A decade ago, when Toyota began hiring dozens of experts from Google and other tech giants to pivot its development efforts from hardware into artificial intelligence (AI) and software, hype and expectations were sky high.
“Times have changed, and software and data are now essential components of Toyota’s future mobility strategy,” said Gill Pratt, chief executive of the Toyota Research Institute, at the Consumer Electronics Show in 2016.
In the years that followed, the world’s largest carmaker by volume nurtured ambitions to create a centralised computer system that could control everything from the transmission, brakes, steering and door locks to assisted driving and infotainment functions.
Toyota was among dozens of household-name carmakers racing to develop software-defined vehicles like those produced by Tesla and a new generation of Chinese manufacturers.
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But Gartner’s annual “digital automaker index”, which compares carmakers on their potential to monetise their software, suggests traditional European, US and Japanese groups are still a long way behind these relatively recent arrivals.
Its top five in 2025 was dominated by Tesla and Chinese brands including Nio, Xiaomi and Xpeng. General Motors ranked ninth, Mercedes-Benz was 13th and Toyota was 21st.
“Very few legacy automakers are positioned to compete with Tesla, Rivian or the leading Chinese EV makers when it comes to building a pervasive automotive operation system,” says Tsuguo Nobe, a former executive at Intel and Nissan who is now a professor at Nagoya University.
Toyota and its peers are aiming to use software and services to create new sources of revenue as the industry shifts to autonomous electric cars. Investment across the industry is already shifting from superior engines and external design to the computer systems that will control everything from batteries to safety features and, eventually, self-driving functions.
[ Tesla blames 19% drop in Irish turnover on falling demand for Model Y carsOpens in new window ]
But when employees, analysts and journalists gathered in a darkly lit arena on the outskirts of Tokyo to see the results of Toyota’s years-long efforts, the reaction was underwhelming.
Its software platform, known as Arene, will only power the infotainment system and advanced safety technologies in the RAV4 Sport Utility Vehicle when it launches later this year. It is unclear when the fully integrated system will be completed, though Toyota has said it will feature in its next-generation battery electric vehicle.
Even its own executives seemed to acknowledge that the first iteration was far from a game-changer. “It’s not a big bang,” admitted John Absmeier, chief technology officer at Woven by Toyota, the carmaker’s mobility technology subsidiary. Weeks later, a Woven software engineer was even more critical, telling the FT that Arene was “horrendous”.
“It’s full of bugs. It’s not an operating system, it’s just a series of tools,” the engineer went on.
Many others are encountering the same issues Toyota has. Some, such as Volkswagen, Renault and Mercedes-Benz, have turned to partners in the technology industry to accelerate the digitisation of their vehicles. But those collaborations have also created fresh tensions with Apple, Google and others as carmakers fight it out with tech giants for control over vehicle data, in-car entertainment and other aspects of the driving experience.
Despite the high-profile difficulties encountered by Toyota and others, including Volvo, carmakers around the world continue to plough billions into software development.
This month, BMW is set to unveil its Neue Klasse platform, a zonal architecture system that will underpin its next generation of EVs with longer range, faster charging and upgraded software capabilities.
[ BMW unveils the Neue Klasse - the first of its next-generation electric vehiclesOpens in new window ]
It includes four “superbrains” that vastly improve communication inside the vehicle, infotainment displays, automated driving and other vehicle functions. Analysts say the level of integration is far deeper than the new system developed by Toyota, and the superbrains also deliver more than 20 times the computing power of current vehicles.
Neue Klasse will be installed on the new iX3 Sport Utility Vehicle this year, and BMW plans to bring 40 new models and model updates by 2027.
“Neue Klasse is BMW’s biggest ever leap, and we believe that this represents the best opportunity for a ‘legacy’ auto-player to establish not just relevance but also leadership,” said Bernstein analyst Stephen Reitman in a recent note.
Fellow German carmaker Mercedes-Benz has hired around 3,000 software developers from around the world to accelerate the roll-out of new software-focused vehicles.
“It’s like going to the gym and training a new muscle,” says Magnus Östberg, Mercedes’ chief software officer.
But Östberg adds that the company also made “a deliberate decision” not to develop all the technologies on its own. Its new architecture uses Google’s AI agent that allows drivers to give commands to their vehicles in human-like conversations, for instance.
“We do not want to do everything ourselves but we do want to have control over the architecture so it becomes a Mercedes-Benz experience,” Östberg says.
The question over control between carmakers and technology partners is becoming increasingly sensitive. Despite the huge popularity of Apple’s CarPlay system, which connects a vehicle’s dashboard to the music and mapping systems of the iPhone, the US tech group has faced resistance from the automotive industry over the latest iteration of the software.
Mercedes-Benz was among a string of carmakers that said they had no plans to bring CarPlay Ultra, which connects to other vehicle information such as temperature, speed and fuel use and can enable drivers to customise dashboard layout, to their vehicles.
Some car executives described Apple’s foray into driver screens as “invasive” and an attempt to take over their own systems.
But carmakers must tread a fine line. Tech collaborations have been crucial in keeping them up-to-date with advances in software while they widen their own capabilities.
Toyota’s hard-won reputation for well-built and reliable vehicles has meant it had to think carefully about how quickly to transition to software-driven cars.
Some analysts contend that even if Toyota is slow, its software products will be methodological and executed well.
How exactly carmakers will make money by selling software and services on a platform they design and operate also remains unclear.
In 2021, General Motors set a target to generate up to $25 billion (€21.3 billion) annually from software-based connected services. Two years later, it said it would stop installing CarPlay or Android Auto on some of its EV models in North America.
But Mike Abbott, a former Apple executive poached by General Motors to head its software unit, stepped down in 2024 due to health reasons, and there have been few updates since on its efforts to develop software-defined vehicles.
Rival Ford has also had its share of setbacks in launching a new platform for software-defined vehicles. But its commercial fleet leasing business, Ford Pro, has been an early example of how to monetise software.
[ Ford Chief Lisa Brankin on accelerating the switch to EVsOpens in new window ]
The company has leveraged vehicle data to improve productivity, maintenance and repair services for its users, who pay a subscription to access the information generated across their fleets.
Software helped to contribute 17 per cent of Ford Pro’s operating profit during the second quarter, while paid subscriptions grew 24 per cent from a year earlier to 757,000.
“Having the data itself is not the golden nugget. It’s really how do you turn it into actionable information,” says Hans Schep, general manager of Ford Pro in Europe. “We’re in the early stages.” – Copyright The Financial Times Limited 2025
