The forces disrupting the automotive industry - collectively known as ACES (autonomous driving [AD], connected cars, powertrain electrification, and shared mobility) - have gained significant momentum. The COVID-19 pandemic and its aftermath have accelerated the future of mobility, with profound implications for customer preferences, technology adoption, and regulation. New players continue to enter the electric vehicle (EV) market, many of them at higher valuations than existing Oems. Car companies and their suppliers are investing heavily in software and electrification.

The global automotive software and electronics market is expected to reach $462 billion by 2030, with a compound annual growth rate of 5.5% from 2019 to 2030.

These disruptions were enabled by the rapid growth of automotive software and electronics and contributed to their rapid growth. The global automotive software and electronics market is expected to reach $462 billion by 2030, with a compound annual growth rate of 5.5% from 2019 to 2030. In contrast, the overall automotive market for passenger cars and light commercial vehicles (LCV) is expected to grow at a compound annual growth rate of 1% over the same period, from 89 million units in 2019 to just 102 million units in 2030. This reality reflects a major shift in the future of mobility, driven by expanding urban access restrictions (such as bans on internal combustion engine [ICE] cars), greater adoption of non-ownership models (including car sharing and micromobility), and disruptive technologies (such as urban AD). In this environment, automotive companies are looking to software and electronics as the next frontier for industry transformation.

The adoption of driver assistance systems and AD will be driven by changing customer preferences; Regulations that prioritize safety and allow for higher levels of autonomous driving; And technological breakthroughs such as the availability of high-performance computers, advanced software, or light detection and ranging (LiDAR) sensors. For example, we expect Level 2 Advanced Driver assistance systems (ADAS) to grow by up to 30% annually through 2025, largely due to regulations requiring new vehicles to be equipped with these sensors. We estimate that by 2030, 12% of vehicles will be equipped with level 3 and Level 4 AD capabilities, compared to just 1% in 2025.

While sales of passenger cars and light commercial vehicles will grow slightly from 89 million in 2019 to 102 million in 2030 (a compound annual growth rate of just over 1%), the automotive software and electronics market is expected to grow nearly four times faster over the same period. Electronic control units (ECUs) and Domain control Units (DCU) account for the largest market share, which is expected to reach $144 billion by 2030. The second largest market share is software development (including integration, verification and validation), with revenue potential of $83 billion by 2030. Power electronics is by far the fastest growing component market, with electric vehicle adoption expected to drive a 23% CAGR through 2030. Driven by AD/ADAS sensors, sensors are expected to grow at a CAGR of 6%.

The automotive software market is expected to more than double in size, from $31 billion in 2019 to approximately $80 billion in 2030, a compound annual growth rate of more than 9%. By 2030, ADAS and AD software will account for most of this growth, accounting for almost half of the software market. Time also plays a role: Software for higher levels of autonomous driving (for example, urban AD) will be developed years before market launch.

Infotainment, connectivity, security and connectivity services will also grow in tandem with the overall software market, becoming the second largest software market by 2030. This growth is driven by the high share of connected cars and demand for features such as in-car payments, location-based services, and music streaming. Due to the increasingly stringent energy management requirements of electric vehicles and the increasing number of premium comfort features in the lower vehicle segment, the body and energy software market will grow at a compound annual growth rate of 10%.

The ECU/DCU market is expected to grow to $144 billion by 2030, primarily driven by growth in DCU. In 2019, DCU accounted for less than 1% of the combined ECU/DCU market. We expect this to increase to 16% by 2025 and 43% by 2030. However, the growth of the ECU/DCU market will be slowed by the reduction of unit costs in certain domain types and the integration of ECUs into DCU.

The centralization of E/E architectures will continue to drive the need for more complex and powerful DCU at the expense of traditional ECUs. DCU adoption rates are highest in infotainment and AD, both of which are expected to exceed 70% adoption by 2030.

We expect the automotive sensor market to grow from $23 billion in 2019 to $46 billion in 2030, driven primarily by growing demand for ADAS and AD sensors, particularly LiDAR, cameras, and radar. Traditional powertrain sensors will decline slightly during this period, in line with the ICE automotive market. The growth of new sensors for electric drive will not be able to offset the decline in demand for sensors in internal combustion engine vehicles, which have higher sensor content per vehicle. Due to new comfort features and higher demand for existing comfort features, body sensors represent a growing market, especially in smaller automotive segments and non-premium Oems.

