From One-Time Sales to Recurring Revenue: How Software-Defined Vehicles Are Rewriting the Automotive Business Model

Key Takeaways 

• Leading automakers are including software-defined vehicles in their portfolios to generate recurring revenue through subscriptions, features-on-demand, AI-powered services, and licensed vehicle data. 

• OEMs are converging primarily on three distinct playbooks. (i) Subscription-led [GM, Mercedes-Benz]. (ii) Volume-and-liability-led [BYD]. (iii) Partnership-led [Volkswagen, Stellantis, Hyundai]. 

• GM is expecting “Netflix-scale” annual revenue of $20–$25 billion in connected services by 2030, up from $2.7 billion in 2025. 

• Rivian’s software and services segment now generates a 42% gross margin, highlighting the overall economics of the SDV automotive industry. 

• Regulation is aiming to reshape monetization, with OTA requirements expanding while data-access rules constrain what OEMs can charge.

Overview 

For decades, the revenue model in the automotive business has followed a common pattern. The automaker, a.k.a. Original Equipment Manufacturer (OEM), usually captures its share of revenue at the point of vehicle sale, followed by dealers & independent workshops earning profits through services, parts, and resale. But now, with the evolution of software-defined vehicles, the traditional revenue model is unwinding gradually. The key concern behind this isn’t technology. It’s whether automakers can keep earning from a vehicle, long after it leaves the inventory, without customers feeling like they are being charged twice for something they already own. 

The response to the question is already known and clear. In a failed bid in 2022 to charge a monthly fee for using heated seats that were pre-installed, BMW had to reverse its decision within a year amid strong criticism. Also, two U.S. states have already submitted that exact scenario in proposed law. 

While it’s important for automakers to find ways to generate recurring revenue without repeating BMW’s mistake, a more urgent question for the industry is: How quickly can this revenue scale? … General Motors offers a clear indication of what is possible. The company closed 2025 with a record 12 million OnStar subscribers and $5.4 billion in deferred connected-services revenue. And GM is not alone. Automakers are increasingly treating software and connected services as a second business alongside vehicle sales. 

In this article, we’d cover: 

• How AI, vehicle subscription model, OTA updates, data, and feature-on-demand stack together into five distinct revenue layers? 

• How big is the SDV market today, and how fast is it projected to grow during the next ten years? 

• Which recent initiatives by key auto players across the supply chain define the current wave? 

• Why are regulatory bodies drawing hard lines around what can and cannot be monetized? 

• How can OEMs and suppliers strategically place their own software bets?

Crafting Vehicles That Never Stop Earning 

Electric vehicles provide automakers with two key features absent in traditional internal combustion engine (ICE) vehicles: common electrical architecture and continuous connectivity. Once these pieces get collated, the industry’s revenue model started to look less like a hardware sale and more like a subscription business with a car attached. 

The shift has moved in visible steps rather than one dramatic leap. 

During 2019–2021, Tesla normalized paying separately for autonomy software, priming buyers to expect that a car’s capability could keep evolving after delivery. The legacy OEMs have also come out with their own feature-on-demand services, including BMW’s unsuccessful attempt to monetize heated seats. 

However, by 2023, Stellantis’ OTA updates went beyond 94 million vehicles and subscription users surpassed the 5 million mark. Besides this, Mercedes-Benz generated over €1 billion in software-enabled revenue for the prior year. 

In 2025, the connected-services business of General Motors witnessed its deferred revenue increase by 65 percent year-over-year to $5.4 billion. Volvo held the legacy in achieving the top rating for software-defined vehicles on the readiness scale, from S&P Global Mobility. 

This matters now for a simple reason. Instead of considering software-defined vehicles as a future concept, the industry has implemented this tech at a commercial level and started reporting concrete numbers every quarter.

Frequently Asked Questions: 

• What are software-defined vehicles (SDV)?

A software-defined vehicle is a vehicle whose features, performance, and behavior are controlled primarily by software rather than fixed mechanical hardware. It is built around a centralized computing architecture and continuous connectivity to ensure it is possible to make updates over-the-air, rather than visiting dealers and garages. 

