The shift to software-defined vehicles will bring challenges and opportunities to the auto sector while delivering superior customer experiences from subscription services, new research finds.

SDVs will deliver superior customer experiences with new applications and subscription-based services

Three-quarters (74%) of executives believe that by 2035 vehicles will be software-defined and AI-powered, according to the Institute for Business Value’s (IBM) latest ‘Automotive 2035’ study.

The survey also reveals that 75% of respondents say the software-defined experience will be the core of the brand value.

But the study, based on 1,230 interviews with senior executives from automotive OEMs, supplier and surrounding industries across nine countries, also reveals an industry grappling with an erratic transition away from current products and business models.

The auto industry is trying to shift its business model from one-time car sales to a recurring revenue model for digital services and products.

The study highlights that the industry is working on deeper, more personalised user experiences that are enabled by digital capabilities.

“The shift to software-defined vehicles (SDVs) was cited by the majority of industry executives as the key to future brand developments,” said Jeff Schlageter, Automotive Industry General Manager IBM. “It is indicated that vehicle value may no longer be limited to initial features and functionality – it would be earned over the life of the vehicle by continuously providing superior customer experiences with new applications and subscription-based services for drivers.”

Currently just 21% of research & development budgets are currently allocated to software and digital developments, but respondents expect this to nearly triple to 58% by 2035.

But the research also reveals “gridlock” at the heart of SDV developments. The traditional 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 no longer sustainable for the SDV era.

To reach a future where cars are truly digital products, automakers need a sweeping overhaul of current electrical and software architectures, IBM says.

The technical challenge of separating software and hardware layer is seen as the top challenge. Three-quarters (77%) of senior executives surveyed say they are facing a lack of software development tools and methodologies. Of equal concern, 74% of respondents say a strong mechanical-driven culture is making it difficult to switch to a software-driven product development.

Schlageter added: “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 analyse vast volumes of data, identify patterns, and make predictions, automakers can accelerate SDV enhancements and create personalised experiences for customers.”

IBM’s ‘Automotive 2035’ study represents the fourth edition of the automotive industry longitudinal study, which started with ‘Automotive 2020’ published in August 2008. The full report can be found here.