Software-Defined Vehicles: Driving the Automotive Transformation

The automotive industry is on the cusp of a transformation, with Software-Defined Vehicles (SDVs) emerging as the cornerstone of next-generation mobility. Unlike traditional vehicles, SDVs are powered by centralized computing and high-speed connectivity, which enables numerous benefits such as software agility, seamless user experience and continuous feature enhancements through over-the-air (OTA) updates. As OEMs race to redefine their value proposition beyond hardware, SDVs are becoming critical not just to product innovation but to revenue and customer retention strategies. 

For OEMs, the motivation is clear: SDVs offer a path to regain control over product differentiation, development speed, and lifetime vehicle value in an industry where hardware advantages are rapidly eroding. Yet delivering this shift remains difficult, as most OEMs must transform software, architecture, and organisation simultaneously while still supporting legacy platforms and volumes.  

SDVs: What Makes Them Different? 

Traditional vehicles have relied on distributed electronic control units (ECUs), each managing a specific function, from infotainment to braking. This legacy structure created hardware-software silos that limited scalability and increased complexity. 

SDVs break this model. With centralized or zonal computing and abstracted software layers, automakers can now deploy updates across domains, enable dynamic feature deployment, and iterate software like consumer tech companies. The move from static engineering cycles to continuous development unlocks agility, differentiation, and long-term customer engagement. 

Market Penetration: A Global Inflection Point  

Penetration of SDV technologies varies significantly across markets and powertrains. Globally, BEVs are leading the SDV push, owing to their inherently modern architecture and software-centric development cycles. In contrast, ICE (Internal Combustion Engine) and hybrid platforms are slower to adapt, constrained by legacy systems and fragmented E/E (Electrical/Electronic) architectures.  

Full SDV platforms characterised by centralized or zonal E/E architectures and software-first development are still in early deployment but scaling rapidly. 

• China is leading SDV adoption in terms of volume, driven by EV-first OEMs, fast product cycles, and strong consumer acceptance of digital features. 
  

• The US is advancing through vertically integrated players and disruptor OEMs such as Tesla and Rivian, with strong focus on OTA, ADAS software, and subscription-based features. 
  

• Europe remains highly capable but more constrained by legacy platforms, regulatory complexity, and longer vehicle lifecycles. 
  

• Japanese OEMs are transitioning cautiously, balancing reliability, safety culture, and global scale. 

  
  

By the late 2020s, SDV ready platforms are expected to underpin a majority of new vehicle launches globally, even if full software abstraction and cloud-native operation lag in mass-market/follower segments.  

 Taken from SBD Automotive's SDV Research 

Disruptors vs. Incumbents: Different Paths to the SDV  

The industry's approach to SDV development varies significantly: 

1. Disruptors such as Tesla and Rivian began with a clean-sheet approach, treating vehicles like updatable consumer technology. Tesla in particular established a benchmark with frequent OTA releases, a unified software stack, and centralised compute. That approach delivered speed, consistency, and a strong tech brand perception advantages legacy OEMs have struggled to match quickly.   The below image shows OEM’s relative positioning in their OTA capability based on SBD Automotive’s innovation index framework. 

SBD Automotive's research on OTA innovation  

2. Premium OEMs (e.g., BMW, Mercedes-Benz): Strong progress is being made in infotainment, ADAS, and cloud connectivity. Mercedes’ MB.OS and BMW’s Neue Klasse platform are designed for centralized, OTA-ready environments and next-generation platforms. Even so, many face internal hurdles, complex organisations, legacy platform carryover, and historically supplier-led software delivery. VW Group’s software challenges (e.g., delays tied to large-scale internal software efforts) highlight the execution risk. Still, the premium gap is narrowing, and software is becoming central to modern luxury differentiation.  
   

3. Volume OEMs (e.g., Ford, Hyundai, Honda): While transitioning slower, these automakers are making visible strides. Ford’s partnership with Google and its move to Android-based infotainment signal a new focus on digital cockpit and cloud services. Hyundai is investing in SDV capabilities through acquisitions (e.g., 42dot). Some OEMs, for example Ford have learned painful lessons from early architecture programs that attempted to blend old and new systems and became too complex. 

