Critical Shifts:
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China’s R&D Dominance: Chinese automakers are out-investing their Western counterparts in software. The study found that 36% of Chinese automakers allocate more than half of their R&D budgets to SDV, compared to just 21% in the U.S. and Europe.
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The "Reuse" Gap: A major economic advantage in SDV comes from software reuse across platforms. 48% of Chinese automakers have achieved platform-level software reuse, while only 33% of Western automakers have done the same.
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Failed Monetization Models: Despite the hype around "software-as-a-service," 94% of automakers report they currently monetize less than half of their SDV features. Customers are largely rejecting subscription models, leading to lower-than-projected renewal rates.
- Efficiency Over Add-on Revenue: Experts suggest Western players are focusing too much on "add-on revenues" (which consumers reject) rather than the true benefit of SDV: corporate efficiencies in engineering and manufacturing.
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In the global race to develop software-defined vehicles, Western automakers and auto suppliers are falling behind where it matters most: software control points, reuse, and lifecycle economics, even as Chinese automakers and technology players accelerate their lead.
That’s the key takeaway from an analysis informed by a multi-country survey of 1,000-plus senior SDV-oriented automaker, auto-supplier and technology-industry executives released Aug. 7 by AlixPartners, the global consulting firm.
“Software-defined vehicles are the very future of the global auto industry, and right now that future is being controlled by a much greater degree than many people know by Chinese automakers and by technology companies — and in many cases that control is being ceded to them by Western automakers and auto suppliers,” said Himanshu Khandalwel, partner and managing director in the automotive & industrial practice at AlixPartners. “Western automakers and auto suppliers are at risk of giving up too much influence at critical SDV control points. That does not just limit future flexibility — it can also weaken cost position, slow reuse, and make it more difficult to capture the full operational benefits of SDV across the vehicle lifecycle.”
The survey of 1,002 senior SDV executives (up to the CEO level) from automakers, Tier-1 auto suppliers and technology companies in North America, Europe, and Asia, found that Chinese automakers are the most focused on how they build and scale SDV capabilities while many Western automakers remain spread across legacy platforms, patched software stacks, and transitional architectures. This leaves Western players at greater risk of dependency on outside partners at key SDV control points and makes it harder to capture full returns from their SDV investments.
Also contributing to the disappointing ROI Western automakers and suppliers are seeing on their SDV efforts is the fact that customers seem to be increasingly rejecting the subscription models they are promoting, resulting in lower-than-projected renewal rates, finds the survey.
These shifts are adding pressure on Tier 1 suppliers. Automakers in the survey to a large degree cite cloud, artificial intelligence (AI), compute, data, and middleware partners as critical SDV-control points, while the system integrator role that used to sit with Tier 1 auto suppliers is seen as increasingly being taken on directly by automakers -- raising the pressure on traditional Tier 1s to decide where in the tech stack they can still lead.
According to the survey, 94% of automakers report they currently monetize less than half of their SDV features, mostly due to technical constraints and customer resistance.
“The fact that virtually all Western automakers are basically failing at monetizing SDV features speaks volumes,” said Sebastian Boeswald, a partner at Berylls by AlixPartners, the AlixPartners subsidiary. “Instead of add-on revenues, the true benefit of SDV lies in corporate efficiencies, from the engineering labs to the plant floor. Customers today expect automatic over-the-air updates with the purchase of a $50,000 to $100,000 product. But instead, they are mostly receiving just bug-fixes, which just isn’t enough.
“In addition, the old ‘world car’ assumption is fading, and Chinese players appear to be adapting faster to a two-stack world than Western players trying to operate in China.”
According to the survey, 36% of Chinese automakers allocate more than half of their R&D budgets to SDV as compared to just 21% in the US and in Europe/UK.
Perhaps even more importantly, the survey finds that 48% of Chinese automakers are achieving platform-level SDV software reuse – one of the clearest sources of SDV economic advantage – vs. just 33% of Western automakers. By the same token, it finds that 39% of hyper-scaling tech companies are achieving platform-level SDV software reuse, compared to just 19% of Tier-1 suppliers around the world – further contributing to the potential existential threat facing them.
