Management Perspectives

The automotive industry stands at a pivotal crossroads, transforming anything seen in its more than 100-year history. The rise of softwaredefined vehicles (SDVs) and artificial intelligence (AI) is reshaping how cars are built, sold, and used. Incumbent automakers, who have long defined their value through their hardware and engineering prowess, must now adapt to a new reality.

The shift toward software-driven mobility not only disrupts traditional business models but also challenges long-held assumptions. In this article, we’ll explore five pervasive myths about the automotive industry and how SDVs and AI are busting them. As automakers move from hardware-defined machines to software-powered platforms, they must abandon outdated notions and embrace a future of ongoing service provision, digital performance metrics, and dynamic innovation cycles. The industry’s transformation is well underway, and those who fail to adapt risk being left behind. In his book The Flagship Experience, Simoudis clarifies misconceptions about SDVs and shows how they and AI are transforming the automotive industry.

MTH 1: Automakers’ value is tied solely to their hardware and product sales.

Traditionally, automakers have been seen as manufacturers, delivering hardware-centric products: vehicles defined by horsepower, build quality, and engineering precision. However, this view is increasingly obsolete. The real value lies in the software powering the vehicle, enabling continuous feature updates, personalised experiences, and new services. SDVs are transforming cars into platforms for mobility services, data-driven insights, and in-vehicle subscriptions.

The transition from hardware-focused product sales to service-centric models means that automakers can no longer rely solely on selling cars and the auto-maker’s customer experience does not end when the vehicle is sold. The customer journey “covers the entire relationship between the customer and the auto-maker, starting at the time the customer first interacts with the OEM’s brand and ending when the customer no longer owns any of the OEM’s vehicles. Instead, they are becoming service providers, offering ongoing customer engagement through connected ecosystems. This transformation opens new avenues for recurring revenue, long after the initial sale.

Over-the-air (OTA) updates and softwaredriven customisation allow automakers to deliver new features and capabilities, maintaining customer interest and satisfaction throughout the vehicle’s life cycle. The future of automotive value lies not in static, onetime transactions but in dynamic, evolving relationships between automakers and their customers.

MTH 2: AI in automobiles is only about autonomous driving.

While autonomous driving garners much of the spotlight, AI’s influence extends far beyond. AI is revolutionising various aspects of the automotive value chain, from vehicle design to manufacturing and customer experience. AI-powered simulations optimise vehicle design, while predictive maintenance, driven by machine learning algorithms, reduces downtime and ensures vehicles operate efficiently. In manufacturing, AI enables predictive maintenance of machinery and automation of complex production processes. Moreover, AI enhances in-cabin experiences, offering voice assistants, personalised infotainment, and proactive safety measures. By processing real-time data, AI adapts to individual driving habits and preferences, tailoring the vehicle experience to each user. These broader applications of AI are fundamental to the evolution of the automotive industry, well beyond the development of fully autonomous vehicles.

MTH 3: Automakers must own every aspect of vehicle technology.

In the past, automakers prided themselves on owning and developing every aspect of the vehicle. However, the rise of SDVs challenges this notion. While they must own the customer experience, automakers must collaborate with tech companies, cloud providers, and third-party developers to integrate advanced software and AI into their vehicles. Software-defined vehicles do not just require updating and adding to existing software, but creating and incorporating into the SDV new integrated software- and AIcentric platforms.

The vehicle is no longer a standalone product but part of a broader, interconnected ecosystem where software-driven services and applications differentiate one car from another. Automakers that embrace external partnerships will not only accelerate innovation but also enhance the user experience by leveraging cutting-edge technologies without needing to develop everything in-house. This shift reflects a broader industry trend of collaboration, where ecosystems and partnerships become as crucial as traditional engineering.

MTH 4: ehicle performance is only about speed, power, and efficiency.

Historically, vehicle performance has been measured by metrics like speed, power, and fuel efficiency. While these factors remain important, SDVs introduce new dimensions of performance that are just as critical. Performance is no longer just about how fast a car can go or how much power it delivers; it’s about how well the vehicle processes data, integrates with external systems, and supports digital features. SDVs offer driving automation that provides safety and convenience to the vehicle’s occupants. As a result, performance now includes real-time decision-making capabilities, data processing, and how seamlessly a car integrates with digital platforms, including smart city platforms. The ability to process vast amounts of data in real-time and act on it is just as important as traditional performance metrics. Softwaredefined features such as advanced driver assistance systems (ADAS), connectivity, and sensor integration are becoming essential components of modern vehicle performance, redefining what customers value in their cars.

MTH 5: Automakers can offer and take advantage of SDs with only technological innovations

Developing and offering software-defined vehicles is not just another product evolution that can be handled within existing organisational structures. The model introductions and refresh cycles in use today established well-defined time lines and hierarchical organisational structures. The transition to SDVs and the adoption of a new comprehensive customer experience, require significant organisational and business model transformations which the automotive industry must undertake.

Automakers need to become customercentric, embrace flatter and agile organisations, and capitalise on the opportunity for continuous innovation that SDVs offer them. These necessary changes will impact them financially, as we are seeing already. They also have the potential to alter their relationships with dealers and other sales and service channels. Automakers need to rethink and reconfigure their entire ecosystem, from suppliers to postsales partners. As Stephan Durach, senior vice president of development at BMW’s Connected Company states in the book “These transformations are ongoing and could last several years.”

Conclusion

The transformation of the automotive industry is driven by the rise of softwaredefined vehicles and the integration of AI across every facet of the vehicle life-cycle. These advancements are busting long-held myths about the automotive industry. As vehicles become more connected, intelligent, and software-driven, automakers must embrace new business models, focus on digital performance, and collaborate with technology partners to stay competitive.

The future of the automotive industry is one where continuous customer engagement, dynamic innovation, and seamless integration with the digital world define success. Automakers who can adapt to these changes will thrive, while those who cling to outdated notions will find themselves struggling to keep up. The road ahead is one of transformation, and it is already well underway.