While automakers historically built vehicles around hardware and relatively fragmented software systems, the rise of software-defined vehicles could fundamentally reshape how cars are developed, manufactured and updated—potentially leaving legacy players scrambling to catch up with newer entrants.

In a conversation with Benzinga, Jörn Buss, who is a Partner for Automotive & Manufactured Goods at consulting firm Arthur D. Little, the analyst spoke at length about how the evolution of SDVs could be a double-edged sword for the automotive industry.

Transitioning From the Legacy Players Could Be Difficult

Buss, when asked about the differences in approach to vehicle manufacturing between a legacy player like Ford Motor Co. (NYSE:F) or General Motors Co. (NYSE:GM) and a newer entrant like Tesla Inc. (NASDAQ:TSLA) or some of the Chinese manufacturers, said that the legacy players were used to a certain way of doing things.

"They have a history, they have a legacy," and a certain way of doing things, Buss said, adding that the companies had "built themselves the best possible product to be competitive in the market within their ecosystem of trusted suppliers and others," which we would "have to simply recognize."

He added that another difference with the newer players was the risk factor associated with manufacturing. "A lot of these legacy makers say, ‘I have billions and billions and billions invested in these trusted relationships,’ and the lower risk," Buss said.

"I know what I deal with, I can develop a vehicle within a decent timeframe with the features that I know sell, because customers have been buying my vehicles," he said, adding that a shift in that approach would be "significantly more difficult than for someone who starts up from the beginning," like the younger entrants.

On the other hand, Buss said that newer companies could be "very vertically integrated." He added that they might choose to "do a partnership for certain basics," but the rest of the process would be in-house. "So very short communication lines, very clear alignment," he outlined.

SDVs Could Provide ‘Amazing Opportunities,’ but There’s a Catch

While acknowledging that software could be buggy and require a patch, it also gives automakers "amazing opportunities to fix issues." When asked if software upgrades could kill the incentive for product refreshes, he pointed to the difference between a product refresh and a software update.

"The nice thing about the historic way of doing it, you had very clear points. You had a facelift. At that facelift, you bundled the things that you wanted to incorporate into the next generation of vehicles," Buss said.

"With the software side, this could happen every day," he added. "I own a Rivian, my parents own a Tesla, and the software just comes," Buss said. "However, it becomes much messier because it’s much more complex and much more frequent," he said.

The analyst also pointed to the "expectation of the customer," which was "much more frequent than versus what you had before," where product cycles were defined by distinct periods.

The Risk of Software Support

Buss also pointed out that another risk of software-defined vehicles could be the eventual lack of support updates from OEMs. "I still can go back and get the

Audi RS2 out of my dad’s garage built in the 1990s, and it works," he said. "It starts up. If I keep the maintenance up, I have no software issue," the analyst added.

"The software-defined vehicles, we do have an issue about how long will the software support be out there," the analyst acknowledged. He added that another "worrying" aspect was that the average age of a vehicle was close to 12-15 years.

"What if the OEMs pull the plug and say, you know what, I’m ending the support for this. What’s happening then? How do we assure the long-term viability of software dependence?" Buss questioned.

Two Sides Of the Chinese Coin

The advent of the Chinese automakers has sent shockwaves across the global automotive market, with companies like BYD Co. Ltd. (OTC:BYDDY) (OTC:BYDDF) and more reporting triple-digit growth in overseas markets.

Buss, however, outlined two sides of the story. "I am very, very excited about the Chinese. I love competition, because at the end of the day, competition means we have better technology, safer vehicles, we have more features at a lower cost," the analyst said.

He also said that most Chinese automakers had a "long-term" thinking and a "deep talent pool" that could help them gain an advantage over legacy competitors in the sector.

"However, they have no history," he said. "What if we have a recall? Everybody screws up at some point in time," he said. "How are those managed? What is the long-term satisfaction of customers with those Chinese vehicles?" He asked.

He compared the vehicles to a "shiny new toy," questioning whether it would remain reliable enough that he could pass it down to his children in the future. "It’s a little bit of a shiny new system. And yes, there are a lot of impressive features, but the long-term proof is not yet there," he concluded.

Buss also touted a "come to Jesus moment" with Chinese OEMs in the near future that would set "the truly competitive, very successful players" from China apart from other manufacturers that the market may then not see again.

He explained that he was concerned about "the reporting requirements, the transparency," with the Chinese players, which was "not as clear as we’ve seen and experienced with legacy players."

"Operationally, financially, we see products, we hear about programs.
That’s the face. What happens behind there, I will be careful," Buss added.

The U.S. Is Not Setting the Standards Anymore

The conversation shifted to the U.S.’s role in the current automotive industry as well as the President Donald Trump administration’s anti-EV policies. "The U.S. was one of the major markets," he said, but it was currently at "15, 16, 20 percent at best" of the current global sector that was closing in on 100 million units sold," he added.

"The U.S. and Europe set the standard," he said, but added that things were different from what they were in the past. "We are not setting the standards here anymore. That game is gone. If you look at all of the American players, they retreated a lot to the U.S. market," he said.

Buss posited whether global OEMs would want to bring the latest technologies into the market if it was "not appreciated or that’s not even wanted, or political powers just dismiss it?"

"My worry is that we are on a declining ship when it comes to technology and success," Buss lamented. He then said that he would love to have the Chinese players enter the U.S. market on a "fair playing field." He added that the U.S. risked getting "left behind" on tech, but was confident that the "American market will wake up at some point."

Cyberattacks, Collaboration With Tech Players?

"The industry is very risk-averse," Buss said when asked about possible threats or cybersecurity woes as software gets increasingly incorporated into vehicles. "I don’t see a situation where you’re driving on a German Autobahn at 250 kilometers an hour and suddenly somebody takes control of a vehicle and crashes," he said.

However, Buss acknowledged the concerns about data and privacy. "Data is power. And knowing where somebody is, knowing how people are driving, and how open we are with sharing a lot of information, is a little of a concern," the analyst said.

When asked about possible collaboration between OEMs and tech players, Buss said that software was the "Achilles’ heel" of many automakers, "especially the legacy OEMs," adding that vehicles with proprietary software could shift customers away from products.

"I personally believe that there is a case where you just have a neutral interface where you can use whatever you want," he said, touting a "competitive ecosystem" which would open doors to collaboration between automakers and tech players.

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