The rise of software is pushing auto firms to build their businesses around data

Automotive companies are racing to get ahead of competitors as software redefines how cars work and who generates the most revenue from them.

Vehicle manufacturers are spending more than a third of their combined R&D budgets on software. Their annual software expenditure is set to hit €60 billion by 2030, according to consulting firm Corporate Value Associates (CVA). That’s twice the amount invested in 2022.

Software is critical to the performance of the many smart EVs, software-defined vehicles, and autonomous cars, set to arrive on Europe’s roads in the next few years. It will also drive down vehicle development and production costs and allow suppliers to upgrade and repair cars remotely.

The biggest benefit, though, is the data software generates. Whoever controls the flow of vehicle data gets a detailed picture of how drivers behave and can use that knowledge to build close customer relationships. They’ll be best placed to earn recurring revenue from services range from over-the-air vehicle upgrades and EV charging payments to personalized financing and insurance that adjust according to driver behavior and vehicle usage. 

It’s not just the vehicle original equipment manufacturers (OEMs) that are hungry for data. Downstream automotive companies, such as dealers, repair shops, finance providers, insurers, leasing companies, and charging station operators, all need more access to data to compete in an industry that is being reshaped by software.

“The process of softwarization has started. We are already seeing its effect in cars today but in the coming years the impact will be much greater,” (11:15) says Markus Collet, CVA partner and head of its automobility platform. He expects the ascent of software to drive change across the automotive industry and the broader mobility ecosystem.

Collet was speaking at an online event hosted by CVA and the Qorus Mobility Community. The event, which also featured Alberto Busetto, CEO and GM at Generali Jeniot and mobility consultant Alain Ballu, examined the far-reaching effects of “softwarization” on the automotive industry.

Key takeaways: 

• Shift to recurring revenue: The rise of software and new data flows allow automotive companies to build recurring revenue, lower service costs, and strengthen residual values.

   

• Prioritize governance: Companies need data governance in place before they can extract value from vehicle data.

   

• Secure partnerships: Partnerships will enable service providers to keep close to customers and gain access to new sources of revenue. 

   

• Build cross-brand data platforms: Downstream players will benefit from building platforms that source data from multiple sources.

   

• Switch to dynamic pricing: Service providers such as insurers will use real-time data flows to shift from static pricing to dynamic personalized offerings. 

   

• Encourage customer consent: Drivers will share data with third parties only when they recognize the value they can gain in return
  
  

Check out the event highlights