Editor's note: This research is a companion piece to a report published today, titled "The Credit Implications Of Tech Firms' Foray Into EVs." This report discusses why technology firms are pushing into carmaking. The companion piece focuses on case studies of technology firms with an expanding focus on electric vehicles. Both reports can be read as stand-alone research, but are best both read as complements to each other.
Key Takeaways
- Technology companies believe the growing importance of software in electric vehicles gives them an opening into carmaking, we assume.
- This opportunity is perhaps most apparent in China, where we believe tech firms will make inroads in this market.
- While we are agnostic on which model for carmaking will prevail, we believe a battle to control industry profits is playing out, with deep credit implications for the winners and losers.
Tech firms pushing into the auto sector. We believe these companies are investing heavily in EVs with the ambition to be at the center of carmaking.
The stakes are large. Should software become key to vehicles, technology companies may significantly diversify their cash flows into an industry that generates in excess of US$1 trillion in sales annually.
Alternately, if software fails to drive much value for autos, technology companies could be left with billions in stranded investments. This may include an unprofitable electric vehicle (EV) venture.
An Emerging Need To Electrify
Trends point to a need for carmakers to embrace electrification, which opens the door to software firms to integrate their code into vehicles. Some tech firms are entering the auto industry as a result. Carmakers are also catching up on software development independently, and others are forming close partnerships with tech firms.
Carmakers that are not on top of these trends may be left behind, particularly in China. Put most simply, the non-electric vehicles that lack sophisticated software could look increasingly basic compared with much smarter EVs.
For example, we downgraded Nissan Motor Co. Ltd. in March 2025 citing a limited EV lineup. This limitation has diminished its competitiveness in China (see "Nissan Motor Downgraded To 'BB' On Dim Prospects For An Earnings Revival; Outlook Negative, " March 7, 2025.)
Chart 1
What Software In Cars May Look Like
Tech firms are seeking to integrate their operating systems into cars, we assume, to lock in users. They can then sell ancillary software, such as driver assistance, navigation and entertainment or self-diagnostics or battery management programs. The consultancy firm McKinsey estimates that the global automotive software market will grow to over US$80 billion by 2030 [1].
For now, the race to integrate software into cars is largely focused on improving advanced driver-assistance systems (ADAS). Most EVs now come with level-two ADAS or higher.
Essentially this means the car will be largely autonomous, but drivers will still need to be present, with their hands on the steering wheel. Many carmakers are adding more advanced highway or urban navigation on autopilot, known as level-two-plus. Such designation is in between level two and level three within the five levels of autonomous driving framework set by SAE International, an industry body (see chart 2).
Chart 2
The software is valuable. Tesla Inc. charges an upfront US$8,000 for its Full Self-Driving (FSD) autopilot technology, equivalent to level-two-plus ADAS. It then charges a US$99 monthly subscription fee to use it.
The technology is advancing rapidly, and costs will fall as the software scales. Many Chinese EV manufacturers are already providing ADAS software at little to no extra cost.
Carmakers and tech firms are meanwhile pursuing more advanced ADAS, including fully autonomous vehicles. S&P Global Mobility estimates nearly two-thirds of BEVs in China already had ADAS level-two or above in 2024, and nearly 90% will have such technology by 2030.
Why EVs Work So Well With Software
ADAS is a proof of the concept that cars will work effectively as a computing device. It takes consumers on a path where they may come to believe that the value of the vehicle lies in the software that controls it. This is the step that will open up the light-vehicle industry to an array of tech firms, potentially through partnering with dedicated carmakers or going out on their own.
The emergence of EVs is also important for technology companies seeking to enter the auto industry. For one, EVs are particularly suited to computer control. The heavy battery packs and more simplistic drivetrain systems of EVs relative to internal combustion engine (ICE) vehicles provide considerable advantages to chassis that are completely redesigned for EVs.
This gives EV manufacturers and technology companies the opportunity to design the chassis around an electrical architecture that can support much higher semiconductor content and software control. Such architecture could result in reduced wiring, fewer and more centralized electronic control units, and greater power efficiency by the onboard computers.
Fewer Parts Facilitates Drive By Wire
Traditional ICE vehicles typically contain about 30,000 components compared with about 10,000 in an EV. The engine and drivetrain alone account for hundreds to over a thousand moving parts, whereas EVs drivetrains contain just a few dozen.
Fewer parts means less complexity in the software design and electronic control systems. This is why autonomous software is more likely to be developed for EVs rather than ICE vehicles, a point to which General Motors Co. has alluded [2].
