Automotive 2035
Foreword
Welcome to the fourth edition of our Automotive 20xx series, Automotive 2035, where we explore the expectations of more than 1,200 global industry executives as they consider the era of software-defined vehicles.
In our Automotive 2030 report, we witnessed the industry's acceleration toward digital reinvention, with operations realigned around digital capabilities and digital experiences to redefine brand value. Looking ahead to 2035, the transformation deepens with the industry poised to embrace a software-defined future.
In collaboration, the Alliance for Automotive Innovation (AAI), Amazon Web Services (AWS), Red Hat, and IBM examine the profound implications of this transition. As vehicle electrification progresses further, so will advancements in sustainable mobility. To gain a competitive edge, automakers will be building deeper digital experiences that tap into the vehicle control domain, transforming the way we interact with our cars. And they will be shifting their long-standing business model, moving away from traditional car sales toward recurring digital revenue models.
These are consequential changes that require careful navigation. At AAI, AWS, Red Hat, and IBM, we are not just observers of this transformation; we are active participants. We are excited about the opportunities that a software-defined future brings and are committed to supporting automotive decision-makers as they define their path forward. We hope this report serves as a thought-provoking resource through our strategic insights and actionable advice. Together, let's shape the future of the automotive industry.
Jeff Schlageter
General Manager
Global Manufacturing Industries
IBM
Francis Chow
Vice President and General Manager
In-vehicle OS and Edge
Red Hat
John Bozzella
President
Alliance for Automotive Innovation
Ozgur Tohumcu
General Manager, Automotive and Manufacturing
Amazon Web Services
Shining the headlights on software
In a seismic shift, the automotive industry is redefining its future, with software-defined vehicles (SDVs) poised to revolutionize driver and passenger experiences by 2035. In an eye-opening IBM Institute for Business Value (IBM IBV) survey of more than 1,200 global industry executives, 74% say 2035 vehicles will be software defined and AI powered. They foresee an extensive transformation where software and AI are applied not just to in-car experiences but to the very core of the vehicle—its controls, its functions, and its interactions with the driver and the world around it. Multiple industry leaders interviewed one-on-one by the IBM IBV shared their aspirations for SDVs to provide a superior driver and passenger experience.
But executives also see dollar signs: they expect 51% of their revenue in 2035 to come from recurring digital and software-related sources—such as premium connectivity, vehicle subscriptions, software-defined functional upgrades, enhanced mobility experiences, and autonomous driving—up from just 15% today.
Auto executives expect revenue from digital and software-related sources to more than triple by 2035.
The transition from a mechanical-driven to a software-driven business model compels fundamental changes to traditional mindsets and ways of working. Our research reveals that automakers are struggling to adapt, with one industry executive commenting, “Some global automotive companies have a half million employees. Moving big families to a new software culture takes time.” Yet, other executives suggest the software-defined future in and around the vehicle will arrive sooner than 2035—forcing automakers to confront related challenges head-on if they are to emerge as market leaders.
“The threshold for a full SDV is where vehicle components and computing hardware are designed to deliver the full potential of a software-enabled experience.”
Masashige Mizuyama
Executive Vice President & CTO
Panasonic Automotive Systems
In this report, we identify three areas where automakers can focus their efforts to stay ahead of the curve. In part one, we explore how software can be a defining differentiator. In part two, we tackle the technical complexities that are blocking SDV progress. And in part three, we address bridging the skills gap to create a software-driven culture that extends beyond vehicles to the entire organization. Each section includes an action guide with suggested steps that can help automakers overcome these challenges.
Perspective: The 2035 automotive and mobility landscape
Revving up brand value with software-powered experiences
The software-defined vehicle revolution is poised to upend traditional notions of brand value.
Historically, the essence of an automaker’s brand has been rooted in design, functionality, safety, reliability, and emotional appeal. With SDVs, the focus pivots to software- and data-driven driver and passenger experiences throughout the vehicle’s lifecycle—even before it is sold or driven through virtual shopping and test driving. A company’s ability to deliver cutting-edge technologies, seamless connectivity, high performance, and personalized services can determine whether they thrive or end up on the side of the road. In fact, 75% of auto industry executives say the software-defined experience will be the core of brand value by 2035.
75% of auto industry executives say the software-defined experience will be the core of brand value by 2035.
To accelerate this shift, auto executives are nearly tripling R&D budgets of software and digital investments from 21% today to 58% in 2035. In addition to expanding into new geographies, they are betting on new business models (including digital platforms) and new product categories as two of the best opportunities for growth.
Automakers are betting on software and digital R&D investments over the next 10 years.
Executives expect multiple recurring revenue streams from SDV-related features, including autonomous driving, immersive in-car entertainment, and remote diagnostics. But the dizzying pace of technology advancements makes it difficult to predict customer expectations 10 years from now. While some trends can be anticipated, others haven’t even been imagined yet.
59% of automakers are preparing for a wide range of possibilities in 2035, while another third are adopting a wait-and-see attitude toward future customer expectations. A small group (9%) expect to focus on tailored customer experiences, including personalized settings and preferences as well as activity recommendations based on a consumer’s lifestyle.
However, brand-defining digital experiences introduce new risks and the need for new capabilities and partnerships. Safety and reliability become even more important, while data security and privacy jump up the list of competitive advantages for 2035, superseding the traditionally leading factor of vehicle integration capabilities. Industry experts note that while it’s unlikely consumers will prioritize a brand for its superior data security and privacy, poor data security and privacy could drive them elsewhere.
Auto executives expect safety and reliability along with data security and privacy will be their top competitive differentiators in 2035.
Most important factors in defining competitive advantage
Despite high expectations for the future, the auto industry has seen limited success with radical business model changes in the past. Think of the subscription model, which has fared better in some geographies than in others. But digital experiences have the potential to be different, helping automakers distinguish themselves from each other. Each automaker can make their software the “secret sauce” for brand-winning customer experiences, enabling revenue model transformation and giving them a competitive edge.
Action guide
Think about tearing up the playbook for vehicle experiences and imagining the unimaginable. What can you create to captivate and retain customers? Notes Bill Knapp, Ford Drive CEO, “The experience should deliver clear values to your customer.” Consider the following actions:
- Do not compromise on safety, reliability, security, and privacy, but go beyond these core attributes for brand-differentiating experiences. Plan to deliver an experience consistent with your brand, whether that’s defined by luxury, sustainability, being fun to drive, a futuristic vibe, and so on. Build a data platform to collect and analyze user data to offer tailored software experiences in areas such as virtual test driving and immersive experiences, ownership/usage models, in-car concierge capabilities, or personalized settings. By demonstrating a deep understanding of your customers' needs and desires, you can build lasting emotional connections and drive long-term loyalty.
- Innovate with new ecosystem partners using proven methodologies and frameworks. In separate IBM IBV research, nearly half (48%) of automotive CIOs, CTOs, and CDOs said that strategic alliances and partnerships are the most important enabler of their competitive advantage over the next three years. To create seamless customer experiences that connect people’s lives and mobility, look beyond your traditional ecosystem to tech startups, educational research programs, or telecommunications and media and entertainment companies. Several executives noted that they do not benchmark against competitors. Rather, they look for new ideas from other industries. Build an open innovation platform that can enable integration with your new ecosystem partners.
- Incorporate a strong feedback loop. Continually solicit input from customers and from ecosystem partners to make ongoing improvements. Anticipate customer needs and experiment with new ideas. This is the power of software-driven experiences that can and will evolve rapidly and constantly.
Perspective
Autonomous driving grabs the headlines as one of the more prominent SDV use cases. 65% of industry executives say customers in 2035 will expect autonomous driving features, and they project these features will generate $269 in monthly recurring revenue per customer in 2035 (in today’s dollars).
However, industry leaders anticipate limited adoption of advanced levels of autonomous driving—Levels 4 and 5 where human override is optional, or humans are not involved at all. They predict Level 4 and Level 5 autonomous vehicles will only make up 12% of the market in 2030 and 23% in 2035.
“Even if the technical challenges for high-level autonomous driving are cleared, regulatory issues and societal acceptance take more time and effort,” says Kenichi Takagi, Vice President, Connected Systems R&D, Denso International America.
Experts from the Alliance for Automotive Innovation note the importance of having a federal-level regulatory framework for autonomous driving in the US to support autonomous driving plans. Some initiatives exist at state or regional levels, but these are not enough to support widescale commercialization. Industry leaders and policymakers must also work together to foster public trust in the technology.
Executives anticipate limited adoption of advanced levels of autonomous driving by 2035
Perspective
Over half of the consumers in the IBM IBV 2030 automotive survey said security and privacy are important brand differentiators. With more software and connectivity come more cybersecurity risks, so security can’t be an afterthought.
However, the lifespan of vehicles makes security exceptionally challenging. No one knows what threats lie ahead. Each technology advancement—such as AI and quantum—brings its own unique considerations. The ability to roll out security system updates will be increasingly important. A secure-by-design approach, embedding security and privacy throughout the product lifecycle, can help bolster defenses.
Vehicle Security Operations Centers (VSOCs) also play a vital role in monitoring, detecting, and responding to cybersecurity threats that target vehicles. Given the challenges of keeping pace with an evolving threat landscape, it’s no surprise that the percentage of executives who plan to outsource their VSOCs to external experts grows from 64% today to 74% in 2035.
Streamlining technical complexity with an architecture rebuild
Turbocharging software development can help unlock the potential of SDVs.
Vehicle value may no longer be limited to initial features and functionality—it can be earned over the life of the vehicle by continuously providing superior customer experiences with new applications and services. 60% of executives expect that consumers will want to upgrade features and make purchases through over-the-air (OTA) updates, so that capability becomes essential.
To reach a future where cars are truly digital products, automakers need to convert their current electrical/electronic (E/E) and software architectures to a simplified SDV architecture. The historic approach to vehicle architecture—where software for a single domain (such as brakes) is delivered separately from another domain (such as airbags) through individual electronic control units (ECUs)—is not likely sustainable for the SDV era. As the number of ECUs grows dramatically, the vehicle control systems become too complex.
”We need standard interfaces between each technology layer, especially between the hardware and software layers, to allow a healthy SDV ecosystem to grow.”
Masashige Mizuyama
Executive Vice President & CTO
Panasonic Automotive Systems
Automakers are increasingly moving to highly centralized, powerful high-performance compute (HPC), or domain control, units that can separate hardware and make software more manageable and easier to update. But this shift is exposing issues, with 79% of executives citing the technical complexity of separating the hardware and software layers as a moderate or significant SDV challenge. In fact, 47% say it is their number-one challenge.
79% of executives cite the technical complexity of separating the hardware and software layers as a moderate or significant SDV challenge.
Automakers are moving to a simplified SDV architecture that supports more efficient vehicle development and updates.
Source: IBM Global Technology and Red Hat
Many automakers also may need more than a revamped architecture. 80% of executives say managing the entire SDV product lifecycle is a challenge. 77% cite a lack of software development tools and methodologies as a moderate or significant barrier to SDV progress. One of our internal SDV experts observes that auto companies are adopting Model-Based System Engineering (MBSE) for vehicle software development as a critical piece for their SDV transition, and those companies that have integrated the process successfully seem to be getting ahead.
Kenichi Takagi of Denso International America notes, “Integrating the newest software functions into vehicles is not the most difficult part, but making production volumes safely and reliably requires additional workloads in testing and validation.”
“A software-defined approach requires system level thinking at the whole vehicle level, re-architecting how a vehicle is designed.”
Jack Weast
Vice President and General Manager
Intel Automotive
Action guide
68% of executives say there will be a limited number of standard SDV platforms by 2035. An open architecture can facilitate interoperability and enable best-of-breed solutions that support differentiating functionality and avoid vendor lock-in. Consider the following actions:
- Explore open-source solutions for non-differentiating areas. A significant portion of the operating system and supporting middleware are common across vehicles and are not likely to deliver a competitive advantage. These can be prime candidates for open-source solutions. In one survey of auto decision-makers, 95% of respondents expected open-source software to enhance flexibility and scalability in SDVs, improving their ability to capitalize on business opportunities. Complementing open-source initiatives, industry-wide standardization of the middleware interface is another consideration.
- Borrow tried-and-true software engineering tools and practices from industries with more mature digital product development practices. As you move toward creating digital experiences rather than mechanical machines, assess tools that provide visibility across teams by linking requirements to design models, tests, and workflows. Those that contain integrated templates as well as processes and reporting for standards and regulatory compliance can help reduce audit time and costs. Explore the feasibility of using digital models and simulations to support the entire lifecycle of a vehicle’s software system, from conception and design to verification and validation. Investing in agile and DevOps practices to enable rapid iteration, continuous delivery, and efficient collaboration between your development and operations teams can enable you to respond more quickly to changing consumer demands.
- Pair cloud and AI for a powerful R&D tool. Beyond its traditional role as an IT infrastructure, cloud can accelerate software development, facilitate rapid experimentation, and support data-driven decision-making. By harnessing the power of cloud combined with AI, automakers can explore new ideas, test different software configurations, and gather valuable insights to inform the development of innovative SDV features. Using AI to analyze vast volumes of data, identify patterns, and make predictions, automakers can simulate and optimize SDV performance and create personalized experiences for customers.
Case study
The Volkswagen (VW) Group’s Electric Development department tests and enhances the ECUs that support intelligent, connected vehicles. The VW Group needed to change its processes to increase collaboration with the external vendors who contribute ECU technology. It wanted a standardized architecture and a virtualized, automated environment for its testing.
To improve testing speeds, scalability, and consistency, the VW Group used Red Hat® technology to create a mixed-mode testing environment that combines virtual and real-life testing. With this new environment and an architecture created with Red Hat Open Innovation Labs, the VW Group improved component integrations, introduced self-service provisioning, and reduced costs for system tests by 50%.
Shifting gears to realize a software-defined culture
A deeply ingrained mechanical-driven culture is a roadblock on the SDV journey.
More than two-thirds (68%) of auto executives say their SDV transformation is on track, which is interesting given the culture and talent challenges they face. For decades, automakers have fine-tuned their craft around precision-engineered mechanical components and systems. But this mindset is fundamentally at odds with the agile, iterative, and data-driven approach that brings SDVs to life. The transition to a software-driven culture is proving to be a significant setback, with 74% of executives saying their mechanical-driven culture is strong and difficult to change.
The impact of the transition on the workforce’s skillsets is also a major obstacle—particularly given the increased complexity of vehicle integration. SDVs require employees to integrate software-driven approaches into both computing hardware and mechanical hardware, such as body parts, motors, batteries, brakes, and sensors. This level of integration is far more intricate and less understood than traditional mechanical and electrical component integration. Several executives note the conundrum: automakers employ a lot of people who have strong software skills, and they also employ people who have traditional vehicle development expertise. But they lack employees who have a strong understanding of both sides.
Nearly three-quarters (69%) of executives say it’s important to have strong SDV capabilities in-house, but many admit they don’t. 69% report a lack of software skills as one of their top challenges. In fact, they don’t expect to have developed or acquired sufficient talent to achieve their goals for software-defined products and services until 2034.
Automakers don’t expect to have developed or acquired the talent needed to achieve their software-defined product goals until 2034.
Collaboration with the supplier ecosystem can help automakers bridge the gaps. “It’s important to build a strong SDV ecosystem, and relationships with suppliers and technology partners will change,” says Takahiro Kato, Corporate Officer, Corporate Planning, Mitsubishi Motors Corporation. “We are re-evaluating which areas we should retain in-house.”
