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Written By

Nikolaus Lang
Managing Director and Senior Partner; Global Leader, Global Advantage Practice, BCG (Boston Consulting Group)

This article is part of: Centre for Urban Transformation

  • 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.

The magnitude of change these SDVs represent cannot be overstated. 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).

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 innovative 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.