McKinsey: Consumers Ready for Subscription Connected Services

LAS VEGAS – Connectivity solutions and in-car digital offerings, such as entertainment and advance hazard warnings will, according to global consulting firm McKinsey, play an increasingly important role in the future mobility experience and change the revenue streams for automakers.

By 2030, core connectivity use-cases, such as gaming and over-the-air upgrades, as well as Wi-Fi and even heated seats, among others, could deliver $250 billion-$400 billion in annual revenues, says McKinsey, which reveals its findings at CES 2024 here.

Getting a handle on what consumers really want and will pay for is critical for automakers and suppliers making bets on future products and offerings. McKinsey surveyed 1,600 car owners across the U.S., China and Germany (which McKinsey says a is a proxy for European Union countries). Thirty-one percent of respondents were from the U.S., while 34% were from Germany and 35% were from China. The genders were split 50/50. Average monthly income of respondents was $5,400.

While Chinese automakers learned internal-combustion-engine operations and product development via joint ventures formed with Western companies going back to the 1970s, today’s Chinese companies have vaulted ahead of Western automakers in battery manufacturing and connected-car technology.

“The Chinese have set the standard for connectivity and infotainment user interfaces, and will continue to do so,” says Phillip Kampshoff of the McKinsey Center for Future Mobility.

Some key findings in the McKinsey study: Customers favor subscription models for connected-car features and apps, provided the features make sense for subscription, versus features expected to be standard or otherwise permanently installed.

While range anxiety and fear of insufficient public charging remain huge obstacles to consumer adoption of EVs, connectivity services and apps and the superior execution of the driver interface is the deciding factor that will get 40% of respondents to change brands, according to the survey findings. Forty-nine percent of U.S. respondