The automotive industry is fundamentally changing towards software-defined vehicles (SDVs) – unlocking societal and economic value.

Over 90% of the accidents caused today by human error can be avoided through advanced autonomous driving. Additionally, the emergence of SDVs will open a significant economic value of over $650 billion by 2030.

Cross-industry collaboration and strategic partnerships will be crucial to capture this value.

As the automobile morphs right before our eyes – from the old gasoline-based internal combustion engine to nimbler and environmentally-friendly electric and self-driving vehicles – there is a simple, but so far mostly unheralded way to describe this radical change: cars are becoming tech products.

And with this shift from analogue machines to software-defined vehicles (SDVs), the boundaries between the automotive and tech industries are blurring.

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The magnitude of change these SDVs represent cannot be ov
erstated. From a global community perspective, this change is reflected in the significant benefits that these vehicles bring.

What are the benefits of software-defined vehicles?

1. Safety

Over 90% of traffic accidents are due to human driver error, according to the US National Highway Traffic Safety Administration (NHTSA) and other credible sources. Most, if not all, of these road mishaps could be prevented by Advanced Driver Assistance Systems (ADAS), arrays of sensors that increasingly control vehicular safety, ultimately leading to autonomous vehicles (AVs).

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2. Sustainable mobility

SDVs are intelligent vehicles already beginning to integrate into their software tech stacks. Not only will the software be called upon to ensure the most energy-efficient performance
from electric vehicles (EVs), but as the technology develops, intelligent EVs will help stabilize the electrical grid, supporting vehicle charging when green energy is available and facilitating the use of EVs as decentralized energy storage units that can give back surplus power to the grid during high demand periods.

Shared AVs in urban areas are another potential sustainability benefit of software-defined vehicles. For example, in New York, this would free up the equivalent of about 900 blocks of space currently being used for parking, and in Los Angeles, it could cut CO2 emissions by 2.7 million metric tons per year.

3. Inclusive mobility

Software-defined vehicles are already simplifying driving, with features like parking assist, monitoring and lane departure alerts – and when full AVs are on the roads, they will provide increased mobility for the disabled and elderly, who could reclaim or gain the independence to travel by car for the first time. And self-driving cars will usher in a new and more inn
ovative period of on-demand mobility – door-to-door and summoned by an app.

What is the market potential for software-defined vehicles?

The emergence of software-defined vehicles will create over $650 billion in value for the auto industry by 2030, making up 15-20% of automotive value. Original equipment manufacturer (OEM) revenues from automotive software and electronics will grow nearly three-fold between now and 2030, from $87 billion to $248 billion, according to a BCG analysis of SDV growth. And the supplier market for automotive software and electronics will nearly double, from $236 billion to $411 billion.

Moreover, emerging vehicle profit pools (including EVs and AVs, their components, software and after-market sales, and on-demand mobility) will grow 900% between 2021 and 2035, while earnings from traditional ICE vehicles and services will decline by about 20%.

Much of this growth will come from an increasing consumer willingness and desire to pay for software-defined capabilities, including self
-driving and connectivity features. These developing driver preferences will juice the demand for sophisticated vehicle electronics hardware, such as advanced computing and communications equipment, digital control units and sensors. A substantial segment of the growing sales for EVs and AVs will occur in big markets, such as China and the United States.

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How can cross-industry collaboration drive the industry?

Automakers, tech companies and policy-makers, all of which are essential for the successful evolution of software-defined vehicles, face different but equally daunting challenges. Automakers carry the burden of a century-long legacy building traditional internal combustion engine vehicles with decade-long innovation cycles.

And tech firms are quickly learning that, despite their significant skills, building or even contributing substantially to a vehicle is a much more complex undertaking than making a mobile device.
Public players and policy-makers are struggling with key mobility challenges that have been present since the emergence of automobiles – traffic congestion, road safety, and air pollution – all of which can be addressed by targeted use cases enabled by the SDV ecosystem.

To come out on top in the SDV environment, all the key stakeholders will have to change their mindsets -from proprietary operations focused on insular profit growth to joint value-creation businesses based on cross-industry collaboration and strategic partnerships.

The necessity and imperatives of this new cross-industry collaboration can be best understood through these essential insights:

In each phase of the software-defined vehicle’s emergence, manufacturing and technological complexity will increase, while innovation will come at a premium. Automotive and technology companies must partner to unlock the benefits of scale and maintain a leadership position.

A joint cross-industry outline of a software-defined vehicle’s parts, features,
and functions is an essential starting point. To help automotive and tech companies speak the same SDV language, the World Economic Forum, in collaboration with BCG, launched the Automotive in the Software-Driven Era initiative. This effort, which includes over 30 companies from the automotive, new mobility, and tech industries, has already created a six-layer model of a software-defined vehicle that can provide structure for future developments and joint ventures.

Virtually every layer of the software-defined vehicle can be influenced by regional differences and demands from local communities. This requires companies to set up targeted approaches for new products, platforms, and private-public partnerships based on the rules of the major markets they operate in and the features and interfaces that local consumers are most partial to.

As the transition proceeds to the more developed stages of the software-defined vehicle, industry-wide, interoperable platforms are essential to simplify manufacturing process
es and rebuild scale while creating a fast track for developing cutting-edge tech solutions or integrating platforms efficiently. In this new, partnering-first world, forging alliances and joint ventures across all layers of the vehicle will be the new super-skill.

Source: World Economic Forum