Europe’s Carmakers Shift Toward Software Models

Automakers pursue digital platforms and subscriptions as regulation tightens and consumers demand connected features

19 Feb 2026

Europe’s leading carmakers are reshaping their businesses around software as vehicles become increasingly defined by digital systems rather than mechanical engineering.

Manufacturers that once competed on engine performance and design are investing heavily in proprietary software platforms, over-the-air updates and connected services. Industry analysts say digital capability now plays a central role in purchasing decisions, with drivers expecting cars to improve over time in the same way as smartphones.

BMW is rolling out its Neue Klasse architecture, built around a unified software stack intended to support feature updates across multiple models. Mercedes-Benz is developing MB.OS, an in-house operating system designed to manage infotainment, vehicle functions and automated driving systems while enabling subscription-based services. Volkswagen is restructuring its software operations through its CARIAD unit and taking part in industry partnerships aimed at reducing development complexity.

The shift carries significant financial implications. Carmakers are seeking to move beyond one-off vehicle sales toward recurring revenue from digital upgrades, feature-on-demand services and connected subscriptions. Analysts expect software-enabled services to account for a growing share of sector profits over the coming decade, potentially altering company valuations and long-term growth strategies.

The transition, however, has proved uneven. Consumer acceptance of paid software features varies, particularly where functions previously included as standard are offered as add-ons. Subscription models tied to safety-related systems have faced criticism in several markets.

At the same time, European regulators are strengthening rules on cybersecurity, data protection and software compliance. The tighter framework is raising development costs and adding pressure to shorten time to market.

Newer technology-focused entrants, operating with faster software development cycles and vertically integrated systems, have intensified competition. Established manufacturers must adapt complex global organisations to keep pace.

Despite these challenges, industry executives argue that software-defined vehicles offer longer product lifecycles and closer customer relationships. As regulatory standards become clearer and digital services mature, software capability is expected to become a defining measure of competitiveness in Europe’s automotive sector.