Featured Image

SUV, Sedan, Truck…or SDV?

Companies and Markets

By Carmine DiCesare  |  January 4, 2023

Since Ford’s 1908 Model T automobile, there have been numerous hardware advancements in vehicles and trucks: heated seats, four-wheel drive, more powerful engines, better crash protection and battery-powered engines.

So where is the car heading next?

Introducing the Software-Defined Vehicle (SDV)

According to Automotive World, “software-defined vehicle is a term that describes a vehicle whose features and functions are primarily enabled through software, a result of the ongoing transformation of the automobile from a product that is mainly hardware-based to a software-centric electronic device on wheels.”

Given the average person spends roughly an hour a day behind the wheel, Big Tech is searching for a road into the future of automobiles. Companies are competing to further integrate into our lives behind the wheel—for example, Apple’s CarPlay, Alphabet’s Waymo, or Amazon’s Alexa for Auto. And that’s just scratching the surface.

Vehicle software can create many business opportunities and is likely to significantly alter our driving experience. According to Precedence Research, the automotive software market was roughly valued at $25.3B in 2021 and is expected to expand to a staggering $107.15B by 2030—a potentially conservative estimate.

01-automotive-software-market-size-2021-to-2030-usd-billion-precedence-research

Let’s discuss where investors may find opportunities in this automotive revolution.

Automobile Manufacturers

Although hardware could be considered nothing without software, automobile hardware development will be an incredibly important factor in the progression of SDVs. Today’s cars are no longer just a metal chassis with four rubber wheels. Automobile manufacturers such as Toyota, Volkswagen, and Ford provide investors excellent exposure to the automotive world.

There are many options today, and finding alpha can be difficult given global competition among legacy and emerging car manufacturers—especially with electric vehicles (EVs). As shown below, with FactSet’s Universal Screening application and unique RBICS Classification, users can quickly view global car manufacturers before conducting further individual analysis.

02-factset-universal-screening-applyication-and-unique-rbics-classification

Subscriptions

As part of their push into SDVs, manufacturers and tech companies must explore additional ways to monetize the vehicle after it leaves the lot. But how? By transitioning automobiles from a 2-ton piece of metal to subscription enriched hardware and a Software-as-a-Service (SaaS) on wheels.

Subscriptions in vehicles aren’t exactly new. For example, GM’s OnStar In-Vehicle and Security System and Sirius XM’s Satellite Radio have been around for years and to many are an absolute necessity.

But today there is competitive pressure to add subscriptions for much more—such as full self-driving (FSD) capabilities. Tesla (TSLA-US) offers a monthly subscription for FSD features, as seen directly on their website:

03-tesla-fsd-subscription-pricing

But just how far will subscriptions stretch? Here are two examples.

  • BMW (BMW-DE) announced a handful of monthly subscriptions available in South Korea, activated remotely via the ConnectedDrive Store. Here are just a few: high-beam-assist headlights ($8); on-board camera access ($11); heated seats: ($18); and adaptive cruise control ($39).

  • Mercedes-Benz (MBG-DE) introduced a $1,200 acceleration subscription fee, “coming soon” for U.S-based owners of models EQE 350 and 450 EV. It enables the vehicle to accelerate from 0-60MPH in 5.2 seconds, one second faster than without the subscription.

BlackBerry QNX

In May 2018, I shined light on a company that was integral in an earlier era of the smartphone technological world: BlackBerry Ltd. (BB-US). Today, the Canada-based firm has established itself as a driving force for SDVs with software you’ve most likely never seen but rely on nearly every day: QNX.

QNX, a safety certified real-time operating system (RTOS), has been dubbed the plumbing of the automobile—as evident in the following eye-opening statistics from a recent TD Securities conference.

04-blackberry-qnx-automotive-software-leadership

BlackBerry has integrated QNX into the designs of almost every future automobile that will come off the production line—with numerous uses such as digital cockpits, hypervisors, infotainment, and advanced driving assisted systems (ADAS).

In today’s modern world, companies are continuously looking for unique ways to leverage and monetize customer’s data—as we’ve seen across social media, retail, and many other industries. McKinsey estimates that software-defined vehicles will provide upwards of 1-2 terabytes of data per day. Whether you’re filling up at the pump or plugging in at a charger, data will ultimately fuel the future of automobiles. But with so many companies involved with the production of a car, how can this data be accessed to unlock the full potential of a software-defined vehicle?

IVY

In December 2020, BlackBerry announced BlackBerry IVY, a new intelligent vehicle data platform through a multi-year, global agreement between BlackBerry QNX and Amazon AWS.

BlackBerry IVY will collect, compute, and aggregate all the data produced by cars and the connected world—translating it into one digestible language for OEMs, developers, and others to leverage via AWS. It’s a potential game-changing technology for the automotive universe, while also providing investors with a unique angle and exposure to the SDV industry:

05-blackberry-ivy-vehicle-data-environmental-data-vehicle-applications

At the 2023 Consumer Electronic Show (CES) in Las Vegas January 5 - 8, and the software-defined vehicle should be the talk of the town. Innovative tech companies, automobile manufacturers, and many others will provide a peak into the future of this automotive revolution.

For investors, the next several years will be integral and could provide unique opportunities across the industry. For consumers, the SDV will significantly and forever alter the way we interact with our vehicles. With change comes both excitement and fear—among consumers and investors alike—but the future behind the wheel will surely be interesting as the SDV hits the road.

 

This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.

Subscribe to FactSet Insight

Carmine DiCesare

Senior Strategic Consultant

Mr. Carmine DiCesare is a Senior Strategic Consultant at FactSet based in Chicago. He earned a B.S. in finance with a minor in computer information systems from Bentley University.

Comments

The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.