Chart 3
Secondly, the reduced complexity also supports greater standardization of key parts for EVs. Such standardization reduces the barriers to entry to EV production for new parties, such as tech companies.
Tech companies for example, can focus on car design and software implementation, while relying on third-party suppliers for key components such as batteries to produce competitive vehicles. Battery packs account for about 20%-40% of battery-electric vehicle (BEV) costs. The packs are now predominantly made by third-party battery-makers such as Contemporary Amperex Technology Co. Ltd. (CATL) and LG Energy Solution Ltd.
The top-five battery makers already account for more than three-quarters of the global battery market.
Standardization also shifts the economics of vehicle making. As the value of the components become more commoditized, carmakers have less scope for differentiation in the hardware. Software could increasingly become the focus for vehicle purchases, particularly for EVs.
Chart 4
Still Early Innings For Software-Defined Vehicles
The end game for these trends may be so-called software defined vehicles (SDVs). As the name implies, software is at the core of an SDV. It is a much discussed trend in the industry, in which users download applications to use on a vehicle's operating system.
Many auto industry participants already have roadmaps for using software to control nearly every aspect of the vehicle. Such software will also be uploaded and updated automatically over the air. S&P Global Mobility considers such cars to be level-five SDVs, very similar to today's smartphones and personal computers (see chart 5).
It is similar concept to how we now use smartphones. The car would become a device. The value, and profits, would largely likely accrue to the software makers, particularly the entity that controls the operating system.
Chart 5
Most cars produced today have very little software integration. Nearly 80% of the cars produced today are level zero. This means the vehicle software is basic, pre-programmed and offers limited functionality.
This is set to change with rapidly increasing computing power and AI capabilities put into vehicles. BYD Co. Ltd. recently announced that it would integrate DeepSeek's software into its cars. Other Chinese producers are doing the same: Geely Automobile Holdings Ltd., Great Wall Motor Co., Ltd. and Zhejiang Leapmotor Technology Co. Ltd.
S&P Global Mobility forecasts that SDV adoption will be rapid, although vehicles with high levels of software integration are not likely until somewhere around 2030.
Chart 6
Why China EV Players Are Leading The Pack
China offers a great case study of how software is capturing a growing portion of a vehicle's value. S&P Global Mobility estimates that firms will sell more level two (and above) SDVs in Greater China in 2025 than Europe and North America combined.
Moreover, our estimates suggest that China will continue to lead in SDV production volume. China's SDV penetration rates are set to rise sharply over the next five years from below 10% in 2025 to about 40% by 2030, translating to about 13 million vehicles with level two and above SDV capabilities.
Level two SDVs allow for over-the-air updates for vehicle software including ADAS software, significantly improving the software capabilities and user experience.
Chart 7
China has several things going for it. First, China has pushed electrification. EVs, including plug-in hybrid electric vehicles, accounted for more than 40% of Chinese vehicle sales in 2024. The penetration rate is set to grow, particularly for battery-electric vehicles.
Table 1
| Global electrification scenario | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Share of BEVs + PHEVs as a percentage of total sales | ||||||||||||||
| (%) | 2021 | 2022 | 2023 | 2024e | 2025e | 2026e | ||||||||
| Europe 10 | 18.0 | 22.4 | 22.2 | <20 | 20-25 | 20-25 | ||||||||
| Mailand China | 14.0 | 27.0 | 32.9 | About 40 | 44-48 | 48-52 | ||||||||
| U.S. | 4.3 | 6.8 | 9.1 | About 10 | About 10 | 10-14 | ||||||||
| Global | 8.3 | 13.0 | 16.5 | 18-19 | 19-20 | 20-22 | ||||||||
| Europe 10--Germany, France, U.K., Italy, Spain, Belgium, Austria, Netherlands, Sweden, and Norway. e--Estimate. BEVs--Battery electric vehicles. PHEVs--Plug-in hybrid electric vehicle. Sources: 2019-2023 EV Volumes; 2025 estimates by S&P Global Ratings. | ||||||||||||||
Secondly, China's EV sector is highly competitive. While two-thirds of China's BEV sales are concentrated among the top-five producers, the commoditization of key components and the rapid growth in demand has drawn more than 100 brands in this space. EV makers are increasingly differentiating themselves on connectivity, autonomy and other user experiences. All these features flow from software.
Chart 8
A higher proportion of EVs and a highly competitive EV market is likely driving the rapid integration of more advanced ADAS systems in China. S&P Global Mobility estimates that level-two-plus autonomous systems will account for about 20% of vehicle sales in China by the end of 2025 and more than half by 2030. This would be a much higher penetration rate than that seen in Europe and North America.
