Automotive software, electronics market to reach $519 bn by 2035, outpace vehicle market growth: McKinsey

The report titled "The Automotive Software and Electronics Market Through 2035" said that while the global vehicle market is expected to grow by only around 1 per cent annually, the software and electronics segment will see much stronger expansion as automakers increasingly differentiate vehicles through software, connectivity and AI-enabled features.

"In contrast to the overall vehicle market, which is growing by around 1.0 percent CAGR annually, the global automotive software and electronics market could grow by 4.5 percent CAGR and reach $519 billion by 2035," the report said.

McKinsey said the industry is transitioning towards software-defined vehicles (SDVs) supported by zonal and central computing architectures, enabling over-the-air software updates, enhanced connectivity and generative AI integration.

According to the report, "software, electronics, and gen AI have emerged as critical enablers of innovation, transforming vehicle development and customer experience and business models for OEMs and suppliers."

The report noted that although expectations for fully autonomous vehicles have moderated because of delays in Level 3 and Level 4 deployment, investment has shifted toward near-term opportunities such as ADAS and connected services.

McKinsey estimates that by 2035, vehicles equipped with Level 2 and higher driver assistance and autonomous driving capabilities could account for nearly 70 per cent of global vehicle sales, with Level 2 vehicles alone making up 52 per cent of sales and Level 3 vehicles accounting for 16 per cent. Vehicles capable of Level 4 autonomous driving and above are expected to represent only about 1 per cent of sales by then.

Artificial intelligence is expected to play a much larger role across automotive software over the next decade. The report said AI could improve or enable software functions across nearly 78 per cent of the market by 2035, particularly in ADAS, automated driving and infotainment systems.

"AI could improve or enable numerous software functions by 2035, especially in advanced driver assistance systems, automated driving, and infotainment," the report said.

The report also highlighted a major shift in vehicle architecture, saying advanced domain-based and zonal electrical/electronic (E/E) architectures are expected to replace traditional distributed systems over the next decade.

"By 2035, the bulk of electrical/electronic architectures produced may be advanced designs," McKinsey said, adding that leading automakers will need to simplify E/E architectures, strengthen software capabilities and invest in AI-powered development to remain competitive in the era of software-defined vehicles. (ANI)