The product race has become an innovation race, reconciling challenges of branding, performance, time to market and competitive pricing while complying with ecological, safety and legislation constraints. The answer lies in ''smart'' products of high complexity, relying on heterogeneous technologies and involving active components. To keep pace with this evolution and further accelerate the design cycle, the design engineering process must be rethought. The paper presents a mechatronic simulation approach to achieve this goal. The starting point is the current virtual prototyping paradigm that is widely adopted and that continues to improve in terms of model complexity, accuracy, robustness and automated optimization. Two evolutions are discussed. A first one is the extension to multi-physics simulation answering the design needs of the inherent multi-disciplinarity of ''intelligent'' products. Integration of thermal, hydraulic, mechanical, haptic and electrical functions requires simulation to extend beyond the traditional CAD-FEM approach, supporting the use of system, functional and perception models. The second evolution is the integration of control functions in the products. Where current industrial practice treats mechanical system design and control design as different design loops, this paper discusses their integration in a modelbased design process at all design stages, turning concepts such as software-in-the-loop and hardware-in-the-loop into basic elements of an industrial design approach. These concepts are illustrated by a number of automotive design engineering cases, which demonstrate that the combined use of perception, geometric and system models allows to develop innovative solutions for the active safety, lowemission and high-comfort performance of next-generation vehicles. This process in turn poses new challenges to the design in terms of the specification and validation of such innovative products, including their failure modes and fault-tolerant behaviour. This will imply adopting a modelbased system engineering approach that is currently already common practice in software engineering.