Automakers Shift Gears Into the Software Era

Europe’s automakers and tech firms are joining forces to compete in a global software-defined vehicle market projected to reach $1.2T by 2030

5 Jul 2025

Europe’s automotive industry is moving towards software-defined vehicles, as manufacturers and policymakers seek to secure a stronger role in a market expected to grow rapidly over the coming decade.

Unlike traditional cars, software-defined vehicles rely on centralised computing systems that allow features to be updated and expanded through software after the vehicle has been sold. The shift is changing how cars are designed, maintained and monetised, with digital services and remote updates becoming core parts of the business model.

The European Commission is seeking to coordinate the transition through its Digital Vehicle Ecosystem initiative. The programme aims to bring together carmakers, suppliers and technology companies to develop shared software foundations, reducing duplication and speeding up development across the region.

Brussels sees closer collaboration as essential if European manufacturers are to compete with technology-driven rivals in the US and Asia, where software development cycles are often faster and more centralised.

Carmakers are already adjusting their strategies. Volkswagen has begun repositioning its software unit, Cariad, to focus more on coordinating partnerships with external technology companies rather than relying primarily on internal development. The move reflects a broader industry shift towards combining automotive engineering with specialist software expertise.

Suppliers are also expanding their role. Bosch is increasing investment in advanced vehicle computing platforms, seeking to position itself at the centre of an emerging ecosystem built around connected and data-enabled vehicles.

Analysts estimate the global market for software-defined vehicles could reach roughly $1.2tn by 2030, driven by vehicle connectivity, over-the-air updates and new digital services. As a result, manufacturers are exploring recurring revenue models, including subscription-style pricing for certain features.

Consumer acceptance remains uncertain. While some drivers welcome digital upgrades, others have questioned paying ongoing fees for functions traditionally included in the purchase price.

Industry groups and regulators are also grappling with wider challenges, including cybersecurity risks, software reliability and growing scrutiny over vehicle data and privacy.

For Europe’s carmakers, the transition is likely to depend on cooperation between manufacturers, suppliers and technology companies, as well as regulatory clarity from policymakers seeking to support a more integrated digital automotive sector.