Executive Summary

The automotive industry is undergoing a major transition as original equipment manufacturers (OEMs) shift towards software-defined vehicles (SDVs). SDVs rely on integrated computing systems and software to manage core vehicle operations instead of mechanical controls. This transition presents opportunities and challenges for OEMs and suppliers.

This report analyzes the key drivers catalyzing this change, strategies OEMs are employing to adapt, and how leading semiconductor suppliers like NXP, Qualcomm and Nvidia are positioning themselves to enable SDVs. Key findings include:

• OTA software updates and new revenue streams are accelerating SDV adoption. By 2029 over 90% of vehicles may have OTA capabilities.
• OEMs are forming partnerships, moving to digital architectures, decoupling hardware/software lifecycles, and enabling centralized computing to support SDVs.
• Suppliers are investing in solutions spanning chips, platforms, and software stacks to power SDV computing needs.
• Automakers and suppliers that successfully embrace SDVs will be best positioned to lead the industry’s transformation.

Background on the Rise of Software-Defined Vehicles

Software-defined vehicles rely on integrated computing systems running an automotive OS instead of mechanical controls. This allows new capabilities to be added via over-the-air (OTA) software updates throughout the lifetime of a vehicle.

• Several interrelated factors are driving the rise of SDVs:
• Cost savings from remote software updates versus shop visits
• New revenue opportunities from subscription-based software services
• Improved customer experiences through added features
• Higher residual values as vehicles stay updated longer

According to Gartner, only 3.4% of vehicles in 2021 had OTA update capabilities. However, they forecast over 90% will be OTA-capable by 2029. The production of SDVs is projected to grow at a 41% CAGR through 2030 per Infineon.

Strategic Implications for Automotive OEMs

The shift to SDVs presents opportunities and challenges for automakers. On the opportunity side, SDVs allow new revenue streams from software and services over the lifespan of a vehicle. However, OEMs must adapt their development processes and capabilities.

Key strategies automakers are employing include:

• Forming partnerships and collaborations to access needed software expertise. Volkswagen and Audi created a software JV called CARIAD to jointly develop SDV capabilities.
• Evolving vehicle architectures towards digital and electric platforms that can support SDV computing needs. GM’s Ultium battery platform and Ultifi software stack aim to underpin its SDV efforts.
• Decoupling hardware and software lifecycles to enable more frequent over-the-air software updates.
• Moving compute to centralized controllers versus distributed ECUs to reduce complexity.
• Enabling OTA software update functionality to deploy new features and improvements.

OEMs that fail to adapt their organizations risk falling behind competitors leading the way on SDVs.

Strategies of Leading Semiconductor Suppliers

Chipmakers like NXP, Qualcomm and Nvidia are making significant investments to supply key components and platforms for SDVs:

NXP Semiconductors

Here is a summary of the key points on NXP’s strategy for automotive processors:

• NXP introduced a domain architecture approach in 2018, allowing software reuse across domains with its S32 processor family.
• The S32 family spans low-end MCUs to high-performance MPUs, enabling vertical integration.
• NXP achieved early success by engaging OEMs early on multi-core processors and having a full automotive solution spanning connectivity, analog, and core processors.
• The new S32G3 processors offer 2.5x better performance, memory, and networking than prior generations to meet autonomous driving needs.
• The G3 uses both Cortex-M7 and Cortex-A53 cores for real-time and application processing, including safety functions.
• Hardware isolation and built-in cybersecurity features enable safety and security.
• The GoldVIP platform for G3 enables rapid prototyping of vehicle computers and cloud connected services.
• Overall, NXP is focused on high-performance multi-core processors with safety, security, and cloud connectivity to enable software-defined vehicle capabilities. Early OEM engagement and a full solution have positioned them well.

