From Connected Car to Software Defined Vehicle

Executive Summary

The automotive industry is undergoing a structural transformation from hardware-defined vehicles to software-defined vehicles (SDVs). Connectivity — long treated as an add-on feature — is emerging as a foundational architecture layer that determines how vehicles are developed, updated, monetized, and operated throughout their lifecycle.

Market projections for the global SDV market vary across analysts. MarketsandMarkets projects growth from USD 213.5 billion in 2024 to USD 1,237.6 billion by 2030, at a CAGR of 34.0%.¹ BCC Research estimates USD 475.4 billion in 2025 growing to USD 1.6 trillion by 2030, at a CAGR of 27.3%.² While the absolute figures differ based on scope and methodology, all major analysts agree on substantial growth driven by software, OTA, and connectivity-enabled features.

The broader automotive software and electronics market is projected by McKinsey to reach USD 519 billion by 2035, growing at 4.5% CAGR — significantly outpacing the 1.0% CAGR of the overall vehicle market.³

This whitepaper analyzes why connectivity is no longer optional infrastructure but a strategic architecture decision with far-reaching implications for OEMs, Tier-1 suppliers, mobile network operators (MNOs), and service providers. It separates verified facts from industry interpretation throughout.

1. Market and Technology Context

1.1 The Shift from Connected Car to Software Defined Vehicle

The connected car concept, established in the 2010s, centered on embedding cellular modems into vehicles to enable telematics, emergency calls (eCall), and basic infotainment services. The Software Defined Vehicle represents a fundamentally different paradigm: software controls and manages a wide range of vehicle functions — from driving dynamics and ADAS to infotainment and energy management. Vehicles become continuously evolving platforms, updated and extended through software over their lifecycle.

• Centralized and zonal E/E architectures replacing distributed ECU topologies
• High-performance computing (HPC) platforms serving as vehicle-level compute nodes
• Over-the-air (OTA) update infrastructure enabling continuous software deployment
• Cloud and edge computing extending vehicle intelligence beyond onboard systems
• API-based service architectures enabling third-party application ecosystems

Major OEMs are actively pursuing this transition. The Volkswagen Group and Rivian established the joint venture Rivian and Volkswagen Group Technologies (RV Tech) in November 2024 to develop a zonal SDV architecture. The Volkswagen ID.EVERY1 is scheduled to be the first Volkswagen Group production vehicle featuring the new SDV architecture, launching in 2027.⁴ Audi is planned to follow with a vehicle on the platform from 2028.⁵ Mercedes-Benz announced a strategic partnership with NVIDIA to develop a software-defined vehicle architecture for next-generation models.⁶

1.2 Market Dynamics

Quantitative SDV market data from primary analyst sources:

• MarketsandMarkets: SDV market projected to grow from USD 213.5B (2024) to USD 1.23T (2030), CAGR 34.0%¹
• BCC Research: SDV market projected to grow from USD 475.4B (2025) to USD 1.6T (2030), CAGR 27.3%²
• McKinsey: Automotive software & electronics market projected to reach USD 519B by 2035, CAGR 4.5% (vs. 1.0% for overall vehicle market)³
• Regional leadership: Asia Pacific holds the largest SDV market share, driven by Chinese OEMs (NIO, XPENG, Li Auto, ZEEKR)¹

The variation in projections reflects differences in market scope (hardware vs. software vs. services), methodology, and definitions of "SDV." Despite these differences, all major analysts converge on substantial double-digit growth driven by software-enabled features and OTA-based monetization.

1.3 Regulatory Environment

• UNECE WP.29 R155/R156: Mandatory cybersecurity management systems (CSMS) and software update management systems (SUMS) for new vehicle type approvals in the EU since July 2024⁷
• EU Data Act and GDPR: Increasing requirements for vehicle data processing, consent management, and cross-border data flows⁸
• EU Cyber Resilience Act (CRA): Horizontal cybersecurity requirements for products with digital elements, including connected automotive components⁹
• NIS2 Directive (Germany): NIS2 Implementation Act effective 6 December 2025, expanding cybersecurity obligations to ~29,500 entities¹⁰

2. Technical Analysis: Connectivity as Architecture Layer

2.1 From Feature to Foundation

In traditional connected car architectures, connectivity was implemented as a vertical silo — a Telematics Control Unit (TCU) connected to a cellular network, providing telematics data to a backend server. In SDV architectures, connectivity becomes horizontal infrastructure — a shared capability that multiple vehicle systems depend on.

