80% of new cars to feature electrified powertrains by 2035, IBM study finds

NEW YORK: Over the next decade, 80% of new cars will have a powertrain that will be electrified to some extent, a new report from the IBM Institute for Business Value says.

The "Automotive 2035" study puts the spotlight on the auto industry’s transition towards electrification and software-defined vehicles (SDVs), based on insights from 1,230 senior executives across nine countries.

According to the study, 74% of executives believe vehicles will be software-defined and AI-powered by 2035, with 75% believeing that the software experience would be a key contributor to brand value.

Automakers are moving away from a traditional car sales model to one focused on recurring revenue from digital services and products. At present, just 21% of R&D budgets are set aside to software and digital developments, but this is expected to jump to 58% by 2035.

However, there are technical challenges automakers face in developing SDVs, said the study.

The current vehicle architecture, which relies on individual electronic control units for specific functions, is not workable in the long run.

The top challenge in building SDVs is how to separate hardware and software layers, with 77% of executives saying a lack of software development tools and methodologies compounded the problem.

On top of that, 74% said a mechanical-driven culture hinders the transition to software-driven product development.

IBM automotive industry general manager Jeff Schlageter said AI and cloud technologies have the potential to resolve these challenges.

"By harnessing the power of cloud combined with AI, automakers can explore new ideas, test different software configurations, and gather valuable insights to inform the development of innovative SDV features," he said.

The report also said automakers must overhaul their electrical and software architectures to create truly digital products. The shift to SDVs is expected to provide personalised customer experiences, delivered through subscription-based services and ongoing updates.

The findings were discussed during a LinkedIn Live broadcast hosted by IBM and General Motors. The study, part of IBM’s ongoing analysis of the automotive industry since 2008, provides a data-driven look at the sector's transformation.

The full report, based on data collected in Q3 2024 in collaboration with Oxford Economics, offers further details on the industry’s expectations and barriers to transitioning towards electrification and software-driven models.