McKinsey’s recent analysis of the automotive software and electronics landscape shows that the global automotive sector is undergoing a profound structural shift. Vehicles are rapidly evolving from primarily mechanical products into software-driven platforms. While the traditional automotive market grows at only around 1 percent annually, software and electronics are projected to grow by more than 4 percent annually and could reach roughly USD 519 billion by 2035. Software and electronics are becoming the key differentiators for mobility solutions of the future.
This shift is driven by a combination of technological innovation, regulatory pressure, customer expectations, and new digital services. Core enabling technologies include software-defined vehicle architectures, over-the-air updates, connected services, advanced driver-assistance systems (ADAS), and rapidly growing use of AI in both vehicle control and customer experience.
Levels 3 and 4 autonomous systems may materialize later than earlier industry projections suggested. As a result, investment is shifting toward near-term value pools, particularly ADAS and connected-services ecosystems that are already monetizable. Not all categories grow at the same rate: integration and verification software, middleware, and system orchestration are among the fastest-expanding areas, while traditional hardware segments grow more slowly.
A central finding concerns the evolution of electrical/electronic (E/E) architectures. The industry is moving away from distributed control units toward centralized and zonal computing designs. These architectures enable more scalable software deployment, reduce complexity, and allow advanced functions—such as AI-based perception and autonomous assistance—to be integrated reliably and at lower cost. This is foundational for the emergence of full software-defined vehicles.
For city logistics and fleet-based mobility, these developments are significant. Software-centric vehicles are becoming intelligent nodes in a connected ecosystem, capable of real-time data exchange and coordinated optimization. The result could be major improvements in fleet efficiency and urban operations, including:
• real-time routing and load optimization
• predictive maintenance and fleet health management
• vehicle-to-infrastructure communication
• seamless integration with charging and depot management systems
• sensor-enabled safety and driver assistance
This shift also reframes policy questions for cities. Software-defined fleets require new approaches to digital infrastructure, interoperability, cybersecurity, procurement, and public-private data exchange.
In short, the future vehicle is not just electric—it is a software platform on wheels. Those who understand this transition will be better positioned to build efficient, resilient, and sustainable logistics systems in urban environments.
Source: McKinsey
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