The IBM Institute for Business Value (IBV) conducted a survey of over 1,200 global automotive industry executives to understand the future of vehicles. The findings predict a transformative shift in the automotive sector by 2035, where software-defined vehicles (SDVs) powered by artificial intelligence (AI) will be the norm.
Key Findings:
- Software-Defined Vehicles (SDVs) by 2035:
- 74% of executives believe that by 2035, vehicles will be entirely software-defined and AI-powered, affecting everything from vehicle controls and functions to in-car experiences.
- SDVs are expected to generate substantial revenue, with 51% of industry revenue projected to come from digital and software-related sources by 2035, up from just 15% today. This includes revenue from subscriptions, over-the-air upgrades, autonomous driving, and enhanced connectivity.
- Brand Value Shift:
- The focus on software will redefine automakers’ brand value. In the past, brand value was defined by design, safety, and reliability. In the SDV era, software and data-driven experiences will become the core of brand identity. 75% of executives say the software-defined experience will be central to brand value by 2035.
- Automakers are increasing R&D investments in software and digital technologies, from 21% today to 58% by 2035, betting on new business models, digital platforms, and product categories for growth.
- Recurring Revenue Streams:
- The growth of SDVs will bring recurring revenue opportunities, such as from autonomous driving, in-car entertainment, and remote diagnostics. However, due to rapid technological change, predicting future consumer needs is challenging. Many automakers are adopting a “wait-and-see” approach but are preparing for a wide range of future possibilities.
- Technical Challenges in SDV Development:
- Moving towards SDVs requires fundamental changes in vehicle architecture. Traditional vehicle systems, which rely on multiple individual electronic control units (ECUs) for various functions, are becoming unsustainable as vehicles grow more complex.
- 79% of executives cite the complexity of separating hardware and software as a significant challenge. Automakers are shifting to centralized high-performance compute units but face challenges in managing the entire SDV product lifecycle and lack the necessary software tools and methodologies.
- Shifting Organizational Culture:
- The transition from a mechanical-driven culture to a software-driven culture is one of the biggest hurdles for automakers. Historically focused on precision engineering, the industry now needs to embrace agility and data-driven approaches. This shift is complicated by a skills gap, as 69% of executives say they lack the in-house software expertise needed for SDV development.
- Generative AI is seen as a potential solution to fill this gap, with 57% of executives expecting AI to support software development, testing, and validation, improving productivity by 40% over the next three years.
- Collaboration and Ecosystem Development:
- Automakers recognize the need for a strong SDV ecosystem, with evolving relationships with suppliers and tech partners. While some functions will remain in-house, others, such as vehicle security operations, will increasingly be outsourced. Automakers are also betting on AI and generative technologies to support their development processes and boost their SDV capabilities.
The shift towards software-defined vehicles is inevitable, but it requires automakers to navigate significant technical, cultural, and workforce challenges. To stay competitive, they must re-architect their vehicle systems, invest in digital capabilities, and embrace new business models. The transition to a software-driven automotive industry will redefine how vehicles are built, operated, and experienced by consumers, making software and AI the cornerstone of the industry’s future.
