The automotive industry is on the cusp of a significant transformation, driven by software and artificial intelligence. A recent study conducted by IBM, Alliance for Automotive Innovation, AWS, and Red Hat involving 1,200 industry executives forecasts a future where cars are not just modes of transportation but sophisticated, software-defined vehicles (SDVs) offering a plethora of digital services. By 2035, the majority of vehicles are predicted to be “software-defined,” meaning software will control not just infotainment systems but also core vehicle functions, features, and even driving capabilities, including autonomous features. This shift represents a fundamental change in how cars are designed, manufactured, and experienced by consumers. The integration of AI further enhances the potential of SDVs, enabling personalized experiences, predictive maintenance, and advanced driver-assistance systems.
The financial implications of this transformation are substantial. Currently, digital services and car software account for a modest 15% of automakers’ revenue. However, the study projects this figure to surge to 51% by 2035. This growth is fueled by the anticipated adoption of subscription models for various software-enabled features and services, including autonomous driving capabilities. IBM specifically predicts that autonomous driving features will generate an average of $269 in monthly recurring revenue per vehicle by 2035. This shift towards recurring revenue streams is expected to boost profit margins for automakers but may also translate to higher costs for consumers. Over-the-air (OTA) updates, allowing car owners to upgrade features and extend the lifespan of their vehicles, are also expected to contribute to this revenue growth. The survey reveals that six out of ten executives believe customers will demand OTA update functionality by 2035.
The rise of the SDV and the increasing demand for autonomous features has influenced automakers’ strategies regarding robotaxis. While the potential for robotaxis remains, companies like GM are shifting their focus towards integrating autonomous capabilities into privately owned vehicles. This strategic pivot suggests a recognition that monetizing autonomy through individual car ownership presents a more immediate and potentially lucrative path compared to the complexities and uncertainties surrounding the robotaxi market. This doesn’t negate the potential of robotaxis, as demonstrated by Waymo’s expansion into international markets, but highlights a shift in priorities towards a more readily accessible market.
While full autonomy remains a long-term goal, the industry anticipates significant adoption of lower levels of autonomous driving features. The study predicts that two-thirds of car drivers will expect some level of autonomous features by 2035, primarily focusing on Level 2 and Level 3 autonomy. These levels require the driver to remain attentive and ready to take control, representing a more realistic near-term deployment compared to fully autonomous vehicles. Industry executives estimate that less than a quarter of the market will feature more advanced autonomous capabilities by 2035, acknowledging the technical, regulatory, and societal hurdles that still need to be overcome. These hurdles include gaining public trust and establishing clear legal frameworks for autonomous driving.
The transition towards SDVs and increasing autonomy is not without its challenges. Cybersecurity is a paramount concern, as the increasing reliance on software makes vehicles vulnerable to hacking and malicious attacks. The industry also faces a skills gap, requiring a workforce proficient in both software development and automotive engineering. However, the most significant challenge identified by the study is the inherent complexity of SDV development. Creating standardized interfaces between different technology layers to ensure safe and seamless information sharing within the vehicle is crucial. The report highlights that 79% of executives consider the technical complexity of separating hardware and software layers a moderate to significant challenge, with 47% ranking it as their top concern.
The path to widespread adoption of SDVs and advanced autonomous driving features is fraught with complexities. While industry executives express optimism about the future of software-defined vehicles and the integration of autonomous capabilities, significant technical hurdles remain. The shift to a software-centric automotive landscape requires navigating complex integration challenges, addressing cybersecurity concerns, and developing a skilled workforce. Overcoming these challenges will be crucial for realizing the full potential of SDVs and delivering the seamless, intelligent, and autonomous driving experiences envisioned for the future. The industry’s ability to effectively address these challenges will ultimately determine the timeline for mass adoption and the transformational impact of this technological shift.
