Software-defined vehicles: the next transport revolution?

This feature was taken from our Fleet Leadership special report

In recent years, fleet decision-makers have been hit with massive levels of hype around new technologies which are predicted to transform the way they move people and goods.

But much-talked about concepts such as mobility-as-a-service (MaaS) and self-driving vehicles have – as of yet – struggled to make any meaningful impact as either the technology, legislation or other factors have stymied their introduction.

Development work on them continues, however, and they are still expected to have a major impact in the future, but for now vehicle manufacturers are talking more about another concept: the software-defined vehicle (SDV).

“Between about 2016 and 2021, those in OEM circles were talking about CASE – connected, automated, shared, electric – but that phrase is pretty much dead now,” says Jack Palmer, principal consultant at analysts Frost and Sullivan.

“No one talks about that any more. If you go through OEMs’ annual statements or reports, they talk about the SDV, which brings together all of those concepts.”

Jonathan Davenport, senior director analyst at Gartner, agrees. “The biggest trend for sure at the moment is the SDV,” he says. “In the past, autonomous vehicle technology was the number one topic people were enquiring about.

“Now it’s definitely about SDVs and the impact they will have on the market.”

Each year, Gartner assesses new mobility technologies in its hype cycle series of reports and in its Hype Cycle for Connected Electric and Autonomous Vehicles 2024 document it has described the benefit of SDVs as “transformational”.

Under its ranking system, it puts them as being at the peak of inflated expectations – a period of overenthusiasm and unrealistic projections, where a flurry of well-publicised activity by technology leaders results in some successes, but more failures, as the innovation is pushed to its limits – and five-to-10 years away from entering the mainstream.

What is an SDV?

It is already possible to make over-the-air (OTA) software updates to the on-board system of some vehicles, as well as applying software patches to improve safety or functionality.

Some manufacturers, including BMW, Mercedes-Benz and Tesla, also offer a limited number of software-based services that drivers can subscribe to, such as parking and safety assistance functions.

“The consumer demand hasn’t been fantastic for these, but it’s certainly there,” says Palmer.

However, the SDV concept takes this idea much further and is seen as a significant evolution by the automotive industry, helping to pave the way for further technological advancements such as autonomous vehicles.

Key to this is the architecture of the vehicle. Modern vehicles use an increasing number of on-board computers to make them work: a typical connected car has between 60 and 80 electronic control units (ECUs), all dedicated to a single function such as vehicle lighting, driving aids and power steering.

The idea with the SDV is to have a streamlined infrastructure using just one or two ECUs, which are much more powerful, more robust and more flexible than the vehicle needs when it is built.

As well as controlling the car’s functions and process the huge amount of data collected by its various sensors, they will have the capacity to accommodate new functions without slowing the system down.

This will change the historic link between hardware and software development life-cycles.

“An analogy I use is what happened in consumer electronics about 20 years ago,” says Davenport.

“You had all your separate electronic items; your video camera, your digital camera, your calculator, your mobile phone, etc.

“The companies would encourage you to buy the new model after a couple of years so you could go from a 20MP camera to a 25MP camera, for example.

“That’s almost where we are with automotive today as if you want to get the new functionality you need to buy another car in a few years’ time.

“The change we are going to see with SDV is that we will get this continuous improvement driven by the software.”

Manufacturers will be able to offer OTA updates beyond what is currently possible, allowing them to make money from subscription sales of digital content and software-based features.

In addition, indirect monetisation benefits will be achieved through OTA updates that fix warranty or recall issues.

This will change the business model for OEMs, as they will want to drive revenue by selling software-enabled services during the vehicle’s life than just the one-time sale or lease of it. These services promise to deliver much higher gross margins.

Stellantis, for example, forecasts around €20 billion in incremental annual revenue, with a 40% gross margin by 2030, fuelled by software-enabled vehicles.

Fleet benefits

The focus on software – and with it data – could have major benefits for fleets.

Davenport says although some major manufacturers are developing their own operating systems, many others – including General Motors, Volvo, Ford, Honda, Mercedes-Benz and Renault Nissan Mitsubishi – are using Google’s Android Automotive.

This should not be confused with Android Auto, which is a mobile app developed by Google to mirror features of a smartphone on a vehicle’s infotainment system.

One potential effect is that multiple OEMs using the same operating system in their vehicles could change the way fleets use telematics.

Currently there is no way of getting consistent data collection from different brands of vehicles on a fleet unless fleet decision-makers use aftermarket devices, says Davenport.

“We always see two counter-trends in the vehicle telematics space,” he adds. “One is we see organisations trying to dig out the cost of their traditional telematics services so we’ve seen a movement from the black box to an OBD2 dongle, potentially even going to a smartphone application or maybe sourcing data direct from the automotive manufacturer.

“The counter-trend is that the video telematics space is putting higher-performance computers in an aftermarket box into the vehicle.

“But what I think could happen with Android Automotive is that an application could be deployed into the different vehicles’ infotainment systems to request things like access to the forward-facing camera, access to the driver monitoring system etc., and so you could have a fleet management package that runs in the vehicle.

“The automotive manufacturers are still acting as gatekeepers to their application marketplaces, so that may impede this vision, but certainly in the longer term I think that’s what will happen as Android Automotive provides the common data platform that we’ve never really had in the past.”

Palmer identifies a further area where SDVs could benefit fleets – rental vehicles.

“One area I really see big potential for, but don’t see any conversation about, is on the rental side,” he adds.

“The concept of features on demand – the idea of flexibly buying or accessing features for a short amount of time – surely makes sense for the rental sector.

“A customer could get a vehicle, upload their profile and then have all the features they want to use: this sounds like a fantastic use case.”

Gartner says the introduction of SDVs will also eventually lead to a new market for car hardware upgrades as eventually – and as with smartphones and computers – there will come a point when an SDV’s factory-installed computing hardware will not be able to cope with in-life software advancements.

On average, a passenger car’s useful life is around 12 years in the US and Europe, it says, and this will increase given the greater longevity of electric vehicles.

This means the widespread adoption of the zero-emission technology will bring a major long-term drop in the revenue from new car sales and aftersales for OEMs.

However, easy and price-competitive vehicle hardware updates will allow OEMs to keep selling new digital features/services to the owner to replace this lost revenue, as well as extending an SDV’s useful life.

In today's rapidly changing world, fleet managers aren't just managing vehicles—they're leading critical conversations about strategy, sustainability, and efficiency. And whether you realise it or not, you are at the centre of key decisions that shape your business.

You play a pivotal role where finance, HR, operations, and procurement meet, ensuring cost efficiency, legal compliance, and CSR efforts are realised. Fleet managers are at the heart of driving business success.

Our latest special report on “Fleet Leadership” is packed with insights and strategies to help you become a standout leader in your organisation. Dive into critical topics like mentoring future fleet leaders, aligning fleet policies with business goals, and building sustainable mobility frameworks.