Automotive & Assembly Practice

Automotive R&D
transformation: Optimizing
gen AI’s potential value
Automotive manufacturers could realize time and cost savings and
quality improvements by implementing generative AI functions that
add value at all stages of the R&D process.
This article is a collaborative effort by Peter Cholewinski, Martin Kellner, Wolf Richter, Matthias
Roggendorf, Andreas Tschiesner, and Andreas Venus, representing views from McKinsey’s
Automotive & Assembly Practice.

February 2024
Three momentous trends are buffeting the R&D
function in the automotive industry, creating the
need for profound change.
First, the transition from internal combustion
engine (ICE) to electric vehicle (EV) technology is
a fundamental shift, the likes of which the industry
has not experienced since surging oil prices and
competition sparked demand for more fuel-efficient
vehicles more than a half century ago.
Second is the trend of software-defined vehicles
with a central architecture that is more geared
toward consumers. Software provides many
opportunities for automotive players to differentiate
themselves, with such applications as infotainment
and advanced driver-assistance systems. However,
software also presents companies with the
substantial challenge of transforming hardware-
centric operations to support their added role as
software providers.
The third trend is the emergence of generative AI
(gen AI). Gen AI is becoming a powerful technology
with the potential to completely reconfigure how
R&D teams operate. Although the technology is still
in its early days, its ability to generate and process
language and imagery, integrate insights from
various sources, process information across diverse
formats, and produce detailed documentation for
regulatory purposes points to a radically different
R&D future.
New entrants to the sector—EV manufacturers in
China, the United States, and elsewhere—have
already successfully implemented R&D process
innovations that accelerate new-vehicle time to
market, gaining considerable strategic advantages
over established players, whose margins are already
squeezed.
To better understand the impact and opportunity
of these trends, we spoke with executives from
leading European automotive and manufacturing
companies. The detailed discussions focused
primarily on gen AI and the lessons that are
emerging from the many gen AI pilots and a few
at-scale deployments.
1
Of the 30 executives who participated in our workshop, 12 completed our survey.
Automotive R&D transformation: Optimizing gen AI’s potential value
One clear lesson emerged from these discussions:
by following a value-focused approach that
supports the integration of gen AI throughout the
R&D process, companies can capture substantial
value in the form of reduced costs, accelerated time
to market, improved quality, and more innovation.
Opportunities for gen AI
in automotive R&D
We convened a workshop with 30 R&D
executives from leading European automotive
and manufacturing companies to discuss their
use of and plans for gen AI, exploring a range of
opportunities inherent in the technology. Some of
these executives also completed a detailed survey
on gen AI; their responses are reflected throughout
this article.1
Adoption and investment trends
We found a strong inclination to adopt gen AI in the
automotive sector. The majority of companies (75
percent of survey respondents) are experimenting
with at least one gen AI application; those that are
not plan to start within one year (25 percent of
respondents).
Further, investments in gen AI applications for R&D
are substantial: more than 40 percent of survey
respondents reported that their companies have
invested up to €5 million. A few companies—more
than 10 percent of respondents—have invested
more than €20 million.
Gen AI application in R&D processes
While most of the executives surveyed (70 percent)
reported that their companies are integrating gen
AI applications into R&D, most pilot programs
are limited to one stage of the R&D process. The
breadth of piloted use cases is remarkably high (60
percent of use cases we identified); nevertheless,
we saw no systematic use of gen AI throughout the
R&D process.
The wide range of piloted use cases indicates that
executives are largely aiming for a comprehensive
future approach to using gen AI in the R&D
2
process. Indeed, more than 40 percent of survey
respondents are prioritizing more than 75 percent of
potential use cases.
Gen AI’s estimated impact and value
Most participants agreed that most of the gen
AI use cases quantified in the survey or during
the workshop bring substantial value and could
improve R&D processes by 10 to 20 percent.
Some participants viewed the potential value of
integrating gen AI use cases more as a means of
recovering investments in gen AI, while others
viewed it as an added expense required to
remain competitive with peers. Nonetheless, the
prevailing view is that major organizational and
cultural transformations are needed to capture gen
AI’s full value.
Gen AI use cases and their potential value to R&D
Use cases currently being piloted or investigated by
participants’ companies were most likely to focus on
requirements engineering (mentioned most in the
survey), followed by software testing and validation,
and product design and optimization (mentioned by
more than half of survey respondents).
Although these are the most frequent areas of
focus, each segment of the R&D process has
viable gen AI use cases that provide opportunities
to reduce costs, increase speed to market, and
improve quality. For example, administrative costs
could be lowered by using gen AI to complete
certain documentation tasks required by
regulations, thus freeing up developers’ capacity
and improving engineering experience and
efficiency.
— Testing and homologation. The executives
we consulted estimated that using gen
AI to automate reporting and to generate
documentation and scenario-based simulation
could improve testing and homologation
processes by 20 to 30 percent. Automation
could add value by simplifying the creation of
essential reports, manuals, and documentation
for compliance, product documentation, and
quality assurance purposes.
Automotive R&D transformation: Optimizing gen AI’s potential value
And some use cases can deliver exceptional
efficiencies: for example, a German tier-one
automotive supplier achieved a 70 percent gain
in productivity—including the time required for
human review of the gen AI–produced output—
by using gen AI to generate test vectors such as
full branch coverage and modified condition/
decision coverage (MCDC). By integrating gen
AI into its development process for embedded
software and its generation of requirements—
using gen AI to help determine requirements
for stakeholder requests that could serve as
first drafts—the company achieved productivity
gains of up to 30 percent for engineers.
— Design applications. Within the design segment
of R&D, the leaders we consulted estimated
that generative-design use cases could
improve R&D processes by 10 to 20 percent.
They also estimated that reverse and black-
box engineering use cases could yield 5 to 10
percent improvements in R&D processes by
using gen AI to reveal and decode proprietary
technologies such as knowledge extraction,
algorithm decoding, or reengineering.
Capturing gen AI opportunities
Most of the executives we consulted deemed the
barriers to implementing gen AI in R&D as either
“large” or “very large”; only 25 percent of survey
respondents characterized them as “small.” Indeed,
the lack of systematic integration of gen AI into
companies’ existing operating models can be
attributed to the major organizational and cultural
changes such integration requires.
For gen AI applications to add value across the
R&D process, a holistic, value-centered approach
that goes beyond tech and data is needed. Only by
building the range of necessary capabilities and
culture can companies expect to reap the benefits
of new technologies such as gen AI (exhibit).
A road map centered on value
A surprising number of transformations lack clear
and specific targets for value. Without that clarity
and alignment at the leadership level, companies
3
Exhibit
A value-centered approach to incorporating generative AI in digital and
analytics comprises three stages, each with distinct objectives.

