Shift to software-defined vehicles: How the automotive industry is adapting to future
This article is authored by Kollu Nandakumar, Head of Product Development – Elektrobit India.
The automotive industry is transforming profoundly, moving from a hardware-centric development model to a Software-Defined Vehicle (SDV) approach. This transition enables vehicles to become more flexible, upgradable, and connected to the cloud, opening the potential for continuous improvements throughout the vehicle’s lifecycle. However, the path to SDVs is challenging, especially for established automakers who must adapt to a rapidly evolving landscape.
Why new automotive entrants are adopting SDV more rapidly
New entrants in the automotive space have the unique advantage of starting with a clean slate, free from legacy systems and traditional processes that can slow innovation. These fresh players embrace new Electrical/Electronic (E/E) architectures, Agile development practices, and up-to-date software development methods and tools.
By focusing on what is truly necessary, they can design a single hardware platform capable of supporting multiple variants through software, offering the flexibility to address a wide range of customer needs. The primary objectives of these new entrants are clear: reduce costs, accelerate time to market, and improve performance. With Software-Defined Vehicles, performance can be continuously enhanced over time via software updates, ensuring long-term value for customers.
Well-established automakers, however, face a different challenge. Burdened by legacy systems, they struggle to create products that cater to multiple vehicle architectures and meet the demands of today’s market. Traditional development processes and outdated methods contribute to extended time-to-market and higher costs. Overcoming internal resistance to change, alongside the need to upskill and reskill the workforce, further adds to the challenge of catching up with the SDV revolution.
The evolving role of Tier-1 suppliers in the SDV landscape
The rise of Software-Defined Vehicles is causing a major shift in the automotive supply chain, particularly with Tier-1 suppliers. Traditionally, Tier-1 suppliers were system providers, delivering integrated solutions to automakers. However, with the SDV approach, their role is increasingly shifting toward focusing solely on electronics/hardware and software products or feature sets.
For Tier-1 suppliers to remain competitive, especially with the influx of new players who bring substantial experience in electronics production from non-automotive industries, Tier-1s must undergo a significant transformation in their production capabilities. While hardware will continue to be a crucial component, software, and system costs can reduce the margins on hardware.
Many Tier-1 suppliers are still exploring how to sell software as a stand-alone product or feature set. For success in this new paradigm, they will need to modernize their processes, development methods, and tools. This will allow them to reduce development costs, shorten timelines, and ultimately increase software margins.
Looking ahead, we will likely see a shift where hardware becomes a commodity, software is sold as a product, and smaller systems are offered as feature sets. These systems will be designed with standardized inputs and outputs, enabling easy integration with other components. By adopting this approach, Tier 1s and OEMs should collaborate on a much closer level rather than seeing one as the software supplier for the other, they should see each other as partners and collaborate from the early start of the project.
Established automakers’ path to reviving market share
For established automakers who did not anticipate the SDV shift, the challenge is not just adapting to new technology but also regaining lost ground. Many missed the early opportunity to diversify their markets and customer base, losing the first-mover advantage. However, the deep system integration expertise they carry is a key asset in their ability to bounce back.
To regain their market position, these automakers are aligning their organizational structures with current and future market needs. They are focusing on developing scalable products that can address both minimum and high-scale requirements, with the flexibility to scale up or down based on customer demands.
A crucial part of this transformation involves upgrading software development processes, methods, and tools to enable more Agile development, faster time to market, and improved cost efficiency. Established automakers are also shifting away from the old practice of developing products for one region, such as the EU or North America, and attempting to force-fit them into other markets. Instead, they are focusing on creating products that address the unique needs of each region, ensuring greater market relevance and customer satisfaction.
Conclusion
The transition to Software-Defined Vehicles is not just a technological shift—it’s a fundamental change in the way the automotive industry operates. New entrants are taking full advantage of this transformation by leveraging agile practices, innovative software solutions, and scalable architectures. Meanwhile, established automakers are working hard to adapt their structures and processes to catch up with this new era of automotive development.
The ongoing shift from hardware to software, legacy systems to agile methods, and regional approaches to global solutions will shape the future of the automotive industry. By embracing these changes and evolving, companies will not just survive but thrive.
Disclaimer: Views and opinions expressed in this article are solely those of the original author and do not represent any of The Times Group or its employees.
