‘Full of bugs’: how the world’s biggest carmakers fell behind in software
The shift from a manufacturing model to a digital one is proving difficult and expensive for many of the industry’s traditional companies
Kana Inagaki, Harry Dempsey and David Keohane in Tokyo
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 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.
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.
Ultimately, analysts warn that the auto industry is likely to go in the same direction as smartphones and PCs, with a small number of operating systems like iOS and Android eventually dominating the software space.
They add that the transition will fundamentally tilt the industry’s modus operandi away from designing, building and selling cars — a business model characterised by mechanical engineering and relatively thin profit margins — and towards software and services.
Toyota and its peers are aiming to use these 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.
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.
Toyota said it was part of the culture at Woven “to pause and reflect whenever issues arise, in order to improve the products we deliver to customers” and that its commitment to continuous improvement “underpins Arene and our software-defined vehicles efforts”.
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.
“Traditional original equipment manufacturers inevitably end up being tied down by their hardware-based history,” says Izumi Kawanishi, president of Sony-Honda Mobility, a joint venture established in 2022.
“From there, trying to pivot to software-first development is extremely difficult.”
Toyota’s software development efforts were backed by high-profile hires such as James Kuffner, a former head of robotics at Google and a key executive in the US company’s self-driving car efforts.
In 2018, Kuffner was installed as chief executive of what is now Woven.
But having led the development of Arene, he abruptly stepped down in 2023 and was replaced by an executive from a subsidiary of Toyota supplier Denso.
Others involved in the project say engineers brought in from outside, who were more used to a fast-moving Silicon Valley mindset, grew frustrated with Toyota’s conservative and consensus-driven culture.
“There are always compromises when engineering paradigm shifts happen.
After all, this is a once in a 100 year transformation of the way we build cars,” acknowledges one former Toyota executive.
“Japan being very conservative is a double-edged sword,” the former executive tells the FT.
“On the one hand, not taking too many risks is good when it comes to product safety.
But it is bad when it comes to rapid innovation.”
A similar story played out at Volvo Cars, one of the first European carmakers to roll out an electric vehicle equipped with advanced software and Nvidia-designed chips that facilitate software updates via the cloud.
In 2022, Volvo Cars recruited former Dyson boss Jim Rowan as chief executive.
Li Shufu, who chairs the Swedish carmaker and its Chinese parent Geely, reasoned at the time that a CEO from outside the automotive industry was needed to oversee the digital shift.
Even so, the development of a new centralised computing system for its flagship EX90 model was mired with delays and snowballing costs, underscoring the challenges even for companies that have turned to external hires from Tesla and other tech rivals to strengthen their software capabilities.
At the end of March, Volvo Cars announced Rowan’s departure and the rehiring of former boss Håkan Samuelsson to navigate the uncertainty created by US car tariffs and the costly transition to electric vehicles, citing his “deep industrial experience” and knowledge of the group.
But people close to the company say Samuelsson, who will serve a fixed two-year term, returned to revive a group “buried” in massive development costs for the EX90 and its software system.
He immediately announced 3,000 job cuts globally and a one-off charge of $1.2bn, caused in a large part due to the two-year delay with the EX90.
In an interview, Samuelsson warned that the company could still face new software glitches in the future, even after efforts to reduce software complexity and strengthen testing standards.
“There will always be risks of course for bugs when you introduce software,” Samuelsson tells the FT.
“But in the last two years, we have had a level that was too high and unacceptable for customers and that is what we have been working on very intensively.”
Volvo Cars has opened a new, state-of-the-art software testing centre in Sweden. ‘There is no book to read about how this should be done’, says chief executive Håkan Samuelsson © Volvo CGCCHe adds that Volvo Cars will in future be able to develop and ramp up production of new models faster.
“But there is no book to read about how this should be done . . . if you are the first one, you have to write your manual as well.”
Nobe, at Nagoya University, points out that electric cars require more computing power than combustion-engined vehicles to manage batteries and other functions such as regenerative braking.
This means that electronic control units with their own embedded software have to be replaced with “zonal architecture”, which controls vehicle functions such as braking as well as driver assistance features on a zone-by-zone basis, where electronic components are clustered in discrete areas of each vehicle.
“The architecture not only enables software consolidation but also reduces wiring complexity and vehicle weight, leading to substantial cost savings,” Nobe says.
He adds that the slow transition to EVs among legacy carmakers — especially Toyota, which expects hybrid technology to endure for longer than most — have hampered their efforts to develop best-in-class software.
Building processing power into a vehicle far beyond what is currently required also sits uncomfortably with Toyota’s long-standing — and highly successful — just-in-time production system that aims to minimise waste.
Woven’s Absmeier says changing the architecture is “not that difficult” to do technology-wise. The challenge is adapting it to design and manufacturing processes geared to traditional vehicles.
“There is existing investment and legacy,” he says.
“We can’t just disrupt the whole architecture of the car. We have to step-by-step build the system in.”
Despite the high-profile difficulties encountered by Toyota and Volvo Cars, carmakers around the world continue to plough billions into software development.
In September, 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.
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 rollout of new software-focused vehicles.
“It’s like going to the gym and training a new muscle,” says Magnus Östberg, Mercedes’ chief software officer.
“That transition is, of course, one of the biggest challenges to make so that new skills are adopted and used throughout the organisation.”
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 humanlike 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.
Volkswagen has struck a $5bn deal to develop new software with California EV start-up Rivian, while Europe’s largest carmaker has also partnered with Chinese EV maker Xpeng to jointly develop a new generation of EVs.
Both initiatives follow a series of budget overruns and stumbles at its in-house software division.
“The problem for us is to find the good level of co-operation,” says one executive at a European carmaker, adding that it was difficult to strike the right balance between technology sharing and control over underlying vehicle architecture.
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.
The choice of the RAV4 for its new in-car software was driven by a desire to debut Arene in a high-volume flagship model while minimising the risks that would come from launching it more broadly, according to people with knowledge of the company’s decision.
The system itself is also born of compromise since the more ambition and memory it contains, the lower the profit margins will be, the people added.
That underscores the challenges carmakers face in balancing legacy businesses, safety requirements and reputations with the desire to accelerate their software efforts.
Akio Toyoda, the powerful chair of Toyota and the grandson of its founder, remains committed to transforming from a car manufacturer into a provider of software-powered mobility services, say those who know him.
“Akio still understands the importance of software-defined vehicles, but he’s still thinking about exactly what his approach is,” says one former Woven executive.
In a statement to the FT, Toyota said its Arene system represented a “broader, more foundational software platform than a typical in-house operating system”, which enabled a faster and safer software development across different vehicles.
Some analysts also 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 $25bn 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 GM 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.
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.”
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