Chinese manufacturers have gained significant ground in recent years. BYD is now the world’s largest electric vehicle manufacturer, surpassing Tesla in sales. Geely, as the parent company of Volvo, Polestar, Lotus, Zeekr, and Smart, continues to strategically expand its global automotive ecosystem.
One particularly interesting case is Smart, the former compact car brand of Mercedes-Benz. Since Geely’s acquisition, Smart has been repositioned as a premium electric brand. New models like the Smart #1 and Smart #3 are built on Geely’s Sustainable Experience Architecture (SEA) platform, offering advanced software solutions, over-the-air updates and a highly connected infotainment system.
Meanwhile, Zeekr is positioning itself as a premium electric vehicle (EV) brand with a strong focus on software and user experience. Nio has also gained traction with its innovative battery swap stations and advanced digital ecosystem, characterised by seamless over-the-air updates and a sophisticated infotainment system.
So, what does this mean? German premium manufacturers are under increasing pressure – not just in the entry-level segment but also in the luxury market.
Here, we’ll explore how long-standing automakers are responding to the pressure of new competitors with technology that transforms the driving experience.
Software remains the key differentiator
There’s no doubt that an exceptional in-vehicle experience is crucial to leading the market, and auto brands are responding at speed. Some studies suggest that the connected car market could reach $568 billion by 2035 – a potential revenue stream of $1,600 per vehicle per year for manufacturers. Having previously experienced delays and setbacks, Volkswagen has learned from its mistakes. Under Oliver Blume, its automotive software group, Cariad, has been restructured, and its Software 2.0 programme aims to make development processes more efficient.
However, challenges remain – while VW continues to develop its proprietary software platform, it will increasingly use Android Automotive OS, without Google Automotive Services (GAS). This mirrors the approach of Rivian, which, like BMW and Volvo, used open-source Android Automotive to retain more control. Mercedes has taken a different route, enhancing the Mercedes-Benz User Experience (MBUX) while partnering with Google for mapping and navigation services – though Android Automotive apps also run on MBUX.
This marks a fundamental shift in the industry: automakers are no longer just selling cars but building long-term digital ecosystems that generate recurring revenue. However, rather than building everything in-house, German manufacturers are increasingly relying on partnerships to remain competitive. This may accelerate development, but this also carries risks, particularly if Google, Apple or Amazon ultimately control the digital driving experience.
Controlling the user interface is critical
For automakers, the user interface (UI) is the central component of the digital customer experience. It’s the primary gateway to digital services, over-the-air updates and future revenue streams. Whoever controls the UI decides which services are used and, consequently, where profits are made.
If original equipment manufacturers (OEMs) fully relinquish UI control to Apple (CarPlay) or Google (Android Automotive), they risk becoming mere hardware suppliers while software and service revenues flow to tech companies. We’ve already seen this in the smartphone industry – brands like Nokia and HTC lost relevance because they didn’t control the operating system.
Some OEMs have recognised this and are investing in their own software stacks. Mercedes is pursuing an independent approach with MBUX, while VW is working on revamping Cariad to build a long-term software ecosystem. The success of these strategies will determine whether automakers continue to offer a complete mobility product or whether they become mere hardware suppliers.
Transforming cars into smart assistants with AI
Another critical factor in the digital driving experience is the integration of AI-powered voice assistants. While earlier voice control systems were often rigid and limited, OEMs are now turning to ChatGPT and Google Vertex AI to transform vehicles into intelligent assistants.
One innovative example comes from Mercedes. In partnership with Google Vertex AI, it introduced a fine-dining search system, allowing drivers to find top-tier restaurant experiences directly from the vehicle. By combining real-time data, user preferences and AI-driven reviews, drivers are offered a personalised recommendation list within the navigation system.
Elsewhere, Amazon Alexa is being deeply integrated into Stellantis’ new SmartCockpit platform, handling voice control, navigation and smart home functions. With this move, Stellantis is actively joining the Amazon ecosystem to personalise the in-car experience and remain a key player in the connected vehicle landscape.
Personalised digital experiences for co-passengers
While screens were previously designed primarily for the driver or the central infotainment system, passengers now have their own digital interaction opportunities.
Some examples include:
- Audi Q6 e-tron: The passenger has a dedicated screen for streaming, navigation and personal settings.
- Porsche Macan (2024): The passenger can consume content on a separate display or send navigation commands directly to the main system.
- Mercedes Hyperscreen: A seamless OLED-based display that gives the passenger access to entertainment and assistance functions.
- Expanded use of existing apps: Streaming services like Netflix or YouTube can be accessed directly from the passenger screen.
- Personalised vehicle interaction: Passengers can manage navigation, search for points of interest or adjust climate settings without distracting the driver.
- New monetisation possibilities for OEMs: Premium digital services, such as exclusive content or premium streaming subscriptions, can be offered directly through the passenger display.
Who controls the digital future of the car?
The next few years will determine whether German automakers can establish themselves as digital mobility players. The market remains highly dynamic – Apple is expanding its automotive ecosystem with partners like Porsche, Google is strengthening Android Automotive, and China is becoming increasingly dominant.
For OEMs, retaining control over the digital experience is crucial. Whoever controls the user interface, voice assistants and AI-powered services will also control future revenue streams. Even after the sale, it will be crucial to consider how automakers can monetise feature unlocks, hardware upgrades and subscription-based add-ons, creating new revenue streams long after the initial purchase.
Meanwhile, the introduction of passenger displays is set to significantly increase adoption of digital services. OEMs that capitalise on this trend can unlock new revenue sources while strengthening their long-term positioning as providers of connected mobility solutions. Those who fail to adapt risk losing their strong position in the value chain, becoming mere hardware suppliers in a software-dominated future.
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This article was originally published on autogazette.de in German.