Alignment 1. Business-led digital road map

on value Align the senior leadership team on the vision, values, and road map for the transformation, and
reimagine business domains to deliver an outstanding customer experience and reduce unit costs.

Enabling 2. Talent 3. Operating model 4. Technology 5. Data

delivery Ensure the organization Increase the Enable ease of use of Continuously enrich
has the skills and organization’s technology throughout data and make it easy
capabilities needed to metabolic rate by the organization to to consume throughout
execute and innovate. effectively aligning support innovation the organization to
business, operations, at pace. improve customer
and technology. experience and
business performance.

Change 6. Adoption and scaling

management Maximize the value captured by generative AI use cases by ensuring the adoption and enterprise
scaling of digital solutions and by carefully managing transformation progress and risks.

McKinsey & Company

struggle to marshal the necessary resources and
track progress. Building support and alignment
around that value is critical.
— Frame gen AI as an enabler. A major theme
in our discussion with R&D executives was
avoiding gen AI backlash in the organization by
properly positioning the benefits of gen AI via a
preemptive discussion. Presenting gen AI as an
enabler and accelerator rather than as a means
of cost reduction and job destruction is critical
to a successful adoption.
— A clear and consistent change narrative.
Internal stakeholders—chief experience
officers, managers, employees, and relevant
departments such as legal, ethics, and
compliance—should be engaged in the
process of defining the change narrative.
This collaborative approach ensures that
all perspectives within the organization are
considered and that the resulting narrative
is comprehensive and aligned with the
organization’s goals. The change narrative
should address ethical considerations, including
data privacy, algorithmic bias, transparency,
and accountability, and it should be consistently
communicated to all stakeholders (see sidebar,
“Addressing legal and ethical considerations”).
This helps build trust, understanding, and
support for gen AI implementation and
encourages all members of the organization to
support its strategic objectives.
— Empower C-suite leaders. A crucial first step
can be providing C-suite leaders with relevant
data and case studies that demonstrate the
potential impact of gen AI on the organization’s
strategic objectives in a clear and concise
manner. In an ideal situation, C-suite leaders are
briefed on the ethical and legal considerations
of gen AI and the importance of establishing
guardrails and nimble ethics and legal approval
processes. By modeling a pioneering mindset,
C-suite leaders can foster a culture of innovation
and experimentation within the organization.
R&D departments can support these leaders
in ensuring that gen AI is implemented in
a responsible and effective manner that
maximizes benefits for the organization.

