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3 $1M+ ARR Startup Ideas in the auto industry that you can start with $100
Based on a Boston Consulting Group Report. Also Included : 3C Framework to analyse SDV Companies
The Opportunity Scanner
November 21, 2024
The Big Picture: A Market in Transformation
The automotive industry is transitioning to a software-driven era, with Software-Defined Vehicles (SDVs) set to revolutionize the sector.
The SDV market value is projected to quadruple from $320 billion today to $1.2 trillion by 2035.
Suppliers, holding 60% market share, could unlock revenues of up to $700 billion.
By 2035, software and electronics will comprise 25% of suppliers' business, up from 15% in 2024.
Suppliers face a dual challenge:
Adapting to OEMs' demands for customizable and scalable software solutions.
Overcoming lags in key capabilities like open APIs, cloud-edge computing integration, and continuous updates, which OEMs consider critical.
The SDV market is reshaping supply chains, presenting:
Competition from OEMs and tech giants like Amazon, Microsoft, and Nvidia.
Disruptive innovations in areas like AI processing and cloud-based data management driven by these technology companies.
Deconstructing the SDV Tech Stack: Six Layers of Opportunity
The SDV market is built on a six-layer tech stack, each representing distinct opportunities and challenges for suppliers:
Mobility Ecosystem ($80–$90 billion): Encompasses software-driven services like charging, e-mobility, and aftermarket commerce. By 2035, this layer will see exponential growth, driven by consumer demand for convenience and customization.
Applications ($155–$165 billion): Software applications for energy management, advanced driver assistance systems (ADAS), and infotainment dominate this layer. However, OEMs are expected to retain significant control over consumer-facing solutions like driver assistance technologies.
Data Platforms ($75–$85 billion): The backbone of SDVs, data platforms enable predictive maintenance and real-time decision-making. This layer faces intense competition from hyperscalers such as Google Cloud and Amazon Web Services, which are leveraging economies of scale to dominate the space.
Vehicle Software Platforms ($15–$25 billion): This segment, while smaller in size, holds critical importance. It ensures seamless integration of software components, although its potential is limited by reliance on OEM-driven or open-source models.
Computing Platforms ($150–$160 billion): This includes chips and systems-on-a-chip, with a projected hardware revenue of $125–$130 billion and embedded software revenue of $25–$30 billion. Suppliers like Nvidia are well-positioned to lead in this space, particularly for next-gen ADAS systems.
Vehicle Platforms ($180–$190 billion): Physical systems like sensors and modules dominate this layer, with hardware accounting for $155–$160 billion and embedded software contributing $35–$40 billion. Suppliers with expertise in smart hardware will capture the majority of this market.
Each layer offers unique challenges. For instance, suppliers must develop modular platform strategies to thrive in computing platforms, while the data platform layer demands deep analytics and cloud-edge computing capabilities.
Some Startup Ideas in this space
Problem | Solution | Revenue Model | |
|---|---|---|---|
EV Charging Route Optimizer | EV drivers waste time finding optimal charging stops on long trips, considering factors like charging speed, wait times, and battery degradation | Mobile app that combines real-time charging station data with battery health metrics to suggest optimal charging strategies for specific EV models | - Freemium model with premium features |
Predictive Maintenance API | Small auto repair shops struggle to compete with dealerships in diagnosing modern vehicles | API service that processes vehicle sensor data to predict maintenance needs and translate complex vehicle data into actionable repair recommendations | - Monthly API subscription - Per-diagnosis fee - Integration consulting |
Driver Behaviour Analytics Platform | Insurance companies lack granular data about driving patterns in software-defined vehicles | Software platform that analyzes vehicle data to create standardized driver behavior profiles for insurance purposes | - Per-user licensing to insurance companies - Custom reporting fees - Data analytics services |
Transformation Blueprint: How Suppliers Can Thrive
To seize opportunities in the SDV market, suppliers must undergo a radical transformation, adopting strategies that mirror the tech industry’s approach to scalability and innovation. Boston Consulting Group outlines a three-step roadmap for success:
1. Assess the Starting Point
Value Pools: Identify high-value areas like vehicle platforms or applications that align with existing capabilities.
Capabilities Gap: Suppliers must address deficiencies in software development and cloud-edge computing. For example, Bosch has already dedicated 50% of its R&D teams to software engineering, showcasing the scale required for success.
2. Define Strategy and Ambition
Monetization Models: Shift from one-time sales to lifecycle-based models, offering continuous software updates and subscription-based services.
M&A Opportunities: Explore acquisitions to fill gaps in software expertise, as seen in Qualcomm’s acquisition of Arriver’s driver-assistance business.
3. Execute the Transformation
Launch Pilots: Initiate software pilot programs to test market acceptance.
Ecosystem Collaboration: Form partnerships with tech giants and startups to accelerate development. For instance, Nvidia’s collaborations with OEMs have established it as a leader in computing platforms.
Talent Acquisition: Scale up software talent pools to match the industry’s growing demand. Suppliers like Valeo and LG are already leading the way with specialized software-integrated products.
Strategic Archetypes for Suppliers:
Platform Specialists: Develop scalable computing platforms or software ecosystems.
Integrated Solution Providers: Offer end-to-end systems in domains like ADAS or digital cabins.
Product Specialists: Create standalone software or hardware products with advanced integration capabilities.
The race to scale is essential. Larger companies with robust ecosystems will dominate, leaving smaller suppliers struggling to keep up. Suppliers must also transition from siloed software systems to open APIs and modular architectures, enabling faster integration and enhanced compatibility.
How to evaluate SDV Companies?
We came up with this 3C SDV Company Evaluation Framework that will help you objectively analyse SDV Companies:
Capability Assessment
Criteria | Metric (How to Measure) | Score Range | Scoring Guidelines |
|---|---|---|---|
Software Expertise | % of revenue from software-related products/services | 1-5 | 1: <10%, 3: 10%-30%, 5: >30% |
Tech Talent Strength | % of the workforce in software/AI roles | 1-5 | 1: <10%, 3: 10%-30%, 5: >30% |
Tech Integration | Number of successful projects integrating open APIs/cloud-edge computing | 1-5 | 1: 0-1 projects, 3: 2-4 projects, 5: 5+ projects |
Competitive Position
Criteria | Metric (How to Measure) | Score Range | Scoring Guidelines |
|---|---|---|---|
Market Share | Market share in the SDV tech stack layer of focus | 1-5 | 1: <5%, 3: 5%-15%, 5: >15% |
Partnerships | Number of active partnerships with OEMs, hyperscalers, or startups | 1-5 | 1: 0-2 partnerships, 3: 3-5 partnerships, 5: >5 partnerships |
Customer Diversification | Revenue concentration (share of revenue from top 3 customers) | 1-5 | 1: >50%, 3: 20%-50%, 5: <20% |
Commercial Viability
Criteria | Metric (How to Measure) | Score Range | Scoring Guidelines |
|---|---|---|---|
Recurring Revenue Mix | % of recurring revenue (subscriptions, licensing, updates) | 1-5 | 1: <10%, 3: 10%-30%, 5: >30% |
R&D Intensity | % of revenue spent on R&D | 1-5 | 1: <10%, 3: 10%-20%, 5: >20% |
Profit Margins | Operating profit margin | 1-5 | 1: <5%, 3: 5%-15%, 5 |
Maybe you missed out on this?
Read the full article by Boston Consulting Group here:
