The days when engines and hardware were the only important aspects of automobiles are over, and software is now at the center of innovation. Among these innovations, software-defined vehicles (SDVs) are attracting particular attention. SDVs are vehicles in which core functions are controlled by software, rather than the traditional hardware.
In fact, this shift around the world began more than a decade ago, when Tesla began offering over-the-air updates in 2012, leading automakers in the US, Europe, and China to adopt SDVs as the new industry standard.
Meanwhile, in Japan, the Ministry of Economy, Trade and Industry (METI) positioned SDVs as a key element of its “Mobility DX” strategy around 2023, and national-level efforts toward software-centric vehicle development finally began in earnest. Due to this time difference, SDVs are a new field in Japan, but at the same time, they are a highly urgent issue.
In this article, we take a closer look at SDV and its underlying technology, its benefits and challenges, and where Japan stands in the global trend.
What is SDV?
definition
A software-defined vehicle (SDV) is a car whose core functions are defined by software. While traditional cars have numerous electronic control units (ECUs) hardwired to control specific functions, SDVs use a central computing and onboard operating system to manage the engine, braking, infotainment, and driver assistance systems.
The shift to SDVs became necessary as vehicles with traditional ECUs reached their limits. By the mid-2010s, some luxury vehicles were equipped with over 100 ECUs, creating challenges such as complex wiring, rising development costs, and slowing innovation cycles.
SDV transforms traditional complexity into flexibility. By separating hardware and software, continuous vehicle upgrades are possible through over-the-air (OTA) updates. Like a smartphone, new features, safety improvements, and performance upgrades can be continuously added even after purchase. According to McKinsey, by 2030, more than 95% of new cars sold worldwide will be equipped with OTA update functionality , making it the industry standard.
How are SDVs different from connected cars and autonomous vehicles?
SDVs are often confused with connected cars and self-driving cars, but their purposes and roles are different.
For example, all self-driving cars are SDVs because they rely on software to drive autonomously. However, not all SDVs are autonomous, and there are cases where SDVs are still driven by humans.
While there is some overlap between connected cars and SDVs, SDVs go even further: they go beyond mere connectivity and redefine the vehicle architecture itself.
We’ll take a closer look at the differences below.
| Vehicle type | Definition and characteristics | Key Values |
| Connected Car | Utilizing the internet and V2X communications to link data with external systems | Improved safety, improved traffic efficiency, and service integration |
| SDV | Key features are software-defined and continuously upgradeable via OTA updates | Switching vehicles to ever-evolving platforms |
| Self-driving cars | Equipped with sensors and AI, it drives autonomously without human operation | Automating mobility, improving safety and convenience |
How does SDV work?
SDVs (Software-Defined Vehicles) do not separate ECUs for each function as in the past, but instead use a software-driven centralized architecture. In conventional vehicles, each function required dedicated hardware, but in SDVs, multiple functions are consolidated into a small number of high-performance computers, which are complemented by zone controllers located inside the vehicle.
This architecture allows for the processing of large amounts of data in real time, allowing the vehicle’s “brain” to efficiently coordinate functions, reducing wiring complexity and facilitating system-wide integration.
Running on top of this is an in-car operating system similar to iOS or Android for smartphones. Because the hardware and software are separated, feature updates, safety enhancements, and the addition of new services can be carried out in stages.
This flexibility is powered by over-the-air updates, which can remotely deliver bug fixes, safety patches, and even new driver assistance features directly to vehicles on the road, eliminating the need for costly recalls and dealer visits.
The technical foundation that makes up SDV
The realization of SDV requires more than just redesigning the vehicle architecture. In addition to central computing and an in-vehicle operating system, standardization of the various supporting technologies and ecosystems is essential to create a scalable, connected, and value-creating SDV.
5G and V2X connectivity
Low-latency 5G and Vehicle-to-Everything (V2X) networks will connect SDVs to infrastructure, other vehicles, and cloud services in real time. This connectivity will be the foundation for over-the-air updates, smart transportation systems, and cooperative driving.