The future of automotive software and electronics is here. As software-defined vehicles become a reality, automotive companies across the value chain must act quickly and decisively to capitalize on their potential. With a clearer outlook on market dynamics, automakers can take a range of strategic and operational actions to adapt to the future landscape.

Automotive Oems must develop and refine their strategic perspective based on their resources, capabilities and industry position. In response to the increasing cost of hardware and software per vehicle, Oems can consider partnering with other Oems to create economies of scale, make software reusable across platforms, and simplify E/E architectures. Automakers should also strengthen their software development capabilities by recruiting and developing the right talent and building their capabilities across the entire technology stack, including middleware, operating systems, hardware abstraction layers, and cloud computing. Breaking down silos and creating cross-functional development organizations can increase efficiency and speed time to market.

Tier 1 vendors will need to redefine their software and E/E strategies to cope with new capabilities and purchasing decisions from Oems. By positioning themselves as thought partners to Oems, they can work collaboratively to define the E/E architecture of the future and shape requirements. Vendors can gain significant advantages by investing in software development and integration areas to capture a larger share of growth. Similar to Oems, Tier 1 suppliers need to break down domain silos and encourage cross-functional collaboration to remain competitive and respond to the changing needs of their customers.

The automotive software and electrical and electronic components markets are expected to grow strongly over the next decade. What must companies know to succeed?

Autonomous driving, connected cars, powertrain electrification and shared mobility (also known as the ACES trend) are boosting the automotive industry. Together, they disrupt the automotive value chain and affect all stakeholders. In addition, they are important drivers of the automotive software and Electrical and electronic components (E/E) market, which is expected to grow at a compound annual growth rate of 7%, from $238 billion to $469 billion between 2020 and 2030. At this rate, the software and E/E markets are expected to grow significantly faster than the overall automotive market, which is estimated to grow at a compound rate of 3% over the same time frame. As a result, software and electronics have become the focus of most automotive companies and their executives.

In this context, we offer a perspective on three key questions based on our extensive research and analysis:

What are the specific forces behind the dynamic and changing landscape of software and E/E growth in the automotive industry through 2030?
How will these forces affect the automotive industry's long-established value chain?
How can players inside and outside the industry best prepare for upcoming market developments?

The automotive software and E/E components markets will grow rapidly, with the different impacts of ACES trends driving significant changes at the segment level.

Power electronics is expected to occupy the high end of the market growth with an annual growth rate of 15%. Autonomous driving will drive growth in software and sensors, which are expected to reach 9% and 8%, respectively. The segment including Electronic control units (ECUs) and Domain control Units (DCU) will continue to hold the largest market share, but the growth rate in this region is likely to be relatively low at 5%. While ECUs and DCU will increasingly be used for autonomous driving applications, price declines due to increased efficiency will offset the growth of this segment. Electric vehicle platforms will be the new market for high-voltage harnesses, but the demand for low-voltage harnesses is expected to shrink, so the harnesses segment will grow at the slowest rate.

The separation of hardware and software will fundamentally change the players and value landscape in the automotive industry.

The days of Oems fully defining specifications and having those specifications delivered by suppliers may be coming to an end. Neither Oems nor traditional suppliers can fully define the technical requirements of a new system. It is expected that co-development between Oems and suppliers will not only become common, but also necessary. In addition, tech-native companies are expected to be bolder in entering the space - something that will become easier as hardware and software sourcing becomes more independent. This separation will break down established pools of value and reduce barriers to entry. For Oems, separation will also make procurement more competitive and scaling less complex, and it will provide a standardized platform for application software while maintaining competition on the hardware side.

Both prototype-specific strategies and cross-participant strategies can enable companies to succeed in the environment of the future.

OEM's strategic initiatives include plans to control growing hardware and software development costs and build a more agile cross-functional development organization. Cross-functionality will also benefit Tier 1 vendors, and as such, actively working with Oems to define their E/E architectures will also benefit. Secondary suppliers will want to further specialise and scale up within attractive niches in order to thrive with many components becoming commodities. All participants will benefit from building their software delivery and E/E architecture capabilities, adopting the latest technological innovations (including those related to user interfaces, user experience, and analytics), and abandoning absolutist notions of competition while analyzing the benefits of collaboration in the emerging ecosystem.