• How are automakers making money from software-defined vehicles?

The business model is moving beyond the one-time vehicle sale. Automakers are experimenting with subscriptions for connectivity and driver-assistance features, one-time payments to unlock capabilities already built into the vehicle, and other digital services. Some are also generating recurring revenue when customers renew these services. For example, GM reports that around 40% of Super Cruise customers renew after their initial three-year term. 

• How do car companies monetize connected vehicle data?

OEMs sell connected vehicle data (including driving behavior, location, and diagnostics) to insurance companies in order to implement usage-based pricing, share information with fleet operators and aftermarket companies, and utilize connected data for internal purposes. 

• How big will the software-defined vehicle market be by 2030?

According to IeB consulting expertise, the software-defined vehicle market will exceed $1.7 trillion by 2035, as various plans laid out by OEMs, as well as changing legislation, will encourage this type of vehicle business development.

Market Outlook: At What Pace is the Software-Defined Vehicle Market Actually Expanding? 

The expansion rate of the SDV market depends on how narrowly the category is defined. But when estimating market valuation, our business consultants considered all relevant factors, including the current scenario, planned OEM initiatives, and evolving regulatory norms in the mobility sector. According to IeB analytical research, the global SDV market is valued at $450 billion for 2026 and is expected to surpass $1.7 trillion by 2035, growing substantially at a CAGR of around 16%.

IeB’s analysis takes a broader view of the SDV opportunity, recognizing that the market extends beyond the vehicle’s core electronics and software stack to encompass the growing role of connected services, data monetization, and software-enabled features. This broader scope, along with anticipated OEM initiatives and evolving regulatory developments, forms the basis of IeB’s assessment of the market’s growth trajectory through 2035.

OEM investment and revenue ambitions in software-enabled vehicles further drive the expansion of the SDV market. Stellantis has targeted around €20 billion in revenue each year from software-defined vehicles by 2030. Mercedes-Benz booked over €1 billion in software-enabled revenue in 2022. It still expects that figure to reach a higher single-digit billion-euro figure by the end of this decade. General Motors is targeting $20-$25 billion a year in connected-services revenue by 2030; a scale it has explicitly compared to Netflix, Peloton, and Spotify. In 2025, the company closed $2.7 billion in realized revenue.

Due to evolving consumers’ expectations, the demand for software‑defined vehicles is increasing drastically. With regular over‑the‑air updates, automakers can keep improving vehicle capabilities by officially adding new features even after purchase. Buyers now expect a car’s capabilities to keep improving after purchase, like a smartphone. Regulatory necessity is another driver, since UN Regulations 155 and 156 have made a certified software-update management system a precondition for vehicle type approval in most major markets since 2022.

On maturity, the market is still early relative to its own long-term targets. Most of the revenue booked so far sits in subscription infrastructure and OTA-delivered feature unlocks rather than in the AI-driven or data-licensing layers that companies expect to matter more by the end of the decade. Volvo’s recognition by S&P Global Mobility in March 2026 as the only legacy automaker to reach the highest tier on its software-defined-vehicle readiness scale is a useful marker of just how few traditional OEMs have actually finished the underlying architectural transition, even as nearly all of them have announced an intent to.

The clearest opportunity ahead sits in lifecycle monetization once a subscription habit forms. GM reported around 40% of Super Cruise renewal rate after the initial three-year prepaid term. This adoption tends to convert into durable, recurring revenue rather than a one-time purchase, which is a fundamentally different (and more valuable) unit economics than the industry has ever run on before.

Technology and Feature Landscape: What’s Actually Being Built into Today’s Software-Defined Vehicles?

Five layers are stacking on top of each other inside today’s software-defined vehicles, and each one sits at a different point on the established-versus-emerging spectrum.

