Legacy carmakers are increasing investment in software-defined vehicles as they aim to unlock new revenue opportunities. However, their backgrounds in hardware manufacturing and cautious corporate cultures are limiting their ability to adapt. Despite spending billions and hiring top talent from Silicon Valley, companies such as Toyota, Volvo Cars and General Motors remain well behind more agile firms like Tesla, Nio and Xpeng, who lead in software integration and innovation.
For over a decade, established brands have understood the importance of intelligent, connected and autonomous electric vehicles. Toyota had early plans to create a central platform managing everything in the car, from braking and steering to infotainment and safety. Progress has been underwhelming. According to Gartner’s digital rankings, traditional brands are still struggling to profit from vehicle software. Toyota ranks 21st, far behind new market entrants.
Toyota’s in-house platform, Arene, will launch in a limited capacity with the RAV4, covering only infotainment and select safety functions. Full integration that would allow comprehensive vehicle control has yet to be achieved. Sources inside Toyota point to persistent bugs and an overall lack of cohesion. Employee interest has waned as the challenges of developing an entire software operating system become increasingly evident. Complicating matters is the culture clash between dynamic software engineers and the automaker’s traditionally consensus-based leadership.
Volvo Cars is facing similar challenges. Its advanced EX90 model has been delayed multiple times and has incurred major cost overruns, prompting executive changes and a $1.2 billion write-down. Although the firm was quick to adopt advanced software and cloud-based updates, constructing a centralised computing system has turned out to be far more difficult than first assumed. Layoffs and new leadership are being used to stabilise the project, but software problems persist.
Other traditional manufacturers are banking on partnerships to strengthen their software capabilities. Mercedes-Benz and BMW are developing zonal architectures that cut down on wiring and simplify software updates. BMW’s upcoming Neue Klasse platform will feature four central computing hubs that manage everything from assisted driving to interior displays. Mercedes, while expanding its software team with thousands of engineers, is also working with major tech firms including Google to integrate artificial intelligence, balancing internal control with external support.
Tensions are building between automotive manufacturers and Silicon Valley firms over control of the operating system and user experience. Apple’s enhanced CarPlay, which reaches deeper into vehicle functions, has triggered pushback. Automakers, wary of losing control over critical data and interface design, are pushing forward with in-house platforms that protect their branding and ownership of driver data.
Despite ongoing challenges, some progress is being made. Volkswagen has entered a $5 billion partnership with Rivian and is collaborating with Xpeng as part of a wider trend of outsourcing software development when internal teams fall short. Executives warn, however, that working with tech firms while protecting trade secrets and corporate strategy is difficult to manage.
Toyota’s cautious strategy is part of a broader concern for long-term stability. The use of Arene in the RAV4—a dependable, high-volume model—is designed to limit risk. However, insiders note that sacrifices were made due to the heavy memory and computing power required, which could have affected profit margins. The company is attempting to update its operations without compromising its image for reliability or its famed just-in-time production model.
Toyota’s chairman remains committed to a future built on software-first mobility services, though the company’s approach is still being defined. It must clarify how software and digital services will become solid revenue streams, especially in a market where customers expect more features at lower costs.
General Motors and Ford may offer hints about the way forward. GM has made bold declarations about expected software revenue, but executive turnover has affected progress. Ford has found early success through its business unit Ford Pro, which uses vehicle data to improve upkeep and efficiency for commercial clients. With more than 757,000 paid subscriptions and growing, this model shows how properly implemented software can deliver value.
The future of the car industry is shifting from machinery to software code. Legacy brands are under pressure to evolve, but the transition is proving difficult, expensive and urgent.
