Diagnostics as a key enabler: how OEMs, suppliers, and third parties are rebuilding the vehicle software backbone

Diagnostics serves an extensive range of functions for software-defined vehicles. The question is no longer which diagnostic tool to buy or use, but how do diagnostics fit into the overall vehicle software strategy, further supporting the SDV architecture and AI-DV trends.

The market is growing and shifting towards remote and connected services. We estimate that the global diagnostics software market will increase from ~EUR 14 billion in 2025 to reach ~EUR 34 billion by 2035 at approximately 9% CAGR. The underlying shift in where value is created will be important to decision-makers: embedded software falls from ~70% of the market to ~28%, while remote and connected services rise from ~8% to ~33%. The industry is moving from one-time software development and delivery to recurring lifecycle services: subscription and usage-based revenue grows from ~25% to ~70% of the market.

The diagnostic software stack has evolved into a two-layer architecture. UDS (ISO 14229) remains the transport-agnostic protocol used within ECUs and in-vehicle communications. SOVD (ISO 17978-3) sits above it as a service-oriented, REST-based API protocol designed for HPC and central computing architectures. It builds on OAuth 2.0/OpenID Connect-based access control and uses a SOVD2UDS adapter to bridge legacy ECUs. SOVD complements existing infrastructure, enabling gradual and incremental adoption.

China is likely to develop a parallel diagnostic stack. Several Chinese OEMs are developing their own proprietary, vertically integrated platforms based on advanced architectures and in-house development capabilities. In the near term, widespread SOVD adoption is unlikely. However, compliance with export requirements, including UNECE R155/R156 and Right to Repair regulations, will likely drive the adoption of dual-stack architectures for vehicles exported by Chinese OEMs by 2028-2030.

The role of public authorities in shaping automotive ecosystems is under-recognised. From CARB emissions monitoring to China’s real-time monitoring of new energy vehicles since 2018, regulators have repeatedly reshaped vehicle software and connected functions, including diagnostics. The next wave is likely to focus on real-time safety monitoring of automated driving. OEMs and suppliers should engage with public authorities early as key ecosystem stakeholders in each jurisdiction and position themselves to benefit commercially from the standards they may mandate.