Tesla could be sitting on a $1.2 trillion vehicle software market by 2030

The advent of fully autonomous cars could result in vehicle software revenues hitting as high as $1.2 trillion per year by 2030. This is according to recent statements from Elmar Degenhart, who serves as chief executive of Continental, one of the world’s biggest auto parts’ suppliers.

An emerging market

According to the auto parts exec, ensuring that self-driving vehicles will work correctly requires a lot of software mastery. Software is a key component for self-driving, as it will determine how well a vehicle processes signals and input from its suite of sensors. During the Auto Motor und Sport industry congress in Stuttgart, Germany on Tuesday, Degenhart noted that software is something the auto industry is lacking in. “Software competence is mission critical for successful car companies but the industry lacks scale in this competence,” he said.

Despite the emergence of companies like Tesla that use software as a key component of its vehicles, veteran carmakers still have a long way to go before they could reach parity with the electric car maker. This is particularly prominent in a number of Tesla competitors that have emerged over the past year. A perfect example of this is the Jaguar I-PACE, an excellent electric car save for its slow infotainment system and substandard range. Both these problems (particularly the infotainment system) could have been addressed through software optimizations.

Mastery of software, or lack thereof

The lack of mastery on the software front could become a huge liability for traditional automakers. Today, vehicle software generates annual revenues of about $280 billion a year, and Degenhart estimates that the market would grow more than four times by 2030. That’s $1.2 trillion a year. The Continental executive argues that this scenario presents a great opportunity for those that are proficient in vehicle software, since veteran carmakers can adapt to the autonomous driving trend by working with tech companies.

“Car companies are good at validation and homologation and lack software development skills, while software companies have the opposite problem. The IT industry has always valued speed of development more than perfecting the product, while the auto industry has tended to veer toward perfecting a product over rushing it out. The software and the auto industry will have to work more closely together to develop autonomous vehicles and this will lead to a change in approach on both sides,” he said.

A perfect fit

It could be said that the $1.2 trillion scenario described by Degenhart is a perfect fit for Tesla, which is arguably the most prominent automaker that currently develops both its vehicles’ hardware and software in-house. This vertical integration allows Tesla to develop technologies and features that are fully compatible with its vehicles. As shown by the success of companies that adopt the same strategy, such as Apple, Tesla’s synthesis of software and vehicle hardware could be a key advantage over other automakers that are stepping into the autonomous driving field.

Tesla’s potential in the full self-driving market is a key thesis for one of the company’s biggest bulls, Cathie Woods of ARK Invest. ARK has a long-term price target of $4,000 per share for Tesla, provided that the company taps into the autonomous mobility-as-a-service market. This is something that Elon Musk has actually discussed in the past. Dubbed the Tesla Network, the system would allow owners to have their vehicles be part of a self-driving ride-sharing service. Musk outlined Tesla’s advantage in this upcoming market during the Q3 2018 earnings call. “The advantages that Tesla will have is that we’ll have millions of cars in the field with full autonomy capability, and no one else will have that. So, I think that will end up putting us in the strongest competitive position long-term,” Musk said.

Tesla could be sitting on a $1.2 trillion vehicle software market by 2030
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