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In recent years, fleet decision makers have been hit with massive levels of hype around new technologies that are expected to transform the way they move people and goods.

But the much-discussed concepts of mobility as a service (MaaS) and self-driving vehicles have struggled – until now – to make a significant impact, as either technology, legislation or other factors have prevented their introduction.

Development work on these continues, however, and is still expected to have a major impact in the future, but for now vehicle manufacturers are talking more about another concept: the software-defined vehicle (SDV).

“Between 2016 and 2021, OEM circles were talking about CASE – connected, automated, shared, electric – but that phrase is pretty much dead now,” says Jack Palmer, principal consultant at analysts Frost and Sullivan.

“Nobody talks about it anymore. If you go through OEM statements or annual reports, they talk about SDV, which brings all these concepts together.”

Jonathan Davenport, senior principal analyst at Gartner, agrees. “The biggest trend right now is definitely SDV,” he says. “In the past, autonomous vehicle technology was the number one topic people were asking about.

“Now it’s definitely about SDVs and the impact they will have on the market.”

Each year, Gartner evaluates new mobility technologies in its series of hype cycle reports, and in the Hype Cycle for Connected Electric and Autonomous Vehicles 2024 document it described the benefits of SDVs as “transformational”.

In his ranking system, he places them at the top of inflated expectations—a period of over-excitement and unrealistic projections, where a well-publicized flurry of activity by technology leaders results in some successes but more failures as innovation is pushed. to its limits – and five to 10 years from entering the mainstream.

What is an SDV?

It is already possible to perform over-the-air (OTA) software updates to the on-board system of some vehicles, as well as apply software patches to improve safety or functionality.

Some manufacturers, including BMW, Mercedes-Benz and Tesla, also offer a limited number of software-based services that drivers can subscribe to, such as parking and safety assist features.

“Consumer demand hasn’t been fantastic for these, but it’s definitely there,” says Palmer.

However, the SDV concept takes this idea much further and is seen as a significant development by the automotive industry, helping to pave the way for new technological advances such as autonomous vehicles.

The key to this is the vehicle’s architecture. Modern vehicles use an increasing number of on-board computers to make them work: a typical connected car has between 60 and 80 electronic control units (ECUs), all dedicated to a single function, such as vehicle lighting, aids steering and power steering.

The idea with SDV is to have an optimized infrastructure using only one or two ECUs, which are much more powerful, robust and flexible than the vehicle needs when it is built.

In addition to controlling the car’s functions and processing the huge amount of data collected by its various sensors, they will have the ability to accommodate new functions without slowing down the system.

This will change the historical link between hardware and software development life cycles.

“An analogy I use is what happened in consumer electronics about 20 years ago,” says Davenport.

“You had all your electronics separate; video camera, digital camera, computer, mobile phone, etc.

“Companies would encourage you to buy the new model after a few years so you could go from a 20MP to a 25MP camera, for example.

“That’s pretty much where we are in the automotive business today, like you want to get the new functionality you need to buy another car in a few years.

“The change we’re going to see with SDV is we’re going to get this software-driven continuous improvement.”

Manufacturers will be able to offer OTA updates beyond what is currently possible, allowing them to monetize subscription sales of digital content and software-based features.

In addition, indirect monetization benefits will be achieved through OTA updates that resolve warranty or recall issues.

This will change the business model for OEMs, as they will want to generate revenue by selling software-enabled services over the lifetime of the vehicle, rather than just selling or leasing it once. These services promise to offer much higher gross margins.

Stellantis, for example, forecasts around €20 billion in incremental annual revenue with a gross margin of 40% by 2030, fueled by software-enabled vehicles.

Fleet benefits

The focus on software – and with it data – could have major benefits for fleets.

Davenport says that while some major manufacturers develop their own operating systems, many others — including General Motors, Volvo, Ford, Honda, Mercedes-Benz and Renault Nissan Mitsubishi — use Google’s Android Automotive.

This is not to be confused with Android Auto, which is a mobile application developed by Google to mirror the functions of a smartphone on a vehicle’s infotainment system.

One potential effect is that multiple OEMs using the same operating system in their vehicles could change the way fleets use telematics.

Currently, there is no way to achieve consistent data collection from different brands of vehicles in a fleet unless fleet decision makers use aftermarket devices, Davenport says.

“We always see two opposing trends in the vehicle telematics space,” he adds. “One of them is that we’re seeing organizations trying to figure out the costs of their traditional telematics services, so we’ve seen a move from the black box to an OBD2 dongle, potentially even going as far as a smartphone app or maybe getting data directly from the vehicle manufacturer. automobiles.

“The trend is that the video telematics space is putting more powerful computers in the vehicle in an aftermarket box.

“But what I think could happen with Android Automotive is that an app could be implemented into the infotainment systems of various vehicles to request things like access to the forward-facing camera, access to the driver monitoring system, etc. , and so you could have a fleet management package running in the vehicle.

“Automakers continue to act as gatekeepers to their app markets, so that may hinder that vision, but certainly in the long term I think that’s going to happen because Android Automotive provides the common data platform that we haven’t had – never in the present. last.”

Palmer identifies another area where SDVs could benefit fleets – rental vehicles.

“One area that I really see a lot of potential for, but I don’t see any conversation about, is rental,” he adds.

“The concept of on-demand features – the idea of ​​flexibly purchasing or accessing features for a short period of time – certainly makes sense for the rental sector.

“A customer could get a vehicle, upload their profile and then have all the features they want to use: that sounds like a fantastic use case.”

Gartner says the introduction of SDVs will eventually lead to a new market for automotive hardware upgrades, because eventually – and as with smartphones and computers – there will come a time when hardware calculation of a factory-installed SDV will not be able to cope with life software advances.

On average, the useful life of a passenger car is about 12 years in the US and Europe, it says, and that will increase given the longer longevity of electric vehicles.

This means that the widespread adoption of zero-emission technology will bring a major long-term decline in new car sales and aftermarket revenue for OEMs.

However, lightweight and competitively priced vehicle hardware upgrades will allow OEMs to continue to sell new digital features/services to the owner to replace this lost revenue as well as extend the useful life of an SDV.

In today’s rapidly changing world, fleet managers are not just managing vehicles, they are leading critical conversations about strategy, sustainability and efficiency. And whether you realize it or not, you’re at the center of key decisions that shape your business.

Plays a critical role where finance, HR, operations and procurement meet, ensuring cost efficiency, legal compliance and CSR efforts. Fleet managers are at the heart of business success.

Our latest special report on “Fleet Management” is full of insights and strategies to help you become an outstanding leader in your organization. Delve into essential topics such as mentoring future fleet leaders, aligning fleet policies with business goals, and building sustainable mobility frameworks.