Chart 9
Consumer adoption of EVs is progressing more slowly in the U.S. Less stringent regulatory requirements, underdeveloped charging infrastructure, and consumer preferences may affect the rate of EV adoption in this market. This is likely to affect the rate of software integration in those regions given the greater complexity of implementing SDVs for combustion vehicles.
Software In EVs--Lessons From Prior Tech Revolutions
In the early 2000s, mobile phones underwent a software revolution. In contrast, smart TVs have not disrupted the television-making sector. The difference lies in software, which is key to smartphones, but is very much in the background for smart TVs.
A focus on software ecosystems by Apple Inc. and Google LLC led to rapidly declining sales for Nokia Corp. and others in the mid-2000s. The tech firms redefined a large product segment, and quickly captured it.
Software now accounts for more than half of the value of a smartphone over the life of a device. In 2023, applications generated roughly US$530 billion in revenues globally compared with about US$400 billion-US$500 billion in global smartphone hardware revenues.
Smartphones underscore the importance of controlling the operating system. Apple and Google together generate about US$160 billion annually from fees from apps on their platforms. The firms also capture powerful network effects as users and app developers gravitate to their operating systems.
Many smartphone makers use hardware sales to generate profits from software and services. For instance, while Xiaomi Corp. derives 90% of its revenues from hardware, software and service revenues account for more than 40% of its profits.
Smart TVs, by contrast, are characterized by minimal software revenues and fragmented operating systems [3]. We estimate TV application software revenues to be less than US$30 billion. We see several contributing factors that limit software development on TVs:
- Mobility: TVs cannot offer location-specific apps. As they are tied to one space they are less convenient, less accessible and are used less often.
- User interface: PCs and smartphones enable complex user interactions through touchscreens and keyboards. TVs typically rely on remotes, which limit interactivity.
- Functionality: TVs often lack the features of smartphones and PCs; their primary use is to stream content. This limits the range of applications on TVs.
Will cars come to resemble smartphones, or smart TVs? Where EVs land on this spectrum could have vast implications for the technology firms eyeing this sector.
Can The Legacy Carmakers Manage The Transition?
The question for investors and for our credit analysis is: which firms will be collecting most of the profits when the EV revolution plays out? If consumers prioritize an operating system over say, their old relationship with an automotive brand, this may not play out well for the legacy firms.
Certainly one vision for the auto sector is that vehicles become commoditized, with low value and thin profits. The hardware is largely inert. It is only brought to life with software.
In this version of the automotive future, technology companies have vast opportunities to reap profits from their apps and operating systems. The car will become another device in an ever-expanding ecosystem.
Or perhaps not. Perhaps a substantial market ICE vehicles carries on indefinitely. Perhaps legacy carmakers can master the full set of technologies needed for advanced EVs. Which carmaking model prevails will have deep profit, cash flow and credit implications for the winners and losers.
Related Research
- The Credit Implications Of Tech Firms' Foray Into EVs, April 28, 2025
- China's Car Sector: A Shakeout Looms, April 1, 2015
- Industry Credit Outlook 2025: Autos, Jan. 14, 2025
- China Auto: Survival of the Fittest, Oct. 17, 2024
- Global Battery Market: First Movers Will Likely Keep Their Lead, Oct. 10, 2024
- Global Auto Outlook: More Players, Less Profit, Oct. 9, 2024
- Why China Is At The Center Of Global Auto Conversations, June 11, 2024
- China EV Startups Struggling To Stay Afloat, May 28, 2024
- Asian Auto: Resiliency Over Adversity, May 23, 2024
Related Research S&P Global Mobility:
- SDVs: How Ready Are the OEMs and How Do Their Approaches, April 3, 2025
End Notes
[1]
Outlook on the automotive software and electronics market through 2030, Jan. 3, 2023
[2]
Why All AVs Should Be EVs, blog post published by General Motors Co.
[3]
Searching for the Future of Television, MIT Technology Review, Dec. 21, 2010
Writer: Jasper Moiseiwitsch
Digital Designer: Evy Cheung
This report does not constitute a rating action.
| Primary Credit Analyst: | Clifford Waits Kurz, CFA, Hong Kong + 852 2533 3534; clifford.kurz@spglobal.com |
| Secondary Contacts: | Stephen Chan, Hong Kong + 852 2532 8088; stephen.chan@spglobal.com |
| Claire Yuan, Hong Kong + 852 2533 3542; Claire.Yuan@spglobal.com | |
| Vittoria Ferraris, Milan + 390272111207; vittoria.ferraris@spglobal.com |
No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.spglobal.com/ratings (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.spglobal.com/usratingsfees.