Qualcomm

Here are the key points on Qualcomm’s strategy for automotive processors:

• Qualcomm is moving beyond domain controllers to an integrated, Snapdragon-inspired central compute platform. Recent auto deals validate this shift.
• The Snapdragon platform leverages Qualcomm’s expertise in mobile processors and software stacks.
• It spans digital cockpit, car-to-cloud services, connectivity, and advanced driver assistance.
• Snapdragon Ride is an ADAS toolset with AI acceleration and vision/driving policy software stacks.
• The new Ride Flex chipset consolidates infotainment and ADAS workloads onto one SoC as a flexible platform.
• Qualcomm partners with AWS on cloud tools and infrastructure to enable software-defined vehicle development, testing and validation.
• Overall, Qualcomm aims to be an integrated hardware and software provider, leveraging mobile and cloud expertise to power centralized computing for next-gen vehicles.

Nvidia

Here is a summary of the key points regarding Nvidia’s role as a partner in autonomous vehicle development:

• Nvidia has an end-to-end autonomous vehicle platform called DRIVE that spans from the cloud to in-vehicle systems.
• The DRIVE AGX Orin chip provides high performance of 254 trillion operations per second to enable scalable autonomous driving capabilities from Level 2 to 5.
• DRIVE Hyperion is a development environment that allows automakers to customize sensor and compute configurations for different autonomy needs.
• The new DRIVE Thor chip consolidates autonomous driving and infotainment functions onto a single chip, replacing multiple ECUs. It provides 2,000 trillion operations per second.
• Nvidia offers a 3 layer stack for software-defined vehicles: DRIVE hardware, DriveWorks middleware for AI and parallel computing, and autonomous driving applications like mapping and digital assistance.
• Nvidia recently partnered with MediaTek to collaborate on autonomous driving solutions.
• With advanced hardware, software stacks, and development tools, Nvidia is positioned as a key technology partner for automakers pursuing autonomous driving capabilities in software-defined vehicles.

 

Barriers to Adoption

The shift to software-defined vehicles poses some key challenges that need to be addressed:

• Decoupling hardware and software lifecycles is a major challenge for automakers used to tightly integrated systems. OEMs will need to adopt more agile, modular software development practices that allow frequent over-the-air updates independent of the hardware.
• OEMs will likely develop new relationships with suppliers as software becomes more independent. Chipmakers and tier 1 suppliers may need to adjust their traditional business models.
• More cloud and virtualization technologies will likely be adopted to enable the separation of software functions from hardware. This could improve performance as OEMs focus on optimizing hardware.
• For chipmakers, a key challenge will be differentiating through performance while providing more software ecosystem support, rather than proprietary tie-ins. Striking the right balance between partnering with tier 1s and OEMs will be important.

Broader Forecasts Looking Forward

• Total automotive semiconductor sales are forecast to grow at a 9% CAGR from 2021 to 2030, reaching $126.6 billion in 2030. This rapid growth aligns with the rise in adoption of software-defined vehicle capabilities over the next decade.
• ADAS semiconductor sales are expected to grow the fastest, at a 22% CAGR over the forecast period. This highlights the key role advanced driver assistance systems will play in enabling higher levels of vehicle automation and self-driving capabilities.
• Powertrain semiconductor sales are forecast to grow at a 12% CAGR, reflecting the growth in electrification and the semiconductor content needed to manage electric drivetrains.
• Infotainment semiconductor sales are expected to grow at a 5% CAGR over the forecast period. This shows the continued importance of in-vehicle infotainment and emerging opportunities around digital cockpit experiences.
• Sales of body electronics and chassis systems will grow at a more modest 3-4% CAGR. This indicates that while still important, these domains will rely more on existing microcontrollers and see less disruption from the shift to centralized computing architectures.
• Overall, the rapid growth forecasted across key domains like ADAS and powertrain align with the migration to more software-defined vehicles over the next decade. Semiconductor suppliers enabling these capabilities are well-positioned to see surging demand.

From Our Automotive Research

Insights into consumer motivations to purchase EVs

The data provides insights into what is driving consumer interest in purchasing electric vehicles (EVs), with several key factors emerging:

• The high cost of gasoline is a major motivator, with 49% of respondents strongly agreeing and 29.3% agreeing that they are tired of paying so much at the pump. This indicates that the potential for fuel cost savings is a significant driver for EV interest.
• Environmental impact is important, with 48.9% strongly agreeing and 34.8% agreeing they want to have a positive effect on the world. This highlights that sustainability and reducing emissions are key reasons consumers are considering EVs.
• Tax incentives make EVs more accessible, with 23.1% strongly agreeing and 40.3% agreeing they make it easier to choose an EV. Financial incentives clearly influence the decision-making process.
• Maintenance is perceived as simpler and cheaper, with 28% strongly agreeing and 28% agreeing compared to gasoline vehicles. Reduced maintenance requirements are appealing to consumers.
• The overall driving experience is seen as better by some, with 23.9% strongly agreeing and 32.6% agreeing it is better than gasoline vehicles. This suggests performance and experience help drive interest.
• Availability of charging stations is not a primary driver, with only 11.1% strongly agreeing there are plenty where they live. However, many are neutral on this factor, so charging access may still be important for some.

By quantifying the consumer perspectives, it becomes clearer that fuel costs, the environment, incentives, maintenance, and experience are the leading factors attracting buyers to EVs. This data is valuable for policymakers and the automotive industry to inform strategies to further accelerate EV adoption.

Key Auto Features Consumers of Interest to Consumers

The data on feature importance provides insights into what consumers value most when purchasing their next vehicle:

• Price is the top priority, with 63.7% rating it very important. This suggests affordability and value are key purchase drivers.
• Driving range/fuel efficiency is highly valued, with 51.4% rating it very important. Consumers are focused on practical factors like range and mpg.
• Safety features like rear cameras and blind spot detection are important, with 48.6% and 57.9% respectively rating them very important. This indicates safety is a major consideration.
• Brand and styling do influence purchases but are secondary factors, with 35.7% and 31.8% rating them very important. Brand loyalty and aesthetics still play a role.
• In-car entertainment and autonomous features have fairly low importance, with only 22.2% and 16.4% rating them very important. These are not deal-breakers for most consumers currently.
• Social status from vehicles has very low impact, with only 13.1% rating it very important. Cars as status symbols are declining.

In summary, practical considerations like affordability, efficiency, and safety are the top priorities shaping what consumers value in their next vehicle purchase, while brand, styling, and new technology play a secondary role.

What’s Keeping Consumers Away from EVs?

The data highlights the key factors deterring consumers from purchasing electric vehicles (EVs) or hybrids:

• High upfront cost is the top barrier, with 46.5% citing it as the primary reason for not choosing an EV or hybrid. The price premium compared to gasoline vehicles is discouraging adoption.
• Range anxiety remains an issue, with 35.5% primarily concerned about distance limitations. Despite improving ranges, there are still doubts about EV capability.
• Lack of charging infrastructure is a major obstacle, with 43.9% citing insufficient charging stations in their area as the primary reason. More charging availability could alleviate concerns.
• Home charging installation cost deters some, with 39.4% calling it a primary reason. Making at-home charging more affordable could encourage EV purchases.
• Gasoline vehicle familiarity and perceptions around maintenance and simplicity keep some buyers away, with 38.6% citing this as the primary reason. Changing perceptions of EVs as overly complex may help.
• Performance doubts ward off certain consumers, with 25.8% calling it the primary reason. Improving power and acceleration could make EVs more appealing.

In summary, bringing down costs, expanding charging infrastructure, incentivizing home charging, and reshaping consumer perceptions around EVs will be key to unlocking wider adoption.

In conclusion, the automotive industry is undergoing a major transformation as software-defined vehicles become more prevalent. While this shift presents opportunities for added revenue and improved experiences, it also poses challenges requiring organizational change and new capabilities from automakers. Leading semiconductor suppliers like NXP, Qualcomm and Nvidia are making key investments to supply the platforms and components needed to enable software-defined vehicles. Automakers that adapt successfully stand to gain competitive advantages, while those lagging risk falling behind. However, consumer adoption remains a hurdle, with factors like high costs, limited range, and lack of charging infrastructure slowing EV purchases. The industry must continue to evolve both the technology and the ownership experience to unlock the potential of software-defined vehicles. Companies that embrace this change and align their strategies stand to benefit the most as intelligent, updatable vehicles become the new normal.

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