New York, United States | July 26, 2026
Automotive Software Market 2035
The global automotive industry is undergoing a fundamental transformation, with software, electronics, artificial intelligence (AI), and advanced driver-assistance systems (ADAS) emerging as the primary drivers of innovation. According to a new McKinsey & Company report, the Automotive Software Market 2035 is expected to reach $519 billion, reflecting the growing importance of digital technologies in next-generation vehicles.
The report projects the sector will expand at a 4.5% compound annual growth rate (CAGR) through 2035—more than four times faster than the expected growth rate of the overall global vehicle market.
Software Is Becoming the New Engine of the Automotive Industry
According to McKinsey’s report, The Automotive Software and Electronics Market Through 2035, the industry’s competitive edge is rapidly shifting away from traditional mechanical engineering toward software-driven capabilities.
Automakers are increasingly differentiating their vehicles through:
- Artificial Intelligence (AI)
- Software-defined vehicle (SDV) platforms
- Connected vehicle technologies
- Advanced driver-assistance systems (ADAS)
- Over-the-air (OTA) software updates
- Digital infotainment ecosystems
As vehicles become more software-centric, electronic architecture is expected to play a far greater role in determining vehicle performance and customer experience.
Software and Electronics to Outpace the Overall Vehicle Market
McKinsey forecasts a significant gap between the growth of traditional vehicle sales and automotive software.
Overall Vehicle Market
- Expected CAGR: 1.0%
- Growth driven primarily by replacement demand and gradual EV adoption.
Automotive Software & Electronics
- Expected CAGR: 4.5%
- Market value projected to reach $519 billion by 2035.
The report suggests software and electronics will become one of the fastest-growing segments of the global automotive industry over the next decade.
Software-Defined Vehicles Are Reshaping Vehicle Design
The report highlights the industry’s transition toward Software-Defined Vehicles (SDVs), where vehicle functionality increasingly depends on software rather than hardware alone.
Future SDVs are expected to feature:
- Centralized and zonal computing architectures
- Continuous over-the-air software updates
- Cloud connectivity
- AI-powered vehicle functions
- Improved cybersecurity
- Faster feature deployment throughout a vehicle’s lifecycle
These technologies are expected to enable manufacturers to introduce new services and features without requiring physical hardware upgrades.
ADAS Expected to Become a Mainstream Feature
While deployment of fully autonomous Level 3 and Level 4 driving systems has progressed more slowly than previously anticipated, automakers are accelerating investment in ADAS and connected mobility technologies.
According to the report:
- 70% of vehicles sold globally by 2035 are expected to include Level 2 or higher driver-assistance capabilities.
- Level 2 ADAS is projected to account for 52% of total vehicle sales.
- Level 3 autonomous systems are expected to represent 16% of global sales.
- Level 4 and higher fully autonomous vehicles are forecast to account for only about 1% of sales by 2035.
The findings suggest that advanced driver assistance—not fully driverless cars—will dominate the market over the coming decade.
Artificial Intelligence Will Power Future Vehicles
Artificial Intelligence is expected to become one of the defining technologies of future automobiles.
McKinsey estimates that by 2035, AI will enable or enhance software functions across approximately 78% of the automotive software market.
Key areas where AI is expected to have the greatest impact include:
- Advanced Driver Assistance Systems (ADAS)
- Automated driving technologies
- Infotainment platforms
- Predictive maintenance
- Voice assistants
- Personalized in-car experiences
- Vehicle diagnostics
Generative AI is also expected to accelerate software development, engineering workflows, and customer support services.
Vehicle Electronics Architecture Will Continue to Evolve
The report predicts that traditional distributed electronic systems will gradually be replaced by more advanced domain-based and zonal electrical/electronic (E/E) architectures.
McKinsey recommends that manufacturers:
- Simplify vehicle electronic architectures.
- Strengthen software engineering capabilities.
- Invest in AI-driven development tools.
- Build scalable digital platforms for future vehicles.
The consultancy believes these changes will be critical for automakers seeking to remain competitive in an increasingly software-centric industry.
Industry Outlook
As consumers demand smarter, safer, and more connected vehicles, software and AI are expected to become the primary sources of value creation across the automotive sector.
Although fully autonomous vehicles may take longer to reach mass adoption, investments in connected services, intelligent software, and advanced driver-assistance technologies are likely to shape the industry’s next phase of growth.
Key Highlights
- McKinsey projects the Automotive Software Market 2035 will reach $519 billion.
- The sector is expected to grow at a 4.5% CAGR, compared with 1% for the overall vehicle market.
- Software-defined vehicles (SDVs) are expected to become the industry’s dominant technology platform.
- Around 70% of vehicles sold globally by 2035 are forecast to feature Level 2 or higher ADAS.
- AI is expected to enhance software functions across 78% of the automotive software market.
- Automakers are encouraged to simplify electronic architectures and expand investments in AI-powered software development.
