DR.CHENJIAZI ZHONG

A software-defined vehicle (SDV) refers to any vehicle that manages its operations, adds functionality and enables new features primarily or entirely through software. In the electric vehicle (EV) market, with the electrical/electronic architecture being a more centralized system, the vehicles are treated more like a modern computer system with a CPU brain that controls all hardware components. The characteristics of vehicles, or user experiences, could then be upgraded or updated through over-the-air (OTA) software updates. Tesla came to the scene and created the first generation of SDVs, which are the next evolution of the automotive industry.

Shifting Toward Software-Defined Vehicles 

In the EV industry, the shift towards SDVs has already begun and is likely to accelerate in the coming years. This is because as EVs become more mainstream, the hardware aspects of EVs such as battery technology, charging infrastructure and electric drivetrains are becoming more standardized and commoditized. In this context, EV manufacturers are looking for new ways to differentiate themselves and provide added value to their customers. 

One of the main ways to achieve this is through software:

• SDVs can offer a range of benefits, including better performance, improved energy efficiency, enhanced safety features and more advanced connectivity options. 
• With software, EV manufacturers can introduce new features and functionalities to their vehicles through OTA updates, which can improve the user experience and extend the lifespan of the vehicle.
• SDVs can also enable new business models for EV makers such as subscription-based services and data monetization. For instance, EV manufacturers can offer subscription services that provide access to premium features or charging services, while also collecting valuable data on how their customers use their vehicles.

That said, the shift towards SDVs is likely to be driven by a combination of technological advances, changing customer expectations and the need for EV manufacturers to differentiate themselves in an increasingly crowded market. 

The Competitive Landscape of Legacy Original Equipment Manufacturers

An original equipment manufacturer (OEM) is a company that produces parts and equipment that are used in other companies’ products. These products are then marketed and sold under the branding and name of the company that purchases them, rather than the OEM that produced them. OEMs are often used in the automotive industry, where a car manufacturer may purchase engines, transmissions and other components from OEMs to use in their vehicles.

As SDVs become a key differentiator in the EV market, the competitive landscape of OEMs is likely to change significantly, with OEMs needing to adapt their strategies to remain competitive:

1. Increased focus on software development

As software becomes more critical to the success of EVs, OEMs will need to invest more resources in software development. This may require new partnerships and collaborations with software companies, as well as hiring software engineers and data scientists.

2. Differentiation strategies

With software becoming the key differentiator, OEMs will need to develop new strategies to differentiate their products from competitors. This may involve developing proprietary software solutions such as advanced driver assistance systems, connectivity features and battery management systems.

3. Shift towards data-driven business models

With SDVs, OEMs will have access to a wealth of data about how their customers use their products. This data can be used to develop new business models such as subscription services, and can also be sold to third parties for research and development purposes.

4. Increased collaboration and partnerships

As the EV market becomes more complex and software-centric, OEMs may need to collaborate with other companies to develop comprehensive solutions. This may involve partnerships with charging infrastructure providers, software companies and other EV manufacturers.

5. New entrants and disruptors

As software becomes more important in the EV market, new entrants and disruptors may emerge such as tech companies with expertise in software development. These companies may be able to leverage their expertise to develop innovative software solutions that disrupt the traditional OEM market.

Legacy OEMs have significant advantages in terms of manufacturing scale, established supply chains and distribution networks. Legacy OEMs can also leverage their existing brands and customer base to promote their EV offerings. In recent years, many OEMs have made significant investments in EV technology and are rapidly catching up to Tesla in terms of battery range, charging infrastructure and other key features.

The Position of Tesla

Tesla has been a disruptive force in the automotive industry and the EV market. Its success has been driven by its innovative technology, strong brand recognition and early-mover advantage; however, as the EV market becomes more competitive, Tesla’s position as a dominant player may become more challenging. 

However, Tesla still has a significant lead in some areas such as software and autonomous driving technology. The company’s Autopilot system is the most advanced in the industry, and its OTA software updates have enabled it to introduce new features and functionality to its vehicles at a rapid pace.