But looking toward 2035, executives aren’t intending to change course when it comes to their ecosystems. They plan to increase in-house capabilities by 18% for in-vehicle technology areas, such as automated driving assistance systems. For out-of-car areas, such as vehicle security operations, executives plan to increase outsourcing by 17% by 2035.
Our in-depth analysis revealed certain factors that influence automakers’ decisions to outsource SDV capabilities. For example, a lack of software development tools and methodologies tends to lead to more outsourcing decisions for electronics and electric requirements and architecture.
Automakers see promise in augmenting their workforce with generative AI solutions, which can help fill the talent gap sooner. 57% expect gen AI to support developers with testing and validation and 52% see potential in code generation. They expect gen AI to boost SDV software development productivity by almost 40% in the next three years.
“It’s important to build a strong SDV ecosystem, and relationships with suppliers and technology partners will change. We are re-evaluating which areas we should retain in-house.”
Takahiro Kato
Corporate Officer, Corporate Planning
Mitsubishi Motors Corporation
Action guide
Weigh how you can create a culture that embraces innovation, continuous learning, and a willingness to experiment with new technologies. Look at how to empower teams to work flexibly and collaboratively across functions, boundaries, and ecosystems while relentlessly pursuing cutting-edge solutions. Consider the following actions:
- Remove organizational silos. A reorganization that allows cross-functional teams—software and electronics hardware engineers, designers, and product managers—to work together better can facilitate software development. Knowledge-sharing on topics such as vehicle architecture, software platforms, user experience design, and emerging technologies helps foster understanding and collaboration. Implementing initiatives such as hackathons and open innovation platforms can spark experimentation and creativity.
- Forge powerful human-AI partnerships. Digital labor can help train and educate your workforce on the skills needed for a software-driven environment. Look for ways AI can equip teams to work more quickly and efficiently in areas such as coding. Applying AI tools to vehicle security and testing can also help support safety and reliability as one of the top competitive advantages in 2035.
- Reimagine your supplier ecosystem. 58% of automotive CIOs, CTOs, and CDOs said that changing strategic priorities demand reconfiguring core business partnerships, and two-thirds said their strategy is to concentrate on fewer, higher quality partners. Re-evaluate your ecosystem to see if you can remove any that no longer add value or aren’t contributing to your SDV transition. Looking for those that embrace open-source technologies can help support interoperability.
Case study
With software being key to defining automobiles, the R&D scale, process, and team composition of enterprise software projects were becoming increasingly complex and difficult to quantify for China’s Nobo Automotive Technologies Co., Ltd. (Nobo Technologies). The company also found meeting quality management and compliance objectives more difficult.
Nobo Technologies partnered with IBM to deploy an engineering lifecycle management solution that provides a seamlessly integrated digital platform for more efficient management of software development. This solution marked a significant shift from their traditional manual process management and procedures, which could not keep pace with their growth. Adhering to the concept that “tools need to serve people,” Nobo Technologies fully promoted ELM learning internally, and continued to optimize system processes through continuous practice and user feedback.
Now, using systems and software engineering management tools that provide full lifecycle development management from early design to final vehicle inspection and certification, Nobo Technologies has accelerated product R&D innovation, is aligned with international development practices, and can better manage compliance with regulations. Design requirements reside in an online system so reports can be run automatically to share real-time progress. Test results are uploaded and refreshed daily versus the two weeks to a month that it took before.
Meet the authors
Noriko Suzuki, Global Research Lead, Automotive and Electronics, IBM Institute for Business ValueDaniel Knoedler, Director, Global Sales, Automotive, Aerospace and Defense Industries, IBM
Hilary M. Cain, Senior Vice President of Policy, Alliance for Automotive Innovation
Stefano Marzani, Worldwide Technology Leader SDV, Amazon Web Services
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Originally published 10 December 2024
