The Subscriptions Are Coming for Your Wallet
Automakers are banking on the new revenue stream of subscription services, but there may be customer resistance.
It’s probable that the global market for new vehicles is becoming saturated and is unlikely to grow much past 100 million sales annually. Despite that, automotive remains one of the most competitive markets in the world and the transition to EVs has brought more new players to the field in the past decade than in much of the industry’s history. With more entries fighting for a slice of the pie, automakers need to find new opportunities for growth. Getting customers to pay for subscriptions long after they purchase a vehicle is seen as a key pathway.
The problem for automakers is finding things that customers actually will be willing to pay for in perpetuity. As with many things in the past decade, Tesla has been at the bleeding edge of enticing customers to pay for subscriptions. One of the key examples is its $200-per-month subscription option for “Full Self-Driving.” It’s unknown how many of the several hundred thousand FSD customers have opted for the subscription rather than FSD’s $15,000 one-time fee. Given that FSD doesn’t provide actual full automation, it would make much more sense to go for the subscription than the purchase.
At an October 2021 investor presentation, GM targeted $20-25 billion in new annual revenues from software and services derived from 30 million connected vehicles; that’s about $833 annually per vehicle. Most other automakers have made similar pronouncements in recent years. GM currently generates about $2 billion annually from connected vehicles and hopes its new Ultifi software platform will enable at least 10X more.
For what, exactly, are consumers going to be willing to pay? BMW has been experimenting for several years with the concept, first trying to get vehicle owners to pay $80 per year for Apple Carplay and more recently experimenting in some markets with monthly subscriptions for heated seats and steering wheels. The problem is that over the past several years, we’ve all been bombarded with more and more subscription payments for streaming music and TV, our mobile connectivity and anything else entrepreneurs can conjure. But recently, even some of the most popular TV services such as Netflix and Disney+ have struggled to hang on to subscribers. Is it the start of “subscription fatigue?”
Automakers will have to come up with something with a substantially compelling value proposition in order to pad the bottom line as they have proclaimed to investors. A key part of that will be showing a willingness to reduce sticker prices in exchange for getting payments for on-demand features.
Following Tesla’s lead with enhanced Autopilot and FSD, Ford recently reduced the price of all trims of the Mustang Mach-E. In exchange, the previously standard BlueCruise hardware for hands-off assisted driving now is included on all vehicles for a three-month trial. After that, customers can get three years of service for $2100 or pay $800 per year, equating to nearly the incremental revenue for which GM is aiming. After shuttering Argo AI, Ford hired more than 550 of its engineers for Latitude AI to develop an eyes-off SAE Level 3 ADAS that it hopes will generate even more revenue.
The days are drawing to a close of ticking items on the options list when buying a new vehicle and paying just once for those features. Will consumers come along for the ride? We’ll know soon.