Cloud Platform and Data Infrastructure
The vast amounts of data generated by SDVs require secure, scalable cloud platforms that enable predictive maintenance, fleet-wide software management, and integration with smart city ecosystems.
Service-Oriented Architecture (SOA)
SOA makes automotive software modular and flexible, allowing each function to be developed, deployed, and updated independently, just like cloud-native applications , accelerating innovation and reducing integration risks.
App Store and On-Demand Features
A long-term vision is for an ecosystem of in-car apps that allow drivers to download new features or subscribe to them, generating recurring revenue for OEMs and providing personalized experiences for users. IBM predicts that digital revenue in the automotive industry will grow from 15% today to more than 50% by 2035.
AI and Cybersecurity
AI is a key enabler of personalization, predictive maintenance, and autonomous driving. At the same time, cybersecurity is essential. Measures such as secure boot, encrypted communications, and intrusion detection ensure that SDVs remain safe even when constantly connected.
Related article : A thorough explanation of the architecture, implementation and execution strategies
Benefits of SDV
For drivers and passengers
Personalized experience: Software allows vehicles to be customized to suit individual preferences, including dashboard layout, driving modes and infotainment settings. Profiles can be carried across multiple vehicles, supporting new mobility models like car sharing.
Continuous feature updates: Over-the-air updates allow for added driver assistance features, improved navigation, enhanced entertainment features, and more, even after purchase.
Greater convenience: Voice assistants, smart connectivity and on-demand services bring everyday digital experiences into the car.
Improved safety and security
– Real-time monitoring: By continuously collecting data from sensors, signs of failure can be diagnosed, and failures can be detected in advance, leading to avoidance.
Rapid safety updates: OTA updates allow for quick response to vulnerabilities and improvements to ADAS performance without the need for physical recalls.
Enhanced cybersecurity: SDVs incorporate security by design, with features such as encrypted communications, secure boot, and intrusion detection—essential in an age where always-on connectivity is the norm.
Reduced traffic accidents: Some studies suggest that widespread adoption of ADAS and autonomous driving features enabled by SDVs could reduce traffic accidents by up to 30% by 2030.
Performance and maintenance improvements
– Predictive maintenance: Vehicles can monitor their own systems and detect wear and abnormalities early, reducing the risk of breakdowns.
Efficiency optimization: Software dynamically optimizes battery consumption in EVs and engine performance in hybrid vehicles, leading to improved fuel economy and longer driving range.
Extended vehicle life: By decoupling hardware and software, SDVs reduce the need for physical part replacement, allowing vehicles to last longer and contributing to lower lifecycle costs.
For automakers and the industry as a whole
Cost reduction: A centralized architecture simplifies hardware configuration by replacing 100+ ECUs with a few high-performance units, which reduces wiring, weight and manufacturing costs.
New revenue models: Software-based capabilities enable recurring revenue streams. According to IBM, digital software-related revenue in the automotive industry is expected to grow from 15% of total revenue today to more than 50% by 2035.
Accelerated development speed: SOA allows new features to be rolled out without waiting for a complete vehicle overhaul, helping the company keep up with the pace of the tech industry.
Strengthening collaboration within the ecosystem: Collaboration between automakers, Tier 1 suppliers, cloud providers, and software developers is essential to realizing SDV, which will also promote open innovation.
SDV Challenges
While the benefits of SDV are clear, the transition comes with significant challenges – not just technical, but also organizational, financial and cultural challenges that will impact the very fabric of the automotive industry.
Technical complexity
Modern SDVs can contain over 300 million lines of code, a significant increase compared to today’s luxury cars (approximately 100 million lines). Interacting with software across multiple suppliers and platforms creates integration risks, and even small bugs can have serious safety implications.
Cybersecurity risks
SDVs are essentially “mobile computers” that are constantly connected to networks and external systems. As connectivity increases, so does the risk of exposure to cyberattacks.
– If there is a vulnerability, interference with braking and steering may occur.
– Data privacy concerns are also growing due to the large amount of information collected about drivers and passengers.
A Deloitte survey found that 86% of automotive executives see cybersecurity as a differentiator for brand trust, demonstrating how important cybersecurity is to customers when making product choices.
High costs and a shortage of talent
Building an SDV platform requires an initial investment of billions of dollars in software, cloud infrastructure, and AI technologies. Furthermore, automakers face serious talent challenges: thousands of software engineers, data scientists, and cybersecurity experts are needed, yet these talents are currently concentrated primarily in the IT industry.
KPMG estimates that software costs account for 30-40% of vehicle R&D budgets, and that this percentage is set to increase.
Ecosystem Dependence
Achieving SDV requires OEMs to collaborate with Tier 1 suppliers, cloud providers, and software developers. This requires the automotive industry to shift from a traditional top-down approach to one that emphasizes open innovation and collaborative development. For many OEMs, this organizational culture change is as challenging as technological innovation.
Related article: SAP S/4HANA Cloud Migration for a Major Japanese Automotive Manufacturer
Global SDV market trends
The global automotive industry continues to evolve toward SDVs, which are projected to grow from $47 billion in 2022 to more than $250 billion by 2032. Additionally, according to IBM, 90% of vehicle innovation will be software-driven by 2030.
Major automakers are investing heavily in SDVs. Volkswagen and Mercedes-Benz are developing in-house operating systems to give them complete control over vehicle software. Chinese OEMs like BYD and NIO are integrating SDVs into their EV platforms and leveraging over-the-air updates to accelerate customer acquisition. Stellantis and Hyundai have announced multi-billion-dollar SDV programs, positioning software as a long-term revenue driver.
SDVs are no longer an experimental technology; they are becoming an industry standard, fundamentally changing how automakers design, sell and monetize their vehicles.
Current status of SDV development in Japan
Reasons for Japan’s delayed SDV development
Japan has long been strong in hardware-driven engineering, which has meant that it is significantly behind the US, Europe and China in its efforts to develop SDVs.
Japanese automakers such as Toyota, Honda, and Nissan have led the domestic market for over a decade, garnering a reputation for precision machinery and hybrid technology. In the 2010s, hybrid vehicles accounted for 70-90% of new car sales in Japan, reducing the need for a fully software-defined architecture. Furthermore, a complex network of Tier 1 and Tier 2 suppliers, optimized for hardware, made the transition to software-first slow and difficult.
Japan’s efforts to accelerate the shift to SDV
Based on the “Mobility DX” strategy (2023-2030) formulated by METI, Japan is accelerating the development of SDVs to close the gap. According to S&P Global, Japanese automakers plan to produce 12 million SDVs by 2030, accounting for approximately 30% of the 41 million SDVs expected to be produced worldwide that year. Related industries are also expanding in response. According to Yano Research Institute, Japan’s automotive software market is expected to grow from JPY 582.4 billion in 2021 to JPY 628.6 billion in 2023, with automotive IT software accounting for an increasingly large share. Furthermore, the OTA testing market, which is important for update and compliance verification, is projected to grow from USD 58.9 million in 2023 to USD 246.3 million in 2035, representing a CAGR of 13.6%.
Japan may have started SDV development later than its global competitors, but its strengths in quality, safety, and a trusted supplier network can help it regain leadership. By building strategic partnerships with global Tier 1 suppliers and leading IT companies, Japan has the potential to emerge not as a mere follower, but as a trusted innovator of safe, high-quality SDVs.
summary
SDVs are no longer a distant vision, but are becoming the foundation of the automotive industry. For Japan, the transition to SDVs is urgent due to its late start, but it also presents an opportunity to lead the way with safe, high-quality, and reliable SDVs.
As Japan accelerates its SDV transition, the key to success lies in partnerships that combine hardware strengths with software innovation. VTI leverages its expertise in in-vehicle operating systems, OTA platforms, and cloud integration to work with you on your SDV transition, focusing on quality, safety, and long-term reliability.
If you are considering SDV development or looking for a reliable software development partner, please feel free to contact us.
