The State of the Software-Defined Vehicle Market

Ahead of the SDV: Software-Defined Vehicles Europe 2023 conference, Automotive IQ interviewed Arnav Dhawan and Aaron Dale from S&P Global, who together, shed light on the transformative shift from hardware to software-defined vehicles (SDVs). In this combined-answer interview, both Arnav and Aaron provide a comprehensive overview of the burgeoning SDV market, emphasising the huge potential it holds for automakers. 

When discussing the profound impact of SDVs on the automotive industry, Arnav and Aaron explain how the emerging shift promises a more dynamic and personalised experience for vehicle owners, drivers, and passengers; drawing parallels to the seamless updates and enhancements experienced in the world of mobile devices, consumers are now demanding a similar level of agility and adaptability in their vehicles.

Q: SDV has become a hot buzzword only recently. What according to you had brought about this shift from HW to SW-defined vehicles? 

We believe the shift from HW to SW-defined vehicles promises a far more rewarding in-and-out-of vehicle experience for owners, drivers, and passengers in the future. Consumers have seen how easily their mobile and digital devices are upgraded, apps updated, and faults are fixed with over-the-air (OTA) software, and they are demanding a smartphone-like in-vehicle experience. In addition, the cost and limited static capabilities of traditional HW vehicles present noticeable constraints; with the emergence of connected vehicles on the road, we believe automakers will look to refocus their efforts on new potential revenue streams through software updates. This transition will also receive backing from emerging ecosystem partners within the technology sector who see the automotive industry as a promising avenue for growth. 

Q: We have read that software-defined vehicles present a $650 billion opportunity for automakers. How would you describe the size and potential of the SDV market? 

The SDV market indeed presents a huge opportunity for automakers, as we anticipate significant value will be generated by the rise of SDVs within OEMs and OESs, encompassing not only the development of software solutions but also the infrastructure, hardware, and services required to support these software-defined capabilities. As a result, it represents a critical sector where innovation and investment can yield substantial returns for automakers in the coming years. 

Furthermore, we are seeing a rise in connected cars, with a projection of 602 million connected vehicles on the road by 2028. This allows tremendous potential for OEMs to increase revenue from connected services like in-car entertainment, navigation, and paid updates enabling feature enhancements. As the influence of software in the vehicle continues to grow, the number of software-related recalls is also projected to grow significantly over the next decade, establishing OTA updates as both a revenue-generating and cost-saving opportunity for automakers. We forecast the parc size of vehicles with OTA capabilities to be approximately 407.8 million units in 2028 up from approximately 114.9million in 2022 as more automakers embrace OTAenabled architectures to monetise the many underlying advantages of this technology; with a global projection of the automotive OTA update industry increasing from $6.9 billion in 2022 to $25.2 billion by 2028.

Q: According to you, and the research that S&P conducts on the SDV topic, how do you define the concept of an SDV? 

With the increasing pace of connectivity, electrification, and autonomous driving enhancements, the concept of the SDV allows the vehicle to evolve and adapt to customers’ everchanging needs for optimal user experience, including the latest connected services and functionality, upgraded in-vehicle apps, and enhanced safety. Within our software-related research, we see software continuously updated and redefining the features and behaviour of the vehicle, as far as the installed hardware supports it. 

Q: What is the most exciting piece of insight/ intelligence that you have found in all your work on SDVs? 

The SDVs are positioned to significantly alter the automotive industry thanks to their connection, cutting-edge driver safety technologies, and consumer-centric mindset. Consequently, in the upcoming years, the software will play a bigger role in vehicle design and development. With this evolving outlook and transformation within the industry, OEMs are shifting away from traditional competitive metrics such as horsepower to software-enabled features and enhancements, presenting an exciting phase to monitor. Beyond its core impact on the vehicles themselves, it opens exciting possibilities for consumers to enjoy a profoundly integrated digital experience that spans their home, workplace, and the vehicle itself; where your vehicle seamlessly connects with your smart home ecosystem, personalises entertainment and settings on the move and becomes an extension of the office. 

Q: What would you say the industry needs to do right now to accelerate the transition towards vehicles being defined by software vs. hardware? 

The automotive value chain is being disrupted by software, which influences all industry stakeholders. With the current growth trajectory, software will surpass the vehicle’s hardware components, which will lead to a sharp increase in software R&D spending. In order to fulfill SDV development goals, auto companies (both OEMs and OESs) strategically intend to keep the rising cost of software development under control while prolonging the life of hardware functionalities.

Additionally, a crucial component of their strategy is creating an agile, cross-functional in-house, and/or partnered development environment. The industry must also actively pursue collaboration and forge strategic partnerships with technology giants and startups specialising in software development, artificial intelligence, and connectivity. These partnerships can help leverage expertise and accelerate innovation whilst the development of open standards and interfaces will facilitate interoperability among different software-defined vehicle components and enable seamless integration of third-party applications and services. 

Q: How can OEMs/Tier-1s benefit from S&P’s intelligence towards making SDVs a reality? 

At S&P Global, our global team of analysts provides the planners and strategists within OEMs and Tier-1’s intelligence to identify revenue opportunities and value in-vehicle data and digital services. We provide our clients access to a comprehensive suite of vehicle content solutions via our automotive strategy and planning solution – AutoTechInsight. This dashboard explores reports, supplier profiles, and OEM-Supplier relationships in addition to supply chain, pricing feature forecast, and analysis to support the industry towards making SDVs a reality. 

Q: Lastly, can you give our readers a flavour of what to expect from your presentation at SDV Europe 2023? 

In our session, we will look to discuss how OEMs are using software and connectivity to define their offering, how consumer sentiment is evolving, what new technologies will gain the most ground in the coming years, some new business models we’re witnessing, and the move to connected services.

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