 Key Challenges in Scaling SDV Platforms 

Despite clear benefits, SDV deployment presents deep-rooted challenges mainly technical, operational, and cultural: 

1. Legacy Architecture Lock-in: Many OEMs operate on fragmented E/E architectures that are ill-suited for centralized computing. Re-platforming demands major investment, cross-functional alignment, and supplier transformation. 
   

2. Supplier Coordination: SDVs require new collaboration models between OEMs and Tier 1s. Suppliers must move from fixed-scope hardware delivery to providing flexible, software-centric modules. This shift has implications for IP ownership, certification, and update rights. 
   

3. Talent and Culture: Engineering teams built for hardware cycles must now adopt agile, continuous delivery mindsets. This requires new capabilities in software development, cybersecurity, systems integration, and data engineering. 
   

4. Cost and ROI constraints: SDV platforms demand heavy upfront investment (software engineering, tooling, cloud infrastructure). Cost benefit remains uncertain until the platforms mature, which is making the business case harder especially for volume brands. 

Strategic Opportunities for OEMs and Suppliers: 

While the transition is complex, it also unlocks new opportunity spaces: 

1. Middleware and operating platforms that decouple hardware from software and standardise updates. 
   

2. Centralised compute ecosystems (chips, domain/zonal controllers, toolchains) enabling scalable SDV architectures. 
   

3. Developer and partner ecosystems that expand feature innovation beyond OEM internal teams. 
   

4. Modular rollouts that reduce risk by introducing SDV capabilities in stages across platforms and segments.  
   

The Road Ahead: A Dual-Scenario Outlook 

The future of SDVs hinges on how aggressively the industry embraces change. Two broad scenarios emerge: 

In an optimistic “blue sky” scenario, SDV adoption accelerates as architectures stabilise, consumers accept digital value, and EV growth provides a platform reset making advanced SDV features common by around 2030. 

In a more conservative “grey sky” scenario, economic headwinds, software setbacks, regulation, or weak subscription uptake slow progress leaving full SDV capability concentrated in higher-end segments longer.  

The likely outcome sits in between: the direction is irreversible, but timing and unevenness will vary.   

How SBD Automotive Helps Clients Navigate This Transition 

SDVs represent a historic shift from hardware-defined products to continuously improving software platforms. The path is complex technically, culturally, and financially but the destination is clear: vehicles increasingly defined by what they become over time. OEMs and suppliers that master architecture, talent, cybersecurity, and customer-centric value models will lead the next era of mobility. 

The stronger focus on software solutions remains reliant on the correlation between the vehicle’s E/E architecture and the platforms adopted. These platforms must evolve dynamically, remain decoupled, and be able to accommodate solutions that have not yet been introduced. Some of the key strategic questions SBD is helping OEMs answer today include: 

• Are we building the right SDV platform for the segment we compete in or over-engineering where customers won’t pay, and under-delivering where they expect more? 
  

• We don’t have a clear, time-based view of who is delivering which SDV capabilities and where we are falling behind. 
  

• How do we evolve our existing fleet and platforms without breaking cost, quality, or delivery?  

• How do we package software features in a way that makes sense to customers and is scalable internally? 
  

• What does ‘good’ even look like and how do we know if we’re winning or losing?  
  

SBD Automotive supports OEMs and suppliers globally by helping them make informed, executable SDV decisions: 

OEM Strategy Benchmarking support: 

• Competitive SDV and E/E architecture strategy assessment 

• Granular benchmarking of software stacks, partners, and suppliers 

• Software sourcing and value chain analysis 
  

Technology Roadmap / Maturity / Impacts: 

• Deep dives into SDV-enabling technologies and architectures 

• Assessment of technology trade-offs, risks, and readiness 

• Forward-looking views on platform evolution and maturity 
  

Product Planning Support: 

• SDV-driven service and feature strategy analysis 

• Integration of technical feasibility with user experience and brand positioning 

• Practical recommendations aligned to segment, powertrain, and organisational constraints 

Umair Siddiqui Consulting Manager SDVs and Product Strategy. SBD Automotive

 "SDVs promise faster innovation and long-term differentiation but only if OEMs can overcome legacy architecture, supplier complexity, and organisational inertia. The winners will not be those who adopt the most software, but those who align architecture, organisation, and product strategy around it."

Want to explore our SDV support capabilities or access our latest research reports? Email info@sbdautomotive.com to connect with one of our team of experts to discuss your requirements further.