To continue to win over legacy OEMs, Tesla will need to continue to innovate and stay ahead of the competition in terms of technology, while also addressing some of the operational challenges that have arisen as the company has scaled. This includes improving its manufacturing processes, expanding its service network and building out its charging infrastructure.

If legacy OEMs were to build strong in-house software capabilities that match or exceed Tesla’s, it would certainly make it more challenging for Tesla to maintain its competitive advantage in the EV market; however, the software is just one of many factors that can influence a customer’s decision when purchasing an EV.

Tesla has built its brand on a combination of innovative technology, strong brand recognition and unique customer experience. Tesla’s focus on design, user experience and sustainability has helped it differentiate itself from traditional automakers. Tesla also has a well-established charging network and service infrastructure, which are important factors for many EV customers. 

That said, even if legacy OEMs were to match or exceed Tesla’s software capabilities, they would still need to compete with Tesla on other factors such as branding, customer experience, charging infrastructure and service network. Moreover, Tesla has already established a significant market share in the EV market, which may be difficult for legacy OEMs to displace.

Success Factors for Original Equipment Manufacturers

It is difficult to predict with certainty which legacy OEMs will succeed in the SDV era because some factors that may influence their success:

1. Investment in software development

Legacy OEMs that invest heavily in software development and establish strong in-house capabilities are likely to be more competitive in the SDV era. These OEMs will have greater control over the development and deployment of their software, which can help them differentiate their products from competitors.

2. Partnerships and collaborations

Legacy OEMs that form partnerships and collaborations with technology companies and software developers can also gain an advantage in the SDV era. These partnerships can help OEMs access cutting-edge technology and software expertise that they may not have in-house.

3. Brand recognition

Legacy OEMs with strong brand recognition and loyal customer bases are also likely to be more competitive in the SDV era. These OEMs can leverage their existing brand equity and customer relationships to promote their EV offerings and attract new customers.

It is likely that those that have already made significant investments in EV and software development will have an advantage. For example, Volkswagen has announced plans to invest heavily in software development and establish an in-house software unit, which could help it compete with Tesla and other software-focused companies. 

On the other hand, legacy OEMs that have been slower to adapt to the shift toward SDVs may struggle to maintain their competitiveness. These OEMs may find it challenging to keep up with the pace of innovation in the market and differentiate their products from competitors.

Autonomous Driving As A key differentiator Between Original Equipment Manufacturers

Autonomous driving is already an important differentiating factor between OEMs, but the degree to which it is a key factor may vary depending on the market and consumer preferences.

• In some markets such as China, there is a strong focus on autonomous driving technology, and OEMs are competing aggressively to develop and deploy autonomous vehicles. 
• In other markets, such as the US, consumer adoption of autonomous vehicles has been slower, and OEMs may be focusing more on other factors such as range, performance and charging infrastructure.

As the technology for autonomous driving continues to improve and become more widespread, it is likely that it will become an increasingly important factor for OEMs. Consumers are likely to place a high value on safety and convenience, and autonomous driving technology has the potential to offer both.

Meanwhile, as more OEMs begin to offer autonomous driving features, it will become increasingly important for them to differentiate themselves based on the quality and performance of their autonomous driving systems. This could lead to increased investment in autonomous driving technology and competition between OEMs to develop the most advanced and reliable autonomous driving systems. 

The Commercialization of Level-3 Autonomous Driving

The commercialization of Level-3 autonomous driving is likely to bring significant changes to the competitive landscape. With Level 3 autonomous driving, vehicles will be able to take over driving in certain situations such as on highways or in low-speed urban environments. This will bring new capabilities and features to vehicles, and OEMs that can deliver high-quality Level 3 autonomous driving systems are likely to gain a competitive advantage.

However, the development and commercialization of Level 3 autonomous driving systems is a complex and challenging undertaking, requiring significant investment in research and development, testing and regulatory compliance. OEMs that can invest in and successfully develop Level 3 autonomous driving systems are likely to have an advantage over those that cannot.

The commercialization of Level 3 autonomous driving is also likely to require close collaboration between OEMs, technology companies and government regulators. OEMs that can build strong partnerships and work effectively with stakeholders across the ecosystem are likely to be better positioned to succeed in this new era of automotive technology.