Automotive R&D transformation: Optimizing gen AI’s potential value 4

Addressing legal and ethical considerations
When it comes to using gen AI,
executives in our discussions and the
survey were most concerned about data
protection and related legal concerns.
While gen AI is initially introduced by
tech departments, companies must
develop a strong adoption framework
that encompasses R&D, legal, risk, and
compliance. Companies in the critical-
infrastructure space are already facing a
rapidly developing regulatory environment
to define permissible uses of gen AI,
including criteria for data usage and
guardrails.
— Safeguarding proprietary data. It is
imperative to ensure that proprietary
data does not leak into vendors’ gen AI
models and that potentially proprietary
data is not being used in gen AI
responses. A clear understanding of
the terms of service for commercial gen
AI offerings can help establish internal
rules to guide decision makers in using
and protecting proprietary data.
— Regulatory frameworks and ethics
committees. A predefined regulatory
framework and a nimble, rapid
escalation mechanism to clarify
borderline cases can provide the legal
and ethical foundation for widespread
use of gen AI. This can help protect
companies from potential liability
claims as well as reduce uncertainty
for engineers who are formulating new
gen AI use cases. For example, some
leading companies are establishing
gen AI ethics committees with
members from outside the organization
to provide an independent perspective
on the ethical use of gen AI as case
law evolves.
— Early alignment on guardrails.
Responsible and ethical gen AI
deployment in automotive R&D
requires early agreement on guardrails
for the technology and a rapid ethics
and legal approval process involving
legal, risk, cybersecurity, data
protection, and compliance.
— Clear guidelines and protocols.
Establishing clear guidelines and
protocols helps ensure compliance
with ethical and legal requirements,
including data privacy, algorithmic
bias, transparency, and accountability.
A well-defined and efficient approval
process involves clear documentation
of objectives, data sources, algorithms
used, and potential risks and mitigation
strategies. Ongoing monitoring and
evaluation of gen AI projects helps
maintain the technology’s integrity
and supports its trustworthiness and
acceptance.

— Build a visible lighthouse to inspire the Empowering and training talent:

organization. This can prove to be a key
strategy for R&D departments in automotive.
By identifying a high-impact use case for gen
AI and showcasing its potential, R&D teams can
motivate and inspire the rest of the organization
to explore new possibilities and embrace
innovation. Once the lighthouse is successful,
R&D leadership will need to build a set of
mutually reinforcing and supporting use cases.
Simply building out use cases in isolation and
without coordination often leads to considerable
activity but little value.
Two gen AI copilots
Gen AI will certainly affect jobs, but McKinsey
analysis indicates that models will often function
as copilot applications that support the work
employees are already performing.2 The changes
will include assuming monotonous tasks, such as
writing briefs or drafting documentation. This in turn
will enable employees to spend more time on more
rewarding tasks—for example, generating ideas
and creative solutions and drafting initial code for
review. Building talent capabilities can be much
more of a training exercise than a hiring objective.

2
“The economic potential of generative AI: The next productivity frontier,” McKinsey, June 14, 2023.

