From Horsepower To Compute Power – IAA 2025 Impressions

IAA Mobility 2025 made one thing unmistakable: after years of edging toward software-defined vehicles, the industry is finally accelerating. Legacy OEMs showcased tangible steps—centralized compute, over-the-air capabilities, and cloud-native platforms. Yet, the road to truly software-defined vehicles (SDVs) is still long.

For transparency: I’m not an automotive insider—I’m a telecoms expert—but the parallels between their respective transformation challenges are hard to ignore. After listening to numerous IAA Mobility conference sessions and walking the booths, today’s traditional auto industry looks in many respects like telecom years ago, around the time when over-the-top providers had inflicted real damage to the old telco business model.

Avoid The Icarus Trap In The Automotive Industry

For traditional OEMs, true success will require nothing less than a fundamental transformation of both operations and culture. At IAA Mobility, the grand, temple-like booths of Germany’s largest legacy automakers drew impressive crowds, reflecting strong consumer interest in their latest models. Yet, beneath the buzz, a measure of humility would seem appropriate, especially in light of the profound challenges these OEMs face in adapting to an entirely new mobility landscape. The parable of Icarus teaches that unchecked ambition and disregard for one’s own limits can turn the power of innovation into the cause of downfall.

The traditional automotive industry risks repeating the very mistakes that have weakened legacy telecom operators. Without genuine and far-reaching transformation, established OEMs may cede the most promising avenues for value creation to digital-native automakers or even to entrants from outside the industry entirely. In such a scenario, traditional players could be reduced to little more than automated assembly plants for hardware components—stripped of strategic control and relegated to commodity status.

Ten Transformation Parallels That OEMs And Telcos Share

At IAA Mobility, I had the impression of witnessing an industry in the midst of transformation, yet one still reluctant to fully confront the scale of change required for lasting success. At first glance, the automotive and telecommunications sectors may appear worlds apart. After all, what could cars possibly share with networks? 

But on closer inspection, striking parallels emerge. In the spirit of “grief shared is halved; joy shared is doubled,” I am convinced that these two industries have much to learn from one another, across at least ten dimensions:

• Master software-defined vehicles and software-defined networks. Telecom operators have spent more than a decade mastering the shift to software-defined networks and network virtualization. Now, the automotive industry is undergoing a comparable transformation with the rise of SDVs. Powered by AI, cloud platforms, high-speed connectivity, and modern architectures, SDVs are moving the center of gravity from hardware to software, data, and services. Software and AI now underpin value creation across the entire vehicle lifecycle, from engineering and manufacturing to the driver experience. Building these digital value streams depends on ecosystem-driven, open innovation.
• Design digital value propositions. Connectivity alone has become a commodity; telecom providers can no longer rely solely on selling access and must differentiate through value-added services and experiences. The same reality now confronts traditional automotive OEMs. While they continue to excel at hardware, many struggle to match the speed and agility of modern software, driven by rapid iteration, continuous delivery, and experience-led design. In today’s mobility landscape, software is not a complement but the core engine of value creation. SDVs embody this shift: they adapt to changing driver needs and environmental conditions, evolve through seamless over-the-air updates, and harness data-driven intelligence to enhance customer experiences. SDVs also deliver critical insights to manufacturers and partners. At the center of this transformation is a fundamental question: How must automotive companies reinvent themselves to accelerate innovation and consistently deliver the superior experiences that define the future of mobility?
• Encourage engineering and software development mindsets to collaborate. For decades, traditional automotive OEMs have been led by mechanical engineering minds, just as telcos have been guided by network engineering expertise. Both industries have long relied on a waterfall-style approach to innovation—rigid, sequential, and slow to adapt. In the automotive world, this mindset has shaped software development around isolated requirements for individual car parts, resulting in vehicles that house multiple software versions that often fail to communicate effectively and resist seamless integration with broader applications, services, and systems. Telcos have been working for years to bridge disciplines. Telefónica Tech, for example, unites top talent, cutting-edge technologies, and robust platforms to unlock new value.
• Embrace APIs as building blocks for ecosystem partnerships. The telco sector now finds itself at a pivotal moment with the rise of network APIs. These APIs create a gateway for telcos to move beyond connectivity and participate in new digital ecosystems, co-developing innovative value propositions with partners from outside the industry. To seize this opportunity, the sector has launched a number of promising initiatives, including Open Gateway, CAMARA, and Aduna. The automotive industry, including suppliers like Bosch, has taken similar steps with API-driven efforts, such as the Common Vehicle Interface Initiative (CVII). However, while most initiatives focus heavily on the technical layer, fewer address the commercial dimension—specifically, how APIs can forge deeper partnerships that tie automotive OEMs into emerging digital ecosystems and unlock new revenue streams.
• Attract the best developers to risk-averse sectors. The automotive sector faces a critical challenge: winning the hearts and minds of innovators beyond its own walls. Traditional OEMs often struggle to attract the younger generation of software developers, who neither understand nor aspire to the complexities of the automotive industry. To many, the sector appears risk-averse and slow-moving—hardly an inspiring arena for innovation. To succeed, OEMs must learn how to speak the language of developers and create pathways to attract top talent, many of whom will never work directly for a manufacturer. Instead, they thrive as independents or within industries far removed from automotive. Telcos encounter a parallel challenge with network APIs: their ability to unlock value depends on how effectively they can attract, engage, and collaborate with the broader developer community outside their own sector.
• Combine high safety and quality standards with fast innovation cycles. The traditional automotive industry was built on a foundation of total control over every function, feature, and specification. While OEMs have long relied on thousands of suppliers, these relationships have typically been hierarchical: the OEM dictates precise requirements, and the supplier delivers accordingly. Both automotive OEMs and telcos historically embraced a waterfall innovation model—for good reasons. In cars, safety demands rigor; in telecom, carrier-grade reliability is paramount. But expectations have changed. Today’s drivers demand not just safety but seamless integration of cutting-edge digital and physical experiences. Meeting these rising expectations requires a fundamental shift in how OEMs innovate and collaborate.
• Align open source and proprietary software development. Telcos have long-time experience with open source, though initiatives like Open RAN remain nascent in the field. Automotive OEMs now face a similar crossroads: embrace open source or remain proprietary. In practice, most will adopt a hybrid model, leveraging open source for innovation while relying on proprietary software for core operations. The shift is already underway. Automotive Grade Linux fosters collaboration across players, with Toyota and Subaru among its adopters. China’s Automotive Operating System Open Source Plan aims to build a domestic ecosystem benefiting firms like BYD and XPENG. Meanwhile, German manufacturers and suppliers are exploring a shared open-source platform, signaling that more collaboration has become essential.
• Accept some loss of control over value and supply chains. Telcos, despite powering the digital economy from streaming to cloud, struggle to capture the value they enable, while global internet giants surge ahead in revenue and valuation. The auto industry faces a parallel challenge: once in full control of the value chain, OEMs now see digital-native players steadily encroaching. Their reliance on proprietary, siloed, waterfall-style software development—effective for decades—is becoming a liability. Open-source practices, once foreign to OEMs, are now critical to meeting rapidly shifting customer expectations. To thrive in the era of the software-defined vehicle, manufacturers must overcome technological hurdles, embrace collaborative models, and transform into truly software-driven firms.
• Learn to build new supplier relationships. Telcos have already reshaped their supplier relationships as hyperscalers and platforms have moved to center stage. Now large language models are driving the next shift: for instance, Deutsche Telekom and Perplexity are integrating AI into Telekom’s “Magenta AI” platform and a new AI phone. Automotive faces similar disruption. Digital-native players, especially in Asia and North America, thrive with software-first models and global ecosystems, while Europe risks falling behind without stronger support for its own innovators. OEMs must decide: cling to full control of product development or embrace external partnerships to unlock new value. Already, BMW uses generative AI for customer experiences, while Toyota applies Amazon Q Developer to accelerate software innovation.
• Tackle cultural transformation as the toughest nut to crack. The biggest barrier to mastering software-defined vehicles is not technology but mindset: moving from milestone-driven engineering to always-on, data-driven development of digital features, services, and experiences. Becoming a software-centric industry requires more than new tools or digital expertise—it demands a fundamental cultural shift. Telcos know this well: the journey from traditional operator to digital telco or TechCo hinges on overcoming entrenched habits. Automotive OEMs face the same challenge. At the core lies cultural and operational inertia that resists change throughout the workforce. Breaking through it is essential, as the transformation will reshape how both industries innovate, collaborate, and deliver customer value.

Automotive OEMs Can’t Afford A Telecom-Style Transformation Timeline

To be clear, traditional OEM managers are well aware of the challenges at hand. Yet, my impression from IAA Mobility is that many still underestimate the scale of effort and time true transformation demands.

The telecom industry illustrates the risk for automotive OEMs: its transition has been slow, complex, and often painful, stretching over decades. The pressing question is whether automotive OEMs can afford such a lengthy journey.

If you’re interested in exploring the parallels between automotive and telecom transformations, I’d be glad to discuss this further (d.bieler@pacanalyst.com). You can also read my PAC research on telecoms transformation as well as software-defined vehicles, which highlights the innovation hurdles telcos and OEMs respectively are facing.