Explaining software-defined vehicles

By Konstantin Shirokinskiy

Software-defined vehicles (SDVs) are reshaping the automotive industry — not just in terms of technology, but in how value is created, delivered, and sustained. While the term “SDV” often evokes images of autonomous driving or futuristic infotainment systems, the real transformation lies deeper: in the decoupling of hardware and software and changes in the automotive value chain that it triggers.

What is an SDV — And what it is not

At its core, a software-defined vehicle is a vehicle whose capabilities can be upgraded or introduced over time through software without changing physical components. This means features, functions, and operations are deployed via over-the-air (OTA) updates, much like smartphones. SDVs are not limited to electric vehicles, nor are they simply rebranded conventional cars with more software. They represent a fundamental architectural shift.

On the contrary, a hardware-centric approach in automotive ties features to dedicated physical components or electronic control units (ECUs), meaning adding new capabilities often requires installing new hardware – like adding adaptive cruise control via extra modules. However, a software-centric approach decouples functionality from specific hardware, using centralized computing, OTA updates, and modular software to deliver new features without physical changes. For example, Tesla enabled Full Self-Driving (FSD) through an OTA update.

Why SDVs should matter to business leaders

The business rationale behind SDVs is compelling. Initially, the industry focused on new revenue streams — subscriptions, feature unlocks, and data monetization – and tried to justify the SDV business case with these new revenues. But the narrative is evolving. Today, the emphasis is on cost optimization and operational efficiency that SDVs unlock.

For OEMs, SDVs reduce hardware complexity and enable software reuse across models. This leads to lower development and integration costs. For fleet operators and consumers, SDVs improve total cost of ownership (TCO) and enable vehicles to stay current long after production.

Moreover, SDVs accelerate feature rollouts. Without the need for hardware changes or full system revalidation, OEMs can deliver innovations faster, enhancing customer satisfaction and competitive agility.

The enablers: Architecture and software strategy

The transition to software-defined vehicles is powered by several key enablers:

• Centralized E/E Architectures: Moving from distributed ECUs to centralized computing reduces complexity and cost.
• High-Performance Computers (HPCs): These serve as the vehicle’s “brains,” enabling advanced applications.
• Modular Software & Microservices: Flexible, scalable software development allows for faster deployment.

In many ways, SDVs mirror the transformation seen in smart devices. Just as smartphones receive regular updates that enhance functionality and user experience, SDVs are designed to evolve over time. This shift allows automakers to treat vehicles as software platforms capable of delivering new features, services, and performance improvements long after the vehicle leaves the factory. It also opens the door to new business models, such as feature subscriptions and data-driven services.

The cost equation: From burnout to breakthrough

Software costs in automotive are skyrocketing. OEMs spent almost €40 billion on software in 2024, up from €26 billion in 2021. If the industry continues on a hardware-centric path, this spend could reach €59 billion by 2030 . However, with a transition to the SDV approach, this number could be reduced to €42 billion — saving €17 billion.

These savings come from shifting spend toward platform and feature development, while reducing costs in integration, testing, and maintenance. For example, SDVs allow for isolated feature testing, reducing time and cost. Freed-up resources can be reinvested into value creation, not just cost-cutting.

SDVs as a business transformation

Software-defined vehicles represent a paradigm shift. They turn cars into platforms — capable of evolving, adapting, and delivering value over time. For decision-makers, the opportunity is clear: embrace SDVs not just as an engineering feat, but as a business transformation.

At Roland Berger, we work closely with automotive leaders to navigate this transition. From defining SDV strategies and assessing architectural readiness to building robust business cases and implementation roadmaps, we help companies unlock the full potential of software-defined mobility. Our cross-functional expertise bridges engineering and business, ensuring that SDV initiatives are not only technically sound but commercially viable.

Stay tuned for additional video content coming in the next few weeks.

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