Q-Series: Rise of software - can the auto industry master it?

Software is set to be the next big disrupting technology in the autos space, representing an even bigger challenge to carmakers than the shift to electric cars. Inflecting now, the era of fully connected and increasingly autonomous vehicles (AV) also opens up significant new revenue pools in an industry that has otherwise gone ex volume growth. In this Q-Series, which leverages recent Q-Series on AV, smart infrastructure and the future of transport, we analyze the financial impact on automakers, tech and other key industries. The analysis is based on a series of >30 expert interviews, UBS Evidence Lab consumer surveys and app download analysis. We conclude that all key software- enabled revenue pools add up to a ~$700bn TAM by 2030. This is less than the ~$2trn opportunity we previously estimated due to the later arrival of full AV technology, but still one-quarter of the size of the global car market today. Success in software is mission critical, because similar to other industries like PC or smartphones, we believe the value-add of the hardware will structurally decline. In this report, we analyze the TAM in detail and screen our coverage against critical success factors.

We forecast connected services to become a ~$400bn opportunity by 2030, but differentiation is key because many features will come as standard over time. The technical prerequisite is a fully connected car with over-the-air capability, which EV players with tech background are adopting faster than most legacy OEMs. We expect the monetization opportunity for on-screen content and features on demand (~$200bn) to be the highest in the premium & luxury segment as consumers are most likely to pay up. Other key opportunities include fleet management (~$30bn), usage-based insurance ($90bn), smart maintenance and saved warranty/recall costs (~$60bn) and the sale of data collected by a large connected fleet (~$60bn).

Higher levels of assisted driving are a ~$200bn opportunity by 2030, but only very few OEMs will be in possession of the brain, which we see as the key to full monetization. It is also the area with highest risk of sunk cost for legacy OEMs - we see collaborations with strong tech partners as the best option. The trend towards AV will be more evolutionary for passenger cars vs. the moonshot approach for dedicated robotaxis, resulting in higher financial upside near-term. The latter segmentremains a >$2trn long- term opportunity (2040), but only for those few players who can survive several more years of cash burn as scaling up takes more time.