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AEye CEO Matt Fisch to Keynote at Auto Lidar Tech Conference in Suzhou, ChinaRead more

Embracing the Software-Defined Vehicle Business Model

Software-Defined Vehicle

Software is now the name of the game in mobility. Whether it’s personal or shared rides, transit vans or trucks, software is becoming noticeably ubiquitous as a central factor throughout the mobility ecosystem. And nowhere is this more apparent than in the passenger vehicle market.

Car owners traditionally replace their vehicles every 5-7 years, but the emergence of software upgrades is up-ending that timeframe, and will considerably lengthen it moving forward.

Buying a car less frequently may seem like a red flag for the industry at first blush, but this development will pay off handsomely for consumers and manufacturers alike. With today’s technological advancements, vehicles will likely become more valuable over time, producing continuous revenue for automakers over the lifespan of the vehicle.

This is called the Software-Defined Vehicle business model, and here’s how it works: consumers have broadly been conditioned to expect underlying software in most electronics to be regularly updated with new functionality and features, without having to buy a new model for that privilege. This holds true across a wide gamut of popular electronics, such as smartphones, televisions, refrigerators, and watches. If it’s a device connected to the internet, people expect software support for it.

That same expectation has finally reached the automotive market, with consumers now comfortable subscribing to over-the-air software updates to unlock value-added features instead of buying a new model outright. Automakers get to lock in a new repeatable revenue stream and rely less on the supply chain, while consumers walk away with higher satisfaction and subsequent brand loyalty. It’s a win-win situation.

Tesla’s OTA offering is arguably the most well-known in the United States, but other manufacturers have joined in on the action as of late. Volkswagen suggested earlier this month that it may soon offer pay-as-you-go autonomous driving features under its new division called Cariad, while BMW has taken it a step further by stating its intention to test-market heated seats as a monthly opt-in functionality.

This shift to software-defined offerings turns the traditional automotive business model on its head and puts software development at the forefront of the industry.

Long-lasting solid-state components for these vehicles are increasingly becoming the norm, reducing the need for maintenance and lengthening vehicle lifespan, while exponentially shrinking the number of parts inside it. Meanwhile, the average new car already has about 100 million lines of code underlying its operation (nearly 7x that of a Boeing 787 Dreamliner). Put these pieces together, and it’s clear that software is in a position to be the most prominent source of vehicle performance development and revenue generation moving forward, with software-based services filling in the revenue gap created by an elongated lifespan.

Software’s prominent role extends to mobility as a whole, where applications in transit are bountiful. Software-driven in-vehicle technology allows public transit agencies to monitor real-time events that can affect vehicle breakdowns. Regulating authorities and operating groups are keen on the efficiency improvements that software will provide.

Stellantis has projected its software services and subscriptions to generate €22.5 billion annually, while Morgan Stanley analysts have speculated that Tesla could make more money from software subscriptions than from the actual hardware they sell. All signs point to “go” as long as the underlying technology enables it.

This places lidar as the most critical component in the automotive business model, as lidar is key for autonomous driving and safety applications that will lead to consumer purchasing decisions. Highway autopilot is the flagship product, but the list of other potential features is plentiful. Consider, for example, automatic high-beam headlights that dim as oncoming traffic approaches. Software updates can enable a piece of hardware, like headlights, to become a subscription service. These types of unlockable features can help automotive companies reach new heights.

Apple became a trillion-dollar company by expanding beyond its hardware offerings with a roster of complementary services and subscriptions. Automotive companies now have the opportunity to adopt a similar model. This shift encourages OEMs to think creatively about new services and features they can add on an incremental basis. It is a sea change, but also a necessary evolution that will ultimately increase safety and provide added value for consumers.