2.2 OTA as Architecture-Critical Infrastructure

Over-the-air updates are the defining capability of SDVs. Without reliable, secure, and high-bandwidth connectivity, OTA cannot function — and without OTA, the SDV concept collapses. UNECE R156 requires documented Software Update Management Systems (SUMS) for new vehicle type approvals.⁷

• Bandwidth: Full vehicle software updates can range from hundreds of MB to multiple GB
• Reliability: Failed updates can render safety-critical systems inoperable; updates must be resumable and verified
• Security: Updates must be cryptographically signed and encrypted end-to-end (UNECE R155, ISO/SAE 21434)
• Regulatory compliance: ISO 24089 defines software update engineering requirements complementing UNECE R156

2.3 eSIM and Remote SIM Provisioning

eSIM technology is a critical enabler for global SDV deployment. Two GSMA standards are relevant:

• SGP.02 (M2M): The established standard for machine-to-machine eSIM, used in current automotive deployments. Provides remote provisioning with limited multi-operator flexibility.¹¹
• SGP.32 (IoT): The newer standard launched in 2025, introducing a cloud-native, more open architecture. Reduces vendor lock-in and supports scalable IoT deployments.¹²

According to GSMA Intelligence, there were approximately 1.2 billion eSIM-enabled devices globally by 2025, with Juniper Research projecting growth to 1.5 billion by 2026.¹³ The automotive segment is one of the fastest-growing categories for IoT eSIM adoption, with the GSMA SGP.32 specification specifically designed to address scalable IoT and automotive deployments.¹²

2.4 Cloud, Edge, and Vehicle Data Platforms

SDV architectures extend computing beyond the vehicle. Cloud platforms provide centralized data analytics, fleet management, OTA orchestration, and AI model training. Edge computing enables low-latency processing for time-critical functions such as V2X communication and localized AI inference. Vehicle data platforms aggregate multi-domain data streams for predictive maintenance, usage-based services, and regulatory reporting.

Connectivity quality directly determines the effectiveness of these capabilities. Network latency, bandwidth, coverage gaps, and roaming limitations become architecture-level constraints rather than service quality issues.

2.5 5G and Network Slicing

• Enhanced Mobile Broadband (eMBB): Supporting large-scale OTA updates and streaming services
• Ultra-Reliable Low-Latency Communication (URLLC): Enabling V2X communication and safety-critical applications (3GPP Release 16+)
• Network slicing: Allowing dedicated, guaranteed-quality network segments for automotive use cases with specific SLA requirements

3. Architecture Implications

3.1 Impact on OEMs

Product architecture: The choice of E/E architecture (distributed, domain-centralized, or zonal) determines connectivity requirements. Zonal architectures — such as the VW/Rivian RV Tech architecture and similar approaches by other OEMs — reduce ECU count but require higher-bandwidth internal and external connectivity.⁴

Revenue models: SDV monetization depends on post-sale software delivery. OTA-enabled feature activation, subscription services, and data-driven offerings require reliable, always-on connectivity. MNO partnerships and connectivity cost structures become strategic decisions.

Lifecycle management: SDVs require active software management for 10–15+ years. Connectivity must remain functional throughout the vehicle lifecycle, requiring long-term MNO agreements, technology migration planning (3G sunset already widespread, 4G to 5G transition ongoing), and backward-compatible update infrastructure.

3.2 Impact on MNOs

Automotive SDV represents both opportunity and complexity for mobile network operators: recurring revenue through managed connectivity services, specific requirements for coverage (including rural and cross-border), high availability, and support for eSIM provisioning at scale. Roaming complexity across borders requires sophisticated agreements, data sovereignty compliance, and multi-operator orchestration.

3.3 Impact on Tier-1 Suppliers

Tier-1 suppliers face a fundamental shift from hardware component delivery to integrated system provision: TCU suppliers must evolve to provide connectivity platforms, not just modems. Integration with HPC platforms, zonal controllers, and vehicle middleware requires software-first competencies. eSIM management, OTA client integration, and cybersecurity compliance (per UNECE R155, ISO/SAE 21434) add layers of complexity to traditional Tier-1 delivery models.

4. Risks and Challenges

• Technology lock-in: Proprietary connectivity stacks create dependencies on specific MNOs, chipset vendors, or cloud platforms. Open standards (SGP.32, AUTOSAR Adaptive, Eclipse SDV) mitigate but do not eliminate this risk.
• Migration complexity: Transitioning from distributed ECU architectures to zonal/central compute requires simultaneous updates to connectivity, software, and hardware. Partial migrations create hybrid architectures with increased integration complexity.
• Multi-stakeholder coordination: SDV connectivity involves OEMs, Tier-1s, MNOs, cloud providers, and regulatory bodies. Misalignment between any two parties can delay or derail programs.
• Global deployment: Connectivity must work across regulatory regimes, network technologies, and operator landscapes. eSIM with SGP.32 addresses part of this challenge but requires careful implementation.
• Cybersecurity: The expanded attack surface of always-connected, software-updatable vehicles requires continuous monitoring, incident response capabilities, and compliance with UNECE R155 and ISO/SAE 21434.
• Data privacy: GDPR and the EU Data Act require documented consent flows, data minimization, and purpose limitation across the vehicle data lifecycle.
• Connectivity cost management: Cellular data costs over a 10–15 year vehicle lifecycle represent a significant and growing expense, requiring strategic network planning and efficient update mechanisms.

5. Recommendations

For OEMs

1. Treat connectivity as an architecture decision, not a procurement item. Connectivity choices made during vehicle architecture definition have 10+ year consequences. Involve connectivity architects alongside powertrain, ADAS, and software platform teams from the earliest program phase.
2. Adopt eSIM with SGP.32 readiness. While SGP.02 remains the deployed standard, planning for SGP.32 migration ensures future flexibility, reduced vendor lock-in, and improved scalability.
3. Build OTA infrastructure as a first-class system. OTA is not a feature — it is the delivery mechanism for the entire SDV value proposition. Invest in reliable, secure, resumable update pipelines compliant with UNECE R156 and ISO 24089.
4. Plan for lifecycle connectivity. Vehicle software will evolve over 10–15 years. Negotiate MNO agreements that account for technology transitions (3G/4G sunset, 5G evolution), data volume growth, and multi-market operation.
5. Integrate cybersecurity and privacy-by-design from architecture inception. Compliance with UNECE R155, ISO/SAE 21434, GDPR, NIS2, and the Cyber Resilience Act must be embedded in the connectivity architecture, not retrofitted.

For MNOs

1. Develop automotive-specific connectivity offerings. Generic IoT plans do not meet automotive requirements for coverage, reliability, global roaming, and SLA guarantees.
2. Support eSIM provisioning at automotive scale. OEMs deploy millions of vehicles annually across dozens of markets. MNO infrastructure must support high-volume, automated eSIM provisioning with comprehensive lifecycle management.
3. Invest in network slicing for automotive use cases. Guaranteed quality-of-service for safety-critical V2X and OTA updates differentiates 5G-capable MNOs from commodity connectivity providers.

6. IoT42 Competence Positioning

IoT42 GmbH operates at the intersection of automotive connectivity, mobile network integration, data privacy, and technical program delivery — the exact convergence point where SDV architecture challenges are most acute.

Automotive Connectivity Consulting — end-to-end support for connected car programs, OEM/MNO coordination, technical integration, and operational readiness.

Mobile Networks & IoT Integration — cellular infrastructure, SIM/eSIM management, roaming, connectivity platforms, and M2M/IoT service enablement.

GDPR & Data Privacy for IoT — consent flows, data processing architecture, regulatory interpretation, and stakeholder communication.

Project Leadership & Delivery — senior leadership for complex technical initiatives spanning commercial, legal, technical, and organizational domains.

IoT42 does not sell technology. IoT42 provides the clarity, structure, and execution capability that enables organizations to navigate the complexity of automotive connectivity transformation.

Sources

1. MarketsandMarkets, "Software Defined Vehicle Market by SDV Type, E/E Architecture, Vehicle Type and Region — Global Forecast to 2030," July 2024. Accessed via marketsandmarkets.com.
2. BCC Research, "Global Software Defined Vehicles Market," August 2025. Published via GlobeNewsWire, August 5, 2025.
3. McKinsey & Company, "The automotive software and electronics market through 2035," McKinsey Center for Future Mobility, 2025–2026. Accessed via mckinsey.com.
4. Volkswagen Group press release, "One year after its founding: Joint venture between Volkswagen Group and Rivian shows strong progress," November 12, 2025.
5. Wikipedia: Rivian and Volkswagen Group Technologies (citing Volkswagen Group and Rivian press releases). Last accessed April 2026.
6. Mercedes-Benz Group press releases on NVIDIA partnership for software-defined vehicle architecture. Verify current details at media.mercedes-benz.com before citing specifics.
7. UNECE WP.29 Regulations No. 155 (Cyber Security and CSMS) and No. 156 (Software Update and SUMS). Available at unece.org.
8. Regulation (EU) 2023/2854 (EU Data Act) and Regulation (EU) 2016/679 (GDPR). Available at eur-lex.europa.eu.
9. Regulation (EU) 2024/2847 (Cyber Resilience Act). Available at eur-lex.europa.eu.
10. BSI press release, "Cybersicherheitsrecht: NIS-2-Umsetzungsgesetz ab morgen in Kraft," 5 December 2025.
11. GSMA Embedded SIM Specification SGP.02 (M2M), available at gsma.com/esim.
12. GSMA Embedded SIM IoT Specification SGP.32, launched 2025. Available at gsma.com/esim.
13. GSMA Intelligence eSIM market data and Juniper Research, "eSIM Connections to Reach 1.5bn Globally in 2026," January 27, 2026.

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This whitepaper was prepared by IoT42 GmbH. It is intended for informational purposes only and does not constitute legal, regulatory, or investment advice. Market projections are from third-party sources and reflect the assumptions and methodologies of their respective authors. Quantitative projections vary across analysts; this paper presents ranges where appropriate to reflect this uncertainty. © 2026 IoT42 GmbH. All rights reserved.