by Format-3

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For a hundred years the car industry sold metal. The next decade belongs to the companies that sell a relationship.

That is the argument of From Metal to Relationship, a 2026 report by Format-3, written by founder Hardy Sidhu. It sets out three big bets on where value will move in European automotive over the next five to seven years. And it asks what each bet demands of the leadership teams that take it seriously.

This piece breaks the report down. The shift behind it. The three bets. The five moves that follow. And where Format-3 stands. You can download the full From Metal to Relationship report here.

The short answer. Electrification is compressing the hardware advantage that defined car brands for a century. Three durable edges are replacing it: cultural meaning, lifecycle relevance and decision intelligence. Performance becomes culture. Ownership becomes the product. The dealership becomes intelligence. These are not three strategies. They are one movement: from selling hardware to operating customer systems.

The shift: a continent already on the other side of the line

The electric transition is no longer a forecast. It is a fact on the registration data.

According to ACEA, battery-electric vehicles took 13.6% of new EU car registrations in 2024, 17.4% in 2025 and 19.4% in the first quarter of 2026. The UK moves faster. In May 2026 SMMT confirmed the two-millionth BEV registration, a 23.1% year-to-date share, and a revised outlook of 26.8% for 2026 and 32.0% for 2027.

Policy points the same way. The European Commission's March 2025 Automotive Action Plan put digital capability at the centre of competitiveness. Its Vehicle of the Future initiative declared the EU has entered the era of the software-defined vehicle. Its September 2025 guidance on the Data Act made vehicle data access a structural concern, not a technical footnote.

The economics are harder still. In March 2026, SMMT reported the UK industry had given more than £10 billion in discounts since the ZEV mandate began. Battery costs were running roughly 30% above 2021 expectations. EVs remained 17% more expensive than petrol and diesel equivalents. Public charging cost over 120% more.

Put those together and one conclusion follows. Hardware margin alone can no longer carry the business. Electrification, software, data and policy are not separate workstreams. They are one current. The companies that organise around it will set the terms of the next decade. The rest will spend it reacting.

Bet one: performance becomes culture

Horsepower is getting easier. Meaning is getting harder.

The new electrified flagships routinely deliver megawatt charging, four-figure horsepower and dynamics tuned more by code than by mechanics. What took decades of engineering can now be approximated with the right cells, motors and firmware. When the numbers become replicable, the part that is not replicable becomes the asset. Community. Ritual. Design lineage. Motorsport credibility. The texture of belonging to something.

The strongest performance houses already know this. BMW M now describes itself as the core of a passionate community, and frames that alongside fully electric M models arriving from 2027. That is a brand quietly deciding the community is the product and the cars are artefacts of belonging.

The commercial case is visible in the numbers:

• Mercedes-AMG deliveries rose 7% in 2025.
• Porsche sold 213,457 vehicles in 2025, up from 206,582 in 2024.
• Roughly 600 AMG Performance Centres account for just over half of AMG sales, producing what Mercedes calls a 25% "Performance Centre effect" on volume.

The infrastructure is half-built too. BMW M runs member groups and puts the M Drift Analyzer inside the My BMW App. Porsche has a deliberate sim racing presence. AMG has track ecosystems and gamified driving. The pieces exist. They are simply not wired together as one system, run by one team, against one set of outcomes. That is the gap.

It matters more than unit volumes suggest. EY's 2024 mobility research found price is now the top factor in brand choice in the UK and several major European markets. Emotional pull can no longer be assumed. A performance brand that feels like a living culture protects pricing power for the whole parent brand.

The report proposes two concepts. Performance ID: one persistent member identity linking app access, ownership, events, content unlocks and rewards. Creator Circuit: a continuous stream of engineering content, motorsport access and limited drops that keeps the badge alive between model cycles, especially for buyers too young to own the flagship yet.

The funnel gets redrawn too. Not awareness to test drive. Content to community to event to vehicle to lifetime advocacy. Performance should not be a cost-heavy showcase. It should be a desire engine.

Bet two: ownership becomes the product

The sale is no longer where value ends. It is where value begins.

The car is becoming the entry point, not the whole proposition. Differentiation is moving to what accumulates after handover: software updates, charging behaviour, service, and finally the trade-in. The unit of competition looks less like the moment of sale and more like the relationship that follows it.

The industry already believes this. 2025 industry research found 92% of automotive organisations expect every car company to become a software company. 87% expect software to be the biggest source of advantage within five years. Software-defined products and mobility services are projected to reach around half of OEM revenue by 2035, with lifecycle revenues growing roughly 30% even as global vehicle sales stagnate.

OEM behaviour confirms it. In March 2026 Volvo confirmed cars built as early as 2020 would get a broad UX upgrade, free. Renault, Audi and Polestar are all framing connected and over-the-air capability as core ownership features.

But the appetite is conditional. Capgemini's 2024 research showed interest in connectivity does not translate into willingness to pay across most EMEA markets. Younger buyers lean towards subscriptions. Older buyers stay sceptical. And with fleet at 57.0% of UK registrations by March 2026 (SMMT), the customer of record is often not the driver.

So the opportunity is not more paywalls. It is fewer, sharper services that meaningfully change how the car works for the customer over years. The report frames this as a layered ownership model:

At the base sits hardware value: the unit sale, manufacturing margin and traditional aftersales. It is commodifying. Above it sits the reliability layer: charging, diagnostics, battery health, finance, insurance, service and downtime. This is the foundation. Then the adaptive layer: personalisation, predictive advice, contextual upgrades and renewal pathways. This is where willingness to pay is earned. At the top sits the orchestration layer: trust, consent, interoperability and service orchestration around the vehicle. This is the defensible moat.

If the foundation is wobbly, nobody trusts the layers above it. That is why so many connected-service experiments failed despite high feature counts. Paid features on weak foundations do not fail quietly. They cost trust you cannot rebuild.

Four concepts operationalise the stack. Ownership OS: one app and data layer for status, payments, service, charging and upgrades. Adaptive Entitlement Engine: the right feature or trial at the right moment, not blanket subscription pushes. Renewal and Residual Co-pilot: a lifecycle engine that times trade-in and builds used-EV confidence. Open Garage: short-term model swaps as retention insurance. Porsche Drive Flex reached around 50,000 contracts by 2021 while Care by Volvo and Audi on Demand retreated. The difference was attachment to the core sale.

Regulation sharpens the point. As the Data Act opens vehicle data, advantage moves from data possession to service orchestration. OEMs that hoard data without making it useful hold a thinner asset than they think.

Bet three: the dealership becomes intelligence

The dealership does not disappear. It gets sharper or it gets skipped.

This is the hardest bet, because it touches the part of automotive that has been slowest to change. And customers have noticed. Capgemini's 2024 research ranked manufacturers ninth and dealers eleventh out of thirteen consumer industries for customer experience. It also found a perception gap: 48% of consumers called brand reputation a key buying factor, while 73% of executives believed it was the top one.

That gap is the point. Dealers no longer compete with the dealer down the road. They compete with the best banking app, streaming service and checkout the customer used this week.

Auto Trader's UK research sharpens it. 73% of buyers research mostly or entirely online before visiting. 85% say service history matters. 93% say reviews shape the decision. Yet only 55% of retailers list the correct vehicle specification, because the data upstream is wrong.

The technology to fix this is not speculative. Auto Trader's platform processes roughly 450 million weekly interactions and 2.7 million daily visits, inferring intent and surfacing it to more than 6,000 retailers through Deal Builder. The infrastructure exists. The question is who learns to operate it well.

The human layer gets more valuable, not less. A confident advisor helping someone choose between a £45,000 EV and a £35,000 hybrid is worth more than a decade ago. Reuters reported in 2025 that several OEMs stepped back from full agency-model rollouts. The real debate was never dealer versus direct. It is dumb retail versus intelligent retail.

The design principle is a deliberate division of labour. AI handles the routine administration. Humans handle the confidence-heavy judgement. The report's three concepts follow from it:

• Customer Memory Graph: one profile that remembers every interaction, quote, trade-in signal and finance constraint across channels.
• Retail Co-pilot: a staff-facing layer that surfaces urgency, affordability, powertrain hesitation and next-best action, most of all at the upgrade moment.
• Trust Console: a customer-facing view of pricing logic, service history, reviews and ownership cost in one place.

One warning sits under all of it. If the front-line incentive is still to clear stock this month, no intelligence layer will change customer behaviour.

Five moves for automotive leaders

The hardware edge erodes faster than the relationship edge. The report closes with five moves that follow from that.

1. Put relationship metrics next to unit metrics. Lifetime value, active community participation, connected-vehicle usage and trust belong on the scorecard beside unit sales and gross margin.
2. Build a single consented data spine. Connect media, commerce, vehicle, finance and service before regulation and competitors force it.
3. Give performance sub-brands a platform mandate. Not just a launch mandate. The product calendar is the wrong unit of work for a year-round identity system.
4. Redesign retail economics around continuity. Reward trust, continuity and service penetration, not short-term metal disposal.
5. Rationalise the digital product portfolio. A few high-utility experiences beat a long tail of low-value features. The willingness-to-pay data already says so.

The report is honest about its limits. Sub-brand community models are market-specific, so the structural argument travels but the implementation needs localising. And the most sensitive numbers (attach rates, incremental lifetime value, dealer-level conversion) are not public. A board-level case needs internal data. That is a reason to commission the work, not to defer it.

Where Format-3 stands

We do not think the next decade is a product question. It is a relationship question.

We wrote From Metal to Relationship from inside the industry. Format-3's team has spent more than a decade building connected platforms, omnichannel retail, subscription models, companion apps and HMI for brands including Mercedes-Benz, Volvo Cars, Toyota, Lexus and Rolls-Royce Motor Cars. The pattern we kept seeing was the same. Excellent cars. Fragmented relationships. Different logins, different bills, different conversations.

Our position is simple. The components of the next automotive model already exist. Connected vehicles. Cultural sub-brands. Software platforms. Intelligence-led retail. None of them are speculative. The work is not to invent new pieces. It is to put the existing pieces together with conviction, before the market rearranges itself around someone who already has.

That is the layer we design and build. Every concept in the report, from Performance ID to the Trust Console, is a brief we can take from strategy to shipped product. See what we do and the work behind it.

We recently took one of the concepts for dealership intelligence and developed it for BMW, see BMW Next Move.

Frequently asked questions

What is From Metal to Relationship? From Metal to Relationship is a 2026 report by Format-3, written by founder Hardy Sidhu. It argues that value in European automotive is moving from selling hardware to operating customer relationships, and sets out three strategic bets for OEMs, performance brands and dealer groups.

What are the three big bets in the report? Performance becomes culture: performance brands become year-round identity platforms. Ownership becomes the product: the car becomes the entry point to a relationship that compounds after the sale. The dealership becomes intelligence: retail shifts from processing stock to preserving context and building trust.

What does "from metal to relationship" mean? It means the durable source of advantage in automotive is shifting. As electrification makes performance and hardware easier to replicate, pricing power, retention and customer economics increasingly depend on cultural meaning, lifecycle services and intelligent retail.

Why is car ownership becoming the product? Software-defined vehicles keep improving after handover through updates, services and upgrades. Industry research projects around half of OEM revenue from software-defined products and mobility services by 2035. The ownership experience, not the moment of sale, becomes where value is earned.

Will dealerships disappear? No. The report argues dealerships get sharper or get skipped. Routine administration moves to AI. Confidence-heavy decisions, such as choosing between an EV and a hybrid or timing an upgrade, stay human and become more valuable.

Who is the report for? Boards, executive teams and senior product, brand and retail leaders in automotive who sense the centre of gravity is shifting and want a working position on what to do about it.

Where can I read it? The full report is free to download from Format-3.

Read the full argument. Sixty-seven pages, nine product concepts, five moves for leadership. Get your free copy of From Metal to Relationship.

Want to pressure-test it against your own roadmap? Book an intro call or get in touch.

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