A decade ago, Toyota made headlines by hiring dozens of engineers from Google and other tech giants, signaling a bold pivot from hardware-focused development to software and artificial intelligence. At the 2016 Consumer Electronics Show, Gill Pratt, CEO of the Toyota Research Institute, declared: “Times have changed, and software and data are now essential components of Toyota’s future mobility strategy.”
The world’s largest carmaker by volume aimed to create a centralized computer system capable of controlling everything from brakes and steering to infotainment and assisted driving. Toyota joined a global race among automakers to produce software-defined vehicles, competing with Tesla and a new generation of Chinese electric vehicle makers.
Yet, as highlighted in a recent Financial Times report, traditional automakers—including Toyota, General Motors, and Mercedes-Benz—remain far behind in software monetization. Gartner’s 2025 Digital Automaker Index placed Tesla and Chinese brands such as Nio, Xiaomi, and Xpeng at the top, while Toyota ranked 21st, trailing far behind its newer rivals.
“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 operating system,” said Tsuguo Nobe, former Intel and Nissan executive, now a professor at Nagoya University, speaking to the Financial Times.
Toyota’s first major software platform, known as Arene, is set to debut in the RAV4 later this year. However, the initial rollout has been underwhelming, powering only infotainment and advanced safety systems. John Absmeier, CTO at Toyota’s Woven subsidiary, admitted to the FT: “It’s not a big bang.” One Woven engineer went further, describing Arene as “horrendous… full of bugs. It’s not an operating system, it’s just a series of tools.”
The challenges Toyota faces are not unique. European manufacturers such as Volvo Cars have experienced similar setbacks despite recruiting external tech talent and former executives from Silicon Valley. Volvo’s flagship EX90 vehicle, intended to run on a new centralized computing system, suffered costly delays, resulting in 3,000 global job cuts and a $1.2 billion one-off charge. Håkan Samuelsson, Volvo’s returning CEO, told the Financial Times that despite extensive software testing, “There will always be risks of bugs when you introduce software.”
Industry experts point out that electric vehicles require significantly more computing power than traditional combustion-engine cars, necessitating a shift from multiple embedded electronic control units to “zonal architectures.” These systems consolidate vehicle functions across discrete areas, improving efficiency and reducing weight, but the transition remains slow among legacy manufacturers.
BMW and Mercedes-Benz are among companies accelerating their software development. BMW’s upcoming Neue Klasse platform will incorporate four powerful “superbrains” to manage infotainment, automated driving, and vehicle communication, while Mercedes has hired 3,000 software engineers worldwide and integrated Google’s AI systems to enhance its vehicles’ capabilities.
Partnerships with tech giants, however, remain a delicate balancing act. Car makers must collaborate with companies such as Google and Apple to stay at the forefront of software innovation while retaining control over their vehicles’ architecture and customer experience. Toyota, for instance, continues to cautiously roll out Arene in its high-volume RAV4, balancing innovation with its reputation for reliability.
The Financial Times report underscores the high stakes and immense costs of this industry-wide transformation. As automakers shift from traditional mechanical engineering toward software and services, the path to monetizing these systems remains uncertain. Some, like Ford, have begun exploring paid subscription services for fleet data, showing early promise, while others continue to navigate delays and integration challenges.
Akio Toyoda, Toyota’s chairman and grandson of the company’s founder, remains committed to a long-term strategy of software-powered mobility. “Akio still understands the importance of software-defined vehicles, but he’s still thinking about exactly what his approach is,” a former Woven executive told the FT.
As legacy automakers confront a once-in-a-century transformation, the industry appears poised to follow a trajectory similar to smartphones and PCs, where a small number of dominant operating systems eventually define the market. For Toyota and its peers, mastering software may prove as critical as the mechanical excellence that built their reputations.
