Automakers in both the U.S. and Europe are falling behind China in the development of software-defined vehicles, according to a recent report from AlixPartners focusing on the global development of new vehicle platforms.
In a presentation at the Women Automotive Summit Detroit conference in Novi, Michigan this week, Yvette Zhang, AlixPartners’ Advanced-Mobility Segment Co-Leader, shared some additional insights about the report, including China’s growing advantage over Western OEMs in SDV development.
According to Zhang, it’s not just a matter of falling behind in the technology race; rather, it’s due to the operating model of Western OEMs. She said automakers in China are approaching software-defined vehicle development differently from those in the U.S. and Europe, who rely more on external partnerships for their SDV strategies instead of developing more of their own technology stack in-house.
Citing data from the AlixPartners report, Zhang said 41% of China OEMs are primarily building their SDV technology stack in-house, but only 25% of U.S. and European OEMs are doing the same.
“Western OEMs are giving away a big part of their future by outsourcing architectural control, while the Chinese competitors are building the capability in-house,” Zhang said. “When you hand this architecture to an external partner, even though a very good one, you actually hand over a big part of a meaningful share of your future P&L [profit and loss],” she added.
An additional risk to Western automakers is rooted in the way in which some OEMs are putting together the hardware portion of their technology stacks. For example, hardware such as CAN controllers, which manage communications between a vehicle’s electronic control units, cannot be as easily updated when parts are sourced from multiple Tier 1 suppliers. According to Zhang, 60% to 70% of Western OEMs are actually doing a mix of “build or buy from their partners” as a procurement strategy for SDVs.
Zhang referred to these as “patched stacks,” where a vehicle’s hardware and software are tightly coupled together, adding that Western OEMs are “taking a significant strategic risk” in losing leverage and flexibility to perform future over-the-air software updates for these vehicles.
On the other hand, China’s OEMs pursuing an in-house development approach actually gain full control of a vehicle’s software, including the update cycle and future control of the revenue from the data that an SDV may generate, according to Zhang.
She said 94% of all OEMs today are monetizing less than half of a vehicle’s software features. “Think about it, companies have been spending billions investing in SDV features,” she said. “However, 94 out of 100 cannot get the value out of it.”
Zhang also said the lack of software reuse is hindering SDV development for Western OEMs, which also extends to their Tier 1 suppliers. She said 48% of OEMs in China are achieving or have achieved platform-level software reuse, compared to around 30% for Western OEMs. This means OEMs can write software once and use it across multiple vehicle platforms and models. Meanwhile, just 19% of global Tier 1 suppliers are achieving platform-level software reuse, she said.
“Every time a Western OEM develops a new program, they will need to invest the same amount of time, resource and money again and again,” she said. “Software reuse at the platform level is actually not a ‘nice to have,’ it’s a fundamental enabler to enable the SDV economics.”
Zhang also cited organizational problems within some automakers’ corporate structures for losing ground to China-based OEMs amid the significant disruption occurring in the auto industry. According to AlixPartners’ data, 35% of OEMs in China are allocating over half of their R&D spend on developing SDVs. For Western OEMs, it's just 18% to 21%.
“Right now, 59% of auto executives say that they are being outpaced by the technology changes, and mostly when they're talking about the technology change, it's because of the Chinese entrance,” Zhang said.
In the company’s 2026 AlixPartners Disruption Index released in January, the automotive sector was ranked the most disrupted industry for the second year in a row. AlixPartners cited numerous market pressures, such as competition from China, sluggish electric vehicle sales, tariffs, rising geopolitical tensions and increasing regionalized supply chains.
Although the report found 67% of auto industry executives see SDVs as an opportunity, some OEMs are not well- positioned to capture it. She said the SDV race has exposed “a really strategic divide” between China and Western OEMs.
“It's sharper than a lot of people in the industry are willing to admit,” she said.
While OEMs in China are accelerating the industry’s transition to SDVs, Western automakers are spreading their budget across legacy platforms, Zhang said, calling it “internal misalignment.” However, she said that is a controllable factor, as it's an organizational problem rather than a technology one.
“It's within our control, but it also requires a lot of leadership attention and cross-functional alignments, which a lot of the companies are not ready to commit it to,” she said.
