Finally, a Little Good News for Tesla Investors

Key Points

• Software is expected to become a primary revenue growth driver for automakers.

• Tesla leads the industry in software-defined vehicles.

• Chinese competitors are nipping at Tesla's heels in SDV development.

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Tesla (NASDAQ: TSLA) investors are likely hunkering down and preparing for a few bumpy quarters. The young electric vehicle (EV) maker is struggling with declining sales, an aging lineup, consumer backlash to CEO Elon Musk's political adventures, and the loss of federal tax credits and zero-emission regulatory credit sales -- it's been a full plate of bad news in 2025. For those tired of the negative developments, here's something positive to chew on.

Vehicle as a platform?

Gone are the days of a traditional hardware-centric approach with fixed features at the time of manufacture. In its place are software-defined vehicles (SDVs) that have the ability to receive updates and new features. It all revolves around SDVs, or at least that's what many analysts think about the automotive industry. Software is expected to be the primary revenue growth driver for automakers by 2030.

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Tesla helped turn "over-the-air" from buzzword to commonplace. But this goes beyond simply an infotainment system offering your favorite apps. SDVs have software controlling critical systems such as braking, steering, and energy optimization. So it shouldn't surprise many to hear that Tesla is the closest to offering complete SDVs, at 80% to 85%, according to Gartner Vice President of Research Pedro Pacheco, via Automotive News.

Image source: Tesla.

As investors might expect, Nio and Xpeng directly trail Tesla, along with U.S. EV start-ups Rivian and Lucid, per Gartner's 2024 Digital Automaker Index, which gauges progress in hardware, implementation of over-the-air updates, use of artificial intelligence (AI) in vehicle software, and firmware update capabilities. Here's a look at just how the automotive industry shook out, the higher the score the better.

Data source: 2024 Gartner Digital Automaker Index. Chart by author.

The future is coming soon

Full SDVs could be hitting the market as soon as next year and in three to five years vehicles will likely work as a platform, according to Accenture, an IT and consultancy focused on helping companies drive revenue growth. Accenture also predicts digital services could bring $3.5 trillion globally by 2040, or roughly 40% of all automotive revenue.

This is good news for Tesla, as the company is currently leading in the SDV space, per Gartner, and it could also open doors to new revenue investors haven't often considered. Rivian gained quite a bit of credibility for its software stack when it inked a joint venture with global juggernaut Volkswagen, for the latter to use the former's software stack in its long list of vehicles. It was a big deal valued at up to $5.8 billion. It's entirely possible, assuming Tesla is interested in the idea, for the leading company in SDVs to partner and generate revenue from licensing its software to more traditional companies struggling with reinventing their technology.

For investors, it's just a little good news amid a flurry of negative developments. Leading in SDV is a big deal currently, and will be an even bigger deal when leading in SDVs is worth billions on the bottom line. Tesla is currently at an inflection point when it's essentially deciding if it's an automaker, robot maker, robotaxi service, or artificial intelligence company -- or perhaps some combination of all four. Long-term investors should stay the course, but not all of these negative developments will blow over quickly. It might be time to revisit your investment thesis on Tesla because its future could go in a wildly different direction than we thought a few years ago -- for better, or worse.

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Daniel Miller has positions in Ford Motor Company and General Motors. The Motley Fool has positions in and recommends Accenture Plc and Tesla. The Motley Fool recommends BYD Company, Bayerische Motoren Werke Aktiengesellschaft, Gartner, General Motors, Stellantis, and Volkswagen Ag. The Motley Fool has a disclosure policy.