The automotive industry is in the midst of a significant migration toward Software-Defined Vehicles (SDVs), with software determining a car's key functionalities and unique features. This shift is propelled by shifting customer demands, with drivers seeking a more customized and connected driving experience that integrates digital services. This significant transformation will necessitate substantial technological and cultural shifts, and Over-the-Air (OTA) updates will play a critical role in facilitating this transition.
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- In 2022, just 12% of all vehicle recalls were software-related, but this accounted for 32% of all vehicles affected by recalls.
- Tesla leads the way in automotive OTA updates, with 15 U.S. recalls resolved virtually with OTA updates between 2017 and March 2023.
- This year, nearly 28 million vehicles will ship with OTA functional capabilities. Growing at a Compound Annual Growth Rate (CAGR) of 13.9% between 2023 and 2030, annual OTA-capable vehicle shipments will reach 69.39 million by 2030.
- The top three regional markets for OTA-supported vehicle shipments are as follows: Asia-Pacific (30.52 million shipments in 2030), North America (16.79 million shipments), and Western Europe (16.38 million shipments). The rest of the World (RoW) will account for 5.7 million shipments in 2030.
- While 67.76 million vehicles are subscribed to automotive OTA updates in 2023, that number will skyrocket to 418.6 million subscriptions by 2030.
- Worldwide revenue generated from automotive OTA update subscriptions will hit US$1 billion next year before quadrupling to US$4 billion in 2025. By the end of the decade, automotive OTA subscription revenue will reach US$57 billion.
- The regional market opportunity for automotive OTA subscriptions by 2030 is as follows: Asia-Pacific (US$24 billion); North America (US$15 billion); Western Europe (US$14 billion); and RoW (US$4 billion).
“As the digital capabilities of cars have grown through new features like infotainment, Advanced Driver-Assistance Systems (ADAS), and connectivity, the importance of software has grown. The next generation of cars will be SDVs, meaning their key functionality and differentiators will be defined by software, not hardware." – Dylan Khoo, Industry Analyst at ABI Research
Key Decision Items
The following sections provide recommendations for Original Equipment Manufacturers (OEMs), Tier One suppliers, semiconductor manufacturers, and vehicle software providers with a vested interest in automotive OTA updates.
Automotive OEMs Can Avoid Future Bottlenecks by Planning Vehicle Software Design Roadmaps Early
Plan software/OTA roadmaps in advance during vehicle design stages; future software capabilities will depend on the design and component choices made during vehicle development. Shortsighted choices around compute capabilities and flexibility will lead to bottlenecks that restrict revenue-generating options in the future.
Boost Customer Retention with Subscription Services and Software Updates
Automotive OEMs should use subscription services and software (OTA) updates to build a closer relationship with their drivers throughout the life span of their vehicles, including secondhand customers. Brand loyalty is vital for carmakers. Across the industry, around half of customers return to the same brand for their new cars when trading in vehicles, though loyalty rates have steadily decreased in recent years. There is also the potential for OEMs to link unlocked features to users instead of vehicles via OTA updates, helping to ensure repeat customers by tying them into an Apple-style ecosystem.
Guidance for Tier Ones
Tier One suppliers in the OTA space must leverage existing relationships with automotive OEMs and reputations as trusted, long-lasting suppliers as a competitive advantage over new entrants to the automotive industry. They should also mirror the growing significance of software maintenance as a recurring cost and feature subscriptions as a source of continuous revenue by providing more ongoing services to OEMs.
Moreover, Tier Ones should provide services to augment automotive OEMs’ in-house resources, such as data analysts or developers. Supply platforms and products will help OEMs manage their fleets through automotive OTA updates and telematics. This could include data analysis tools, digital twins, and update management clients.
The Path Forward for Semiconductor Manufacturers
Semiconductor manufacturers have a key role in the era of software-defined vehicles, with chips needing to last up to at least 15 years (the life span of many cars). For example, Qualcomm’s Snapdragon Systems-on-Chip (SoCs) are crucial for updatable Advanced Driver Assistance Systems (ADAS) and automated driving capabilities. With this in mind, ABI Research makes the following strategic recommendations for semiconductor companies targeting the automotive industry:
- Expand from hardware and build capabilities to develop software, allowing suppliers to deliver more advanced integrated software with chips.
- Take advantage of the growing importance of computing, particularly in ADAS, by pushing chips as a key differentiating feature of vehicles.
- Invest in manufacturing capacity; the semiconductor shortage continues restraining the automotive industry, and the future demand for chips will only increase in the coming years.
5 Ways Software-Defined Vehicles Reshuffle the Automotive Playbook
Software Players Should Focus on Flexibility/Modularity and Form Licensing Agreements with Vehicle OEMs
Carmakers are increasingly integrating software in-house, creating more opportunities for systems that can be easily brought into their stack. Therefore, software providers in the automotive industry should provide flexible and module solutions to ease the software/OTA update implementation process.
Software players should also form licensing agreements with OEMs. These will allow software companies to use the breadth and depth of data available from embedded telematics in their own branded products and services to supply complete solutions directly to the OEM.
Key Market Players to Watch
Dig Deeper for the Full Picture
To gain a more thorough assessment of the OTA business case in the automotive industry, download ABI Research’s Automotive Over-the-Air Software Updates report. The report helps automotive players identify essential opportunities for connected vehicle services, the effects of software-define architecture in the market, and key considerations in implementing automotive OTA updates.
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This content is part of the company’s Smart Mobility & Automotive Research Service.