Automotive R&D transformation: Optimizing gen AI’s potential value 5

Several R&D organizations have already begun
implementing copilots, including one focused
on writing requirement documents. Copying
and pasting text from different versions of such
documents often leads to inconsistencies and,
in the worst cases, convoluted documents with
unnecessary requirements. A German OEM that
implemented this copilot has realized efficiency
gains of 20 percent and eased the workloads of
several hundred engineers. The copilot has been
continuously enhanced with additional features,
such as checks against International Organization
for Standardization (ISO) norms, that have
contributed additional time savings.
Another gen AI copilot, implemented by a German
automotive OEM, aims to reduce compliance task
preparation time for a broad set of employees. In this
case, the gen AI application automatically extracts
norms from ISO and similar documents, consolidates
them, and checks for adherence to and compliance
with existing process documentation. It is expected
to reduce audit preparation efforts by 20 to 30
percent when it is eventually expanded to derive
to-do items automatically and identify synergies
across norms and process documentation.
Workers will need time and training to learn how to
best use their copilots, test and build trust in the
results, and gain reassurance from interactions that
yield the correct answers.
Innovating the operating model
For teams to work quickly and effectively, they
need independence, clear guidelines and goals,
and access to gen AI tools and capabilities. Given
the uncertainties and evolving landscape around
risk, experts in the field need to be embedded
with working teams to identify issues early on and
manage a thoughtful risk review and approval
process. Crucial elements include the following:
— Cross-functional teams. To fully leverage gen
AI, companies should establish cross-functional
teams consisting of experts from various
disciplines who can collaborate effectively to
drive innovation. A culture of collaboration and
experimentation enables teams to solve complex
problems and deliver powerful solutions.
Automotive R&D transformation: Optimizing gen AI’s potential value
— Streamlined processes. To unlock the bottom-
line potential of gen AI, existing processes must
be redesigned and costs must be systematically
reduced or removed—for example, by
streamlining workflows, eliminating manual
process steps, and reshaping roles.
— Clear mandates. To ensure accountability
and drive results, leaders should establish
robust mandates that clearly define objectives,
deliverables, and timelines for these teams.
By empowering teams with the necessary
resources and authority, R&D departments can
foster a sense of ownership and responsibility
among team members, enabling them to achieve
their goals and deliver tangible outcomes.
Building technology foundations
Similar to digital use cases, the top barriers to
adoption of gen AI use cases include data silos,
permission issues, and tech stacks that prove
inadequate to support the new technology.
Implementing gen AI depends on scalable
infrastructure, which includes robust architecture,
efficient resource allocation, and proactive
adaptation to evolving technological landscapes.
In addition, a coherent but modular data platform
is an essential element to a technical foundation
that supports a scalable use of gen AI. Ideally,
the technology foundation should provide access
to different gen AI models to enable broader
sets of use cases and support cost-efficient
implementation. The vast amount of data to be
processed and the open architecture required
to integrate with vendor-hosted large language
models mean that cloud-based infrastructures and
platforms are desirable, as they can provide the
flexibility and robustness needed.
Creating robust data governance
A lack of value assurance for data and a lack
of training-data availability from suppliers are
substantial challenges, highlighting the technical
and organizational centrality of data.
Although gen AI does not typically require vast
amounts of data to deliver value, most use cases do
benefit from systematic prompt enrichment using
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proprietary data, which needs to be administered
with strict data governance to restrict visibility
and accessibility of the proprietary data to what is
permissible and desirable.
Data ownership, data taxonomy, and ontology
are required to feed models with the necessary
clean and representative data for training. A
comprehensive approach is not ideal; rather, a
set of pragmatic solutions for various use cases,
introduced in parallel, is more likely to yield success.
For example, companies can begin cataloging test
cases, establish data governance for these test
cases, and create a repository of high-quality test-
case data in a structured data lake.
Maintaining strict assurance that solutions
are adopted and scaled to capture value
The effects of the transformed R&D process should
be carefully measured, evaluated, and corrected
where needed. A clear and accepted baseline is
essential to demonstrate the positive impact of gen
AI.
Similarly, a value capture governance framework
and supporting incentives will help avoid
unnecessary costs for licenses and training. An
organization with a strong business value can help
realize bottom-line or top-line benefits enabled by
higher productivity and shorter time to market.
R&D departments can be better served by
prioritizing gen AI use cases with the highest
potential impact and lowest risk. These use cases
can then be grouped into waves of deployment
based on their complexity and interdependencies,
thus delivering tangible business value and building
momentum for the next wave of deployments.
Collaboration and knowledge sharing across teams
and waves can help maximize benefits.
Capturing the value of gen AI in R&D starts with a
clear vision for its use and a systematic approach to
identifying and prioritizing use cases. Each use case
pilot should be followed by developing a product
that is supported with robust change management,
value accrual, capability building, and a road map
outlining the next wave of use cases to transform the
entire process chain. Value can be captured only by
ensuring that gen AI benefits are applied day to day.
Implementing several use cases, partly in parallel,
facilitates successive iteration and refinement of
the gen AI approach, strategy, and vision over time.
Such an approach ensures a swift and scalable
capture of value from gen AI innovations.

About the McKinsey Center for Future Mobility

These insights were developed by the
McKinsey Center for Future Mobility
(MCFM). Since 2011, the MCFM has worked
with stakeholders across the mobility
ecosystem by providing independent
and integrated evidence about possible
future-mobility scenarios. With our unique, pools, and life cycle sustainability. Find
bottom-up modeling approach, our out more about the McKinsey Center for
insights enable an end-to-end analytics Future Mobility on McKinsey.com.
journey through the future of mobility—
from consumer needs to a modal mix
across urban/rural areas, sales, value

Peter Cholewinski is an associate partner in McKinsey’s Berlin office, where Wolf Richter and Matthias Roggendorf are
partners and Andreas Venus is a senior partner. Martin Kellner is a partner in the Munich office, where Andreas Tschiesner is
a senior partner.

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Automotive R&D transformation: Optimizing gen AI’s potential value 7