• OTA update infrastructure is the most mature and least visible layer. It is the delivery pipe for everything else, and it has become a regulatory prerequisite as much as a customer convenience: UN Regulation 156 has required a certified software update management system for type approval since 2022, meaning an OEM effectively cannot sell a new vehicle type in most major markets without the very capability that makes recurring monetization possible in the first place.
• On top of that pipe sits the fastest-moving layer: AI in automotive industry. It is increasingly positioned as an in-cabin assistant rather than a background feature.
  – Mercedes-Benz’s MB.OS, which debuted in production on the 2026 CLA EV, pairs Google’s Gemini for navigation-related queries with a ChatGPT-based assistant for general conversation across a nearly 40-inch dashboard display, and the company describes the resulting interactions as capable of the kind of multi-turn, memory-retaining dialogue you would have with a person.
  – Hyundai’s Pleos Connect, which debuted around the second quarter of 2026, ships with its own AI assistant, Gleo, built on Android Automotive OS.
  – Volvo’s own AI push with Google is aimed further out, at agentic systems that can act on a driver’s behalf rather than simply answer questions.
• Connected-vehicle data forms a third layer. Such data gathered is not only restricted to internal use, but also for external licensing. Automakers are focusing more on packaging anonymized driving, location, and diagnostic data for insurers building usage-based pricing models, for fleet operators optimizing routes and maintenance, and for aftermarket providers who previously had no visibility into a vehicle once it left the factory.
• Subscriptions and feature-on-demand sit on top as the most visible layer to consumers, and they split cleanly into two categories that behave very differently in the market. Software-only features that customers seem genuinely willing to pay for, like parking assistance or extended driver-assistance coverage, have scaled without much friction. Hardware-gated features, where the physical component was already installed in the car and the subscription simply switches it on, are the ones that have provoked real and often organized resistance, BMW’s heated seats being the textbook case.
• Lifecycle monetization ties the whole stack together, and it is arguably the layer with the most underappreciated upside. GM’s roughly 40 percent renewal rate when Super Cruise’s initial three-year prepaid term expires is direct evidence that once a driver-assistance habit forms, it converts into ongoing revenue rather than a single purchase decision, which changes how OEMs should think about the lifetime value of a connected vehicle versus a traditional one.

Key Players and Strategic Activity: Which OEM Moves Define the 2025-26 Wave?

A cluster of moves over the past eighteen months shows just how differently automakers are approaching the same underlying opportunity, and together they answer a more specific version of how automotive companies generate recurring revenue: not through one shared playbook, but through several competing ones running in parallel.

Volkswagen Group has restructured its Cariad software division from a builder into an integrator, leaning on external partners after years of costly in-house delays. The centerpiece is Rivian and Volkswagen Group Technologies (RV Tech), a joint venture finalized in November 2024. Volkswagen could invest up to $5.8 billion in RV Tech by 2027, in exchange for access to Rivian’s zonal electrical architecture and software stack. Rivian’s R2 became the first vehicle to run on that platform, with deliveries starting in mid-2026. Volkswagen Group models are expected to follow from 2027.

Also, Volkswagen finalized a software-licensing deal with China’s Xpeng. This deal will bring driver-assistance technology to Volkswagen’s vehicles in the Chinese market starting in 2026. Cariad, whose software already runs in more than 30 million vehicles worldwide, has been restructured with the focus on coordinating both partners’ technology instead of competing with it.

BMW pulled back from hardware-gated subscriptions after the heated-seat backlash forced a reversal by 2023, but the company has been explicit that this was a retreat from one specific business model, not from monetization generally. BMW says it remains fully committed to its ConnectedDrive platform for software and data-dependent features, drawing a distinction its own leadership now states outright between charging for something that requires ongoing cost to deliver and charging to switch on hardware a customer already paid for once.

Stellantis is scaling STLA Brain, its OTA-capable software architecture, toward 30 addressable software modules up from 10 previously. In May 2026, Stellantis expanded its partnership with Applied Intuition to bring Vehicle OS, cabin intelligence, and autonomy software into the platform’s generation.

BYD has taken the opposite path from subscriptions entirely. In May 2026, it began offering a one-year liability guarantee covering at-fault accidents caused by its “God’s Eye” urban assisted-driving system, with no cap on the payout and no requirement to buy separate driving insurance, effectively monetizing intelligent driving through vehicle sales volume and brand confidence rather than recurring fees.

