Tesla’s Major Recall Shows the Benefits of Software-Defined Vehicles, Says IDTechEx

By James Falkiner, Technology Analyst at IDTechEx

Tesla’s recent recall could have cost it billions of dollars, but instead, an over-the-air software update was all that was required to fix an issue affecting over 2 million vehicles.

Traditionally, a mass recall would require every vehicle to be returned to a repair shop to be fixed at a significant cost to the automaker. Even a software issue, such as a safety issue with a battery management system, can require a recall.

However, Tesla leveraged integrated 4G connectivity and the software-defined nature of its vehicles to fix a safety issue with Autopilot that affected over 2 million Tesla cars, or almost every Tesla ever sold in the United States. IDTechEx predicts in its Connected and Software-Defined Vehicle report that as vehicles become more connected and software-defined, critical issues that in the past would have required the owner to drive back to a dealership and have their car fixed will increasingly be patched via a simple remote software update.

By using over-the-air updates, car makers can fix software bugs, motor issues, or even add new features, just like updating a smartphone. Thanks to over-the-air updates and other software features, such as over-the-air diagnostics, Connected and Software-Defined Vehicles can make the experience of owning a new vehicle more convenient and less stressful.

What is a Software-Defined Vehicle (SDV)?

A Software-Defined Vehicle is any vehicle where the software has a significant impact on the user’s experience when interacting with the vehicle. Modern Teslas have integrated 4G connectivity, allowing them to connect to the same mobile network smartphones use. They also have interconnected hardware with a powerful central compute system, which, when combined with 4G connectivity, allows them to be fixed and updated via an ‘over-the-air’ update. According to IDTechEx’s report, “Connected and Software-Defined Vehicles 2024-2034: Markets, Forecasts, Technologies”, the 2023 Tesla Model 3 ranks amongst the highest in terms of Software-Defined Vehicle Level. IDTechEx has condensed its understanding of software-defined vehicles into a six-stage SDV Level Guide, which compares vehicles’ software and software-critical hardware. This encompasses features such as a vehicle’s connectivity, compute, displays, and software system, allowing vehicles to be assigned a simple level for comparison purposes.

SDV Level 0 vehicles do not have the capacity to run software, with higher level SDVs featuring better connectivity (3G and 4G), more powerful compute, and bigger displays. ‘Cutting Edge’ Level 4 vehicles, such as the 2024 Chevrolet Escalade, feature next-generation 5G connectivity, offering faster data rates and lower latency. This connectivity, combined with strong compute performance and the multiple screens within the vehicle, creates a much more software-defined experience for the drivers and passengers. Futuristic Level 5 vehicles could potentially feature 6G connectivity, screens for every passenger, and biometric-linked in-vehicle payments. IDTechEx’s report discusses these features in detail. These software features are not limited to premium vehicles. Within 10 years, IDTechEx forecasts that almost every new vehicle will have the functionality of smartphone-like over-the-air updates, becoming safer, smarter, and software-defined.

More value for OEMs

As OEMs seek to monetize software-defined vehicles, a key trend is the increased offering of subscription packages. OEMs are generating revenue from areas such as connectivity, tapping into the cellular data market, or autonomy as a service, often charging tens of dollars per month for ‘self-driving’.

There are some potential challenges in the growth of the Connected and Software-Defined Vehicle market. Notably, future consumers must be willing to add tens of dollars a month to their monthly car payments in order to purchase these software features. There has been some controversy in this area already, with BMW facing criticism for charging a monthly fee to consumers for heated steering wheels. BMW eventually dropped this plan at the 2023 IAA Mobility conference, attended by IDTechEx, citing consumer concerns. BMW continues to explore other subscription services through their Connected Drive portal.

IDTechEx is forecasting a 35% CAGR in automotive software-related revenue by 2034, with software-related revenue being worth more than US$700 billion annually (US, 2023 prices) by 2034. This is calculated drawing from IDTechEx’s extensive primary research, which incorporates discussions with key players in the automotive industry, insights gathered from automotive conferences, details extracted from vehicle brochures, and analysis of historical trends. To put this into everyday terms, IDTechEx forecasts that by 2034, the average new car buyer will be paying ~US$70 per month on software features.

For further understanding of the Connected and Software-Defined Vehicle market, players, technologies, opportunities, and challenges, please refer to the IDTechEx report “Connected and Software-Defined Vehicles 2024-2034: Markets, Forecasts, Technologies”. Sample pages are available to download for this report.