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The new automotive industry fast lane is software‐defined

5-minute read

In brief

  • Drivers are re-evaluating what they want from their vehicles.

  • Forward-looking businesses recognize this shift in consumer needs and are moving into a new world of software defined service-driven digital mobility.

  • Revenue from digitally-enabled services is set to rise tenfold by 2040 to US$3.5 trillion.

  • To compete effectively in this new world, OEMs must transform across their entire organization.

Original equipment manufacturers (OEMs) will have to redefine their role in a rapidly changing industry to stay competitive. And time is of the essence. Others—from tech giants to new automotive players—are already aggressively targeting the new world of digital mobility, experiences and services that software-defined vehicles are shaping.

Stepping on the transformation gas

To find out how well-prepared incumbent OEMs are, we interviewed senior automotive industry executives and conducted extensive secondary research along with economic modeling. 

The conclusion was clear. OEMs are finding it hard to match the operational performance and speed of new, born-digital businesses. This has real-world—and bottom-line—consequences. Recent analysis by Accenture suggests that between 2017 and 2022, new players, such as Tesla and NIO, sustained stronger revenue growth and market capitalization compared to incumbent OEMs.

New business models also need the right technology stack

Winners are no longer defined by who offers the “best car”. The company giving its customers the best total experience will carry the day. This requires a perfect match between the new business model and the right choice of performant technology stack. 

The trillion dollar question is, where to play?

To create a user experience that fits their targeted business model, automotive OEMs must first decide which control points they need to own in the technology stack. This is an extremely complex issue. Today’s automotive technology stacks extend way beyond the vehicle itself to encompass everything required to deliver connected, digital experiences and services.

Software Defined Stack
Software Defined Stack

We have identified four approaches that OEMs can take:

1. Full-stack control

Building and owning the complete product and services experience and everything that delivers it—from hardware to the cloud back-end. This approach offers the highest potential revenues but also carries the greatest risk and is the most complex solution. 

2. In-vehicle services control

An open-source approach to creating and delivering all the software and services needed to enrich vehicle hardware. However, there are considerable trade-offs between complete control and the costs and capabilities required to develop and operate a specific layer.

3. Domain stacks

Targets engineering efforts toward developing highly specialized services that can operate with hardware (HW) and near-HW software from a third-party manufacturer. This offers ownership of the customer experience—enabling access to valuable end-consumer data—but it may limit control over HW quality and the experience that it provides.

4. White-label platforms

Providing a platform—hardware, software or a combination of the two—for others to build on. The success of this approach depends on managing the complexities of architecture alignment, process governance and providing extensive maintenance and support to third-parties.

The 360° OEM transformation requirement

OEMs are under no illusion that they face bumps in the road ahead, but now is not the time to standstill. Success will be rewarded to OEMs who drive change—not only in the products they make, but throughout their entire organization—and become agile, digital enterprises, steely focused on creating and delivering unique user experiences, ready for the imminent future.


Christof Horn

Managing Director – Automotive EMEA Lead, Industry X

Juergen Reers

Senior Managing Director – Global Industry Sector Lead, Automotive

Hans Loes

Principal Director – Global Strategy and Growth Mobility X Lead

Stefan Hattula

Senior Principal – Global Automotive Research Lead