With the auto industry undergoing rapid changes due to software innovation and electrification, there are new considerations for investors looking at the best cars to invest in today. Key factors now include software capabilities, connectivity, digital services, and electric vehicle production. As software comes to define vehicles more than traditional measures like horsepower and handling, investors need to understand the software-based transformation happening in the auto industry. Companies leading in software, digitization and electric cars are becoming the most valuable despite limited production, while traditional carmakers are struggling to reinvent themselves. Evaluating company strategies and execution on software and electrification is essential to determine the best cars to invest in today.
Software-defined vehicles creating new investment priorities
Cars were once standalone mechanical objects, but now they are evolving into software-defined platforms that improve over time. The shift to electric vehicles is also accelerating the software transformation. These software-defined vehicles are updated wirelessly and turn into dynamic platforms for digital features and services. This means that software capabilities and integration are now key factors for automakers over traditional measures like horsepower and handling. As a result, investors need to evaluate company software strategies, talent recruitment and execution. Newer electric vehicle makers like Tesla and Nio designed their vehicles as software platforms from the outset and are leading in software-defined architecture. Traditional carmakers like Volkswagen are struggling to reorient their organizations towards software and digitization. Companies failing to make the software transition risk declines in competitiveness and profitability.
Connectivity and digital services creating new revenue streams
The software shift also enables new types of connectivity and digital services in vehicles, creating potential new revenue streams. For example, Nio’s electric cars emphasize digital services like entertainment, augmented reality and AI assistants. Tesla also offers connectivity services through its vehicles. The connected car data and entertainment services become selling points and opportunities for recurring revenues from subscriptions. Consequently, investors should assess automaker strategies around connected services, digital content and software-enabled experiences. Companies more advanced in developing connected digital ecosystems and subscription model revenues stand to benefit. Those unable to build out strong services and software capabilities risk missing out on an important new profit pool.
Electric vehicle leadership conferring industry advantage
With many countries setting aggressive electrification targets, leadership in electric vehicles provides a strong competitive advantage. Companies like Tesla and BYD are leading in EV sales volumes in key markets like China and Europe. The valuations of EV leaders are rising fast while many traditional automakers are struggling to shift towards electrification. Investors need to determine which carmakers have the best strategies, products and execution to ride the EV growth wave. Factors to evaluate include EV investment levels, partnerships, production capacity, battery supply deals, charging infrastructure, brand appeal and technology innovation. Companies leading in EVs today will be best positioned for where the auto industry growth is headed. Legacy carmakers slow to electrify face deterioration in competitiveness and financial returns.
As software innovation and electrification redefine the auto industry, investors should prioritize carmakers leading in software-defined vehicles, digital ecosystems and electric vehicle production. Superior software integration, connectivity services and execution on electrification are now the key factors determining winners in the transforming car market.