Hyundai Motor Group introduced its Pleos software brand and brought the first deliverable, Pleos Connect, to market around the second quarter of 2026, targeting more than 20 million Hyundai, Kia, and Genesis vehicles by 2030. We read these divergent choices less as inconsistency and more as evidence that monetization strategy is becoming brand strategy in real time: premium, mass-market, and Chinese challenger brands are each finding a different point on the subscription-to-bundled spectrum, and none of them are converging on the same answer.

How Are Automakers Turning These Moves into Actual Revenue Today?

The clearest illustration of the margin logic behind all of this sits outside the traditional automaker set entirely. In its second quarter of 2026, Rivian’s software and services segment accounted for roughly 31 percent of consolidated revenue, at a 42 percent gross margin, up 37 percent year over year. The core vehicle business, by contrast, posted a gross loss. That gap explains why so many legacy OEMs now want a software business, not just a hardware one. A majority of Rivian’s software revenue currently flows from the Volkswagen joint venture, which is precisely why Volkswagen, and increasingly Stellantis through Applied Intuition, are choosing to buy proven software capability rather than rebuild it from scratch. Almost no legacy OEM is still trying to build its full software stack alone.

🔗 Explore tailored consulting solutions we offer in the Mobility industry

Competitive Dynamics: Who’s Actually Gaining Ground in Software-Defined Vehicles?

Momentum in this market is not distributed the way vehicle sales rankings would suggest. Rivian is gaining ground on the strength of software margin rather than volume, turning its electrical architecture and code into a business other automakers are willing to pay billions for access to. Volvo is gaining recognition for having actually finished the underlying architectural transition that most competitors have only announced. BYD is gaining share in China by converting confidence in its own technology into a liability guarantee that removes the single biggest objection consumers have to trusting assisted driving.

The sources of advantage differ just as sharply. For Rivian and, by extension, Volkswagen through its joint venture, the advantage is software velocity and a vertically integrated architecture built without the legacy baggage of older electrical systems. For BYD, it is brand confidence and vehicle-sales scale in a home market where it can absorb liability risk that would be far costlier for a smaller player.

For GM and Stellantis, the advantage is subscriber base and OTA infrastructure built up over several years, which gives lifecycle monetization (renewals, upsells, data licensing) somewhere to compound. None of these are purely technology advantages: they are closer to a mix of technology maturity, cost structure, scale, and ecosystem positioning, and the winners in any given segment are the ones matching their existing strength to the right monetization model rather than chasing whichever one is loudest in the press.

Future Outlook: Where Does the Software-Defined Vehicle Business Model Go From Here?

The market direction is not seriously in question: software, AI, and data are compounding faster than unit vehicle sales, and every credible tracker we reviewed, despite disagreeing sharply on the exact size of the software-defined vehicle market, agrees on the shape of the curve. What is genuinely open is which monetization philosophy wins in which market, and the answer looks increasingly regional rather than universal.

Hardware-gated subscriptions for features already installed at the time of sale look likely to lose momentum specifically in markets with active consumer-protection legislation. New Jersey’s proposed ban and New York’s bill, which has cleared the legislature and is awaiting the governor’s signature, both target exactly the scenario that made BMW’s heated seats infamous, and it would not be surprising to see other states follow once one of these becomes law. Software-only subscriptions and lifecycle-based renewal models, by contrast, look positioned to keep gaining ground, since they map onto features customers have shown a genuine willingness to pay for repeatedly.

Regionally, Europe looks set to keep leading on the regulatory side of this shift rather than the commercial side. The EU Data Act’s access-by-design requirements take full effect in September 2026. That limits how exclusively OEMs can treat vehicle data as proprietary, but it also opens a more structured B2B data market for third parties like insurers and independent repairers. China looks set to keep leading on scale and liability-based innovation, following BYD’s lead. But its new cross-border data transfer guidelines add real complexity for any multinational moving Chinese vehicle data internationally, requiring important-data classification and security review before it can leave the country. North America sits in between. It remains the largest single connected-services revenue pool, driven by GM and Stellantis. But it now faces the most direct legislative pushback on the subscription model that generates a meaningful share of that revenue.

Competitively, the biggest shift likely to continue is the move away from OEMs building their full software stack alone. Rivian’s role as a software supplier to Volkswagen, Applied Intuition’s expanding footprint inside Stellantis, and Xpeng’s licensing arrangement with Volkswagen in China all point toward a future where the winning position is not necessarily the best in-house technology, but the smartest choice of partner and the fastest path to scale. The clearest emerging risk sits at the intersection of all three regulatory regimes: an automaker selling the same connected vehicle in the EU, the U.S., and China now has to design three genuinely different data and monetization strategies for what used to be a single global product.

How Can Ingenious e-Brain Support OEMs and Suppliers Across the Automotive Value Chain?

Recognizing that recurring revenue matters is the easy part. Acting on it before competitors or regulators move first is where most OEMs and suppliers get stuck. Our strategy consulting service lines are built to close that gap.

• GTM Strategy: We help OEMs and suppliers decide which software-enabled features to launch first and how to price them, using the market’s own evidence: software-only features have scaled cleanly, while hardware-gated ones have drawn organized pushback.
• Technology Scouting: We map the software, AI, and platform partners already proving themselves inside OEM programs, from architecture providers to in-cabin AI vendors, so clients can shortlist based on demonstrated fit, rather than starting a search from scratch.
• Policy and Regulatory Landscape: We keep track of how the European Union, the United States, and China are setting regulations for vehicle data and subscription services to build robust recurring monetization models. The strategic insights around these help clients build a single plan that works in all three areas.
• Technology Due Diligence: We evaluate how ready a software, AI or architecture partner is for commercialization and how risky it would be to work with them before a client spends money or signs a long-term deal. This would help automakers understand the difference between ability and promises made in a plan.
• Market Opportunity Exploration: We size and rank connected-vehicle opportunity across markets using four demand-side factors: market scale, vehicle parc, EV penetration, and driving patterns. Alongside these, we weigh infrastructure readiness, covering how mature the digital, telecom, cloud, and mobility ecosystem is. We also weigh policy readiness, covering how supportive the local data, cybersecurity, and EV regulatory environment is. Real consumer readiness, digital behavior, trust, and willingness to pay, factors in too, rather than assumed demand. This helps clients enter new geographies backed by where the opportunity is provably strongest, not just where it looks biggest on paper.
• Connected Service Monetization: Once a market is prioritized, we identify which connected-vehicle use cases carry the highest customer and commercial value there. We then match monetization models, subscription, feature-on-demand, pay-per-use, or data-as-a-service, to each service and customer segment, rather than applying one model everywhere. That analysis translates into a pricing and phased-rollout strategy built to convert early adoption into sustainable recurring revenue. The result is a clear, market-by-market playbook for what to prioritize over a five- to ten-year horizon, not a single generic rollout plan.

Conclusion

The integration of market, technology, competition, and regulations delivers a clear conclusion: automakers who are gaining margins are doing so by considering software, AI, and data as part of the architecture and not as an additional option afterward. They take advantage of the situation even faster than vehicle unit sales would have allowed. Hence, the question is not which technology will provide more benefits to OEMs and suppliers; the question should rather be about the strategy itself that they should adopt in order to benefit. It is that the decisive variable in every example we have looked at, from BMW’s reversal to BYD’s liability bet to the regulatory lines now being drawn in the EU and in individual U.S. states, is rarely the technology itself. It is whether the business model, the regulatory geography, and the customer’s sense of fairness are designed together from the outset, rather than bolted on after the fact once the backlash or the legislation has already arrived.

For OEMs, suppliers, and investors still mapping their own path through this shift, that is the question worth answering before the next architecture decision gets locked in, not after.

Let’s discuss how our technology experts and business consultants can help you turn these shifts into a competitive edge. Reach out to them either by filling out the form below or by emailing contact@iebrain.com.