Where the Automotive Subscription Model Works and Where it Doesn't

These days, it seems as if nearly every service we consume must be paid for via subscription. This model has become a norm for computer software, for example, and video/music streaming services.

So, it was only a matter of time before it started to take off in the vehicle world too, but it’s a question whether it’s got staying power inside the car. If it has, the challenge for automakers and solutions providers will be how to best leverage the opportunity.

Demand is surely there on both sides of the equation, according to Barry Lunn, founder and CEO of accident prevention technology company Provizio. “OEMs really want a new business model that sees them have recurring revenue now that regular servicing of vehicles, thanks to EVs, is essentially dead and consumers have shown a willingness to adopt subscription services.”

However, the manufacturers have to be clever and thoughtful about what kinds of services they offer. Consumers seem to be drawing a sharp line between what they expect to be standard features in the cabin and value-added offerings that enhance the in-vehicle experience.

A frequently cited negative example is BMW’s disastrous 2022 attempt to charge monthly fees for features like heated seats and steering wheels – hardly rarefied luxuries in today’s market. Warming up a BMW seat would have cost $18 per billing cycle; $10 was the rate for the steering wheel.

After significant (and understandable) backlash, BMW eventually abandoned the plan. What didn’t help was a hacking collective that claimed – a mere week after BMW announced the scheme – that it could unlock the system and provide those nice warm seating/steering options for free.

Tesla’s subscription offerings are also allegedly vulnerable to hacking but at least the BEV leader has a sense of what the customer wants/needs. After all, said Jon Albert, partner and vice-president of auto industry ad firm JKR Advertising & Marketing, “the value must be there for subscribers to sign up."

He’s optimistic about the future of in-car subscription services. This is based, to no small degree, on his own experience as a Tesla owner…and subscriber. “For $9.99 Telsa’s premium connectivity is a good value, enabling access to native streaming audio and safety features like traffic visualization,” he said. 

Albert was also, for a time, a customer of the company’s Full Self Driving (FSD) service, currently priced at a cool $199 per month, only discontinuing it because he rarely went on lengthy road trips. If that situation changes, he said he will re-activate it as to him it’s “invaluable” on longer journeys.

While the subscription model is accelerating to prominence in the auto industry, it has a longer history than some might realize. General Motors' durable OnStar suite of vehicle connectivity services was launched in 1996 and is still going strong, with the company continuing to draw revenue from a host of offerings such as remote access and the Guardian safety service. Bundles are available for those who want to save money on more than one desired item. The longevity and success of OnStar’s subscription features shows that the right kinds of functionality, priced reasonably, are worthwhile to a vehicle owner.

Moritz Neukirchner, technology strategist at auto software developer Elektrobit, not surprisingly believes in-car software subscriptions have the brightest future. To take advantage of this, however, an automaker “must be able to monetize investment into such a platform in order to be organizationally prepared. There is no sense in trying to capture value where none is delivered." 

In his view, the trick is to develop a robust platform for value-added apps and functionalities. “The OEM must transform to allow for overallocation of hardware resources to enable future updates, which may require them to change the way business cases are calculated,” he said.

To their credit, manufacturers and solutions providers seem to be figuring this out rather quickly. According to Lunn, the transition to subscription services “is solidifying with companies like Nvidia and Mercedes entering into revenue-sharing models for ADAS suggesting the OEMs and Tier 1s have seen enough to know that subscriptions will stick if the product is right.”

Developing such systems and functionalities is hardly cheap, however. So, those developers have to get smart about the process too and use tools that can make it faster and/or more cost-effective. Lunn added that “for subscriptions to work the OEM has to eat the hardware cost of the perception sensors so this will see a massive push towards lower-cost hardware with advanced software because you can’t update physics over-the-air but you can apply the results of machine learning across the OEM fleet.”

The potential is massive for subscription services and there are developers aplenty willing to do the hard work of creating them. Yet, care has to be taken not to get too carried away with this. Says Albert: “There are only so many subscriptions consumers will pay for before they feel like they’re being nickel and dimed to death. Finding the perfect happy medium between offering the latest and greatest subscriptions and offering too many things is the key."