most of their operations, including managing the powertrain, powering infotainment and underpinning advanced driver-assist functions.
Fisker Inc., which warned investors in February that it may not be able to continue as a going concern, said in its most recent annual filing that its software and user interface were “key differentiators.” It also said that “continuous software updates, both for embedded systems in the car and functions hosted in the cloud, let the digital car grow and become smarter over its lifetime.”
Canoo, which notified investors of doubt about its ability to continue as a going concern this month, said in its annual filing for 2023 that “integrating purpose-made hardware and software enables Canoo to seamlessly roll out new functionality.” The company said it has “purposefully developed its intellectual property to create a software-defined vehicle.”
Lordstown Motors, which filed for bankruptcy in June 2023, said in an earlier annual filing that “operation of our vehicles is highly dependent on software that will require modification and updates over time.”
For many automakers, regular over-the-air software updates keep the vehicle running smoothly, sort out any bugs and, perhaps most importantly, protect the vehicle from new security threats as hackers and other bad actors become more sophisticated. Updates also ensure vehicles can be equipped with new software features.
But those advantages can turn to challenges if there’s no company to update vehicle software.
If a company enters the bankruptcy process, the automaker may be asked by stakeholders and the court to slow or pause development and updates for features that are low priority, said Khandelwal. If the software powering the air conditioning stops working, for example, an automaker in distress may not be able to “patch” software to fix problems, send updates that modify the software or deploy an entirely new version.
If an automaker either goes through a restructuring or finds a buyer, the entity that emerges “would likely need to be accountable for safety defects” in the software, said Jennifer Dukarski, head of the autonomous and connected mobility group at Butzel, a law firm. However, bankruptcy law compels different actions in each case regarding warranties and other responsibilities beyond safety-related updates.
The 2015 FAST Act orders automakers to repair safety defects for free for up to 15 years after a recall. Even if the original manufacturer no longer exists after a bankruptcy filing, the restructured or bought-out entity can be held to that requirement. The law claims that “a manufacturer’s filing of a petition in bankruptcy under Chapter 7 or Chapter 11 of Title 11 does not negate the manufacturer’s duty” to comply with the legal remedies for defects.
The new entity can also opt to do that outside the legal system, as happened in the case of Karma Automotive. That company, which arose out of the failed Fisker Automotive, agreed to recall 2012 Fisker Karma vehicles “as a goodwill gesture” and provide free replacements for faulty Takata passenger airbags.
If an automaker goes out of business, software-defined vehicle “development will stop,” Khandelwal said.
Still, if the automaker has dealers — as opposed to the direct-to-consumer sales model used by some EV companies — they could receive “some transfer of knowledge,” he said.
A third-party repair shop might be sophisticated enough to maintain software, though “the jury’s out” on an aftermarket provider’s willingness to “pick up and do some of these really complex software updates” and “to take the responsibility and ownership of the repairs, especially if they are related to recall and safety.”
This poses a paradox as healthy automakers such as General Motors, which restructured in its own 2009 bankruptcy, seek to create proprietary software, rather than relying on open-source software development kits that are more accessible to outside developers.
The more differentiated the software, the less likely it is that consumers can receive service if something happens to the automaker.
That’s why “right to repair could potentially play a very, very critical role here,” if repair shops can access vehicle source code, Khandelwal said.
If software is being written by a third party, that company may sell updates. Beyond that, owners of orphaned vehicles that rely on software are stuck.
If there’s no responsible entity, “there’s no remedy for those consumers,” Dukarski said.