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Software-defined vehicles market to be worth over $700bn by 2034

Research finds there is plenty of opportunity ahead for software-centric experiences surrounding connected vehicles, but warns that too many OEMs are continuing to equip vehicles with limited and sluggish tech

The software-defined vehicle (SDV) market is evolving, with many potential players being cautious about how to monetise SDV features that are now embedded in vehicles.

Despite a wide discrepancy between the ability of various manufacturers to provision SDV features, research from IDTechEx is forecasting a 35% CAGR in automotive software-related revenue by 2034, with software-related revenue worth more than US$700bn annually.

The report, Connected and software-defined vehicles 2024-2034: markets, forecasts, technologies, noted that the most basic form of SDV is a vehicle where the user experience is affected in some way by the software in a vehicle. It said that, generally, a software-defined vehicle requires a constant cellular connection (4G or 5G); a large, touch-enabled screen; and a powerful central compute system that is also connected to the vehicle’s constituent components. Many SDVs also take advantage of third-party apps and in-vehicle payments to add more features and convenience to the user.

IDTechEx added that connected vehicles and SDVs represent a new paradigm for automakers and consumers. Whereas older ICE vehicles were a conglomeration of more than 70 electronic control units, kilometres of wiring, and many thousands of components, the new era of vehicles can be more centralised, connected and convenient, bringing benefits to both consumers and OEMs.

Connectivity is an important aspect of SDVs, with the report stating that many OEMs offer 4G or 5G functionality for approximately $10 a month, potentially generating $120 a month per vehicle per year. Autonomy as a Service (AaaS) can also offer significant revenue potential, with OEMs such as Ford offering upgraded AaaS for approximately $900 a year in some regions.

In addition to Ford, other players such as Tesla and BMW were found to be actively monetising SDV features and generating significant revenue potential. BMW, for example, is offering owners of its i5 model up to $150 in purchasable software upgrades and features, such as connectivity, real-time traffic information, and heated steering wheels.

Yet the report also warned that many OEMs continue to equip their vehicles with limited and sluggish onboard compute capability, last-generation 4G connectivity, and un-optimised software, preferring to rely on connecting a smartphone to the vehicle for infotainment and payments. By contrast, some OEMs, such as Mercedes and Cadillac, were seen to be focusing on a software-centric experience, facilitated by multiple screens (with functionality for both month passengers and driver), with high-compute, 5G connectivity and support for in-vehicle payments to complete the in-vehicle experience.

IDTechEx said vehicles can become more “software-defined” as the number of software-based features on the vehicle increases, unlocking new experiences such as allowing drivers to update or upgrade their vehicle via over-the-air updates or allowing passengers to watch on-demand movies on the go.

To create a way of comparing existing and future vehicles, IDTechEx created an SDV level guide, which compares vehicles’ software and software-critical hardware. This encompasses features such as a vehicle’s connectivity, compute, displays and software system, allowing vehicles to be assigned a simple level for comparison purposes. For example, the 2023 Tesla Model 3 was said to be a good example of an Advanced Level 3 SDV due to its 4G connectivity combined with its powerful central compute, which allows it to give users a smooth software experience and plenty of functionality such as infotainment and advanced driver assist systems (ADAS).

The report also predicted that the future-connected vehicle will use not just a standard smartphone cellular connection, but potentially take advantage of dedicated vehicle-to-everything (V2X) safety communication channels to connect to other vehicles and traffic infrastructure. IDTechEx said as regulation or safety standards mandate this technology, V2X is set to become the “digital seatbelt” of the future, promising to reduce accidents, improve congestion and reduce emissions globally.

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