Connected And Software-Defined Vehicles Revolutionize Automotive Industry Worth Over US$700bn By 2034

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Discover how SDVs are reshaping the industry, offering enhanced experiences, and unlocking exciting possibilities. 

Connected and Software-Defined Vehicles (SDVs) are ushering in a new era of automotive innovation, revolutionizing the way vehicles operate and interact with users. Unlike their traditional Internal Combustion Engine (ICE) predecessors, which relied on numerous Electronic Control Units (ECUs), extensive wiring, and countless mechanical components, SDVs offer a centralized, connected, and highly convenient experience for both consumers and Original Equipment Manufacturers (OEMs). At its core, an SDV involves a vehicle whose user experience is significantly influenced by its software. As the number of software-based features within vehicles continues to rise, SDVs evolve to offer exciting possibilities. 

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These range from over-the-air updates that enhance vehicle performance to in-vehicle entertainment systems providing passengers with on-demand movies. The key ingredients for an SDV include a constant cellular connection (4G or 5G), a sizable touch-enabled screen, and a robust central computing system linked to various vehicle components. Many SDVs also integrate third-party apps and in-vehicle payment systems to further enhance user convenience. To effectively categorize and compare SDVs, IDTechEx has developed an SDV Level Guide that evaluates vehicles based on their software functionality. This guide assesses elements such as connectivity, computing power, display capabilities, and software systems to assign a simple level for comparative purposes. 

The Future of Connected Vehicles

The 2023 Tesla Model 3 qualifies as an ‘Advanced’ Level 3 SDV due to its robust 4G connectivity and powerful central computing, delivering a seamless software experience and a wealth of features, including infotainment and Advanced Driver Assist Systems (ADAS). The future of connected vehicles extends beyond standard cellular connections, potentially tapping into dedicated ‘V2X’ safety communication channels. Utilizing technologies like Wi-Fi or Cellular-Vehicle-to-Everything (C-V2X), these vehicles communicate with other vehicles and traffic infrastructure, promising to enhance safety, reduce accidents, alleviate congestion, and lower emissions worldwide. China, in particular, is making significant strides by considering V2X testing in its 2024 New Car Assessment Program (CNCAP). The United States and other regions are also actively exploring V2X technologies, with IDTechEx forecasting that cellular-based C-V2X will become the primary method of connected vehicle communication by 2034.

As for the current state of the SDV market, it is in the early stages of development. While some automakers like Ford, Tesla, and BMW are actively monetizing SDV features, generating substantial revenue through software upgrades and added functionalities, others lag behind with outdated hardware and limited software optimization. Connectivity services, offering 4G or 5G functionality for a monthly fee, also hold potential for generating revenue. Autonomy as a Service (AaaS) is another revenue stream, with Ford, for instance, offering premium AaaS packages.

The research predicts a 35% Compound Annual Growth Rate (CAGR) in automotive software-related revenue by 2034, reaching over $700 billion annually (in 2023 prices). This translates to an average monthly expense of approximately $70 per vehicle owner on software features by 2034. Additional revenue streams may emerge from in-vehicle payments, actuarial data sales, and commissions from in-vehicle app stores. Connected and Software-Defined Vehicles are reshaping the automotive landscape, offering enhanced user experiences and significant revenue opportunities for automakers. As the industry continues to evolve, software-driven innovations will play a pivotal role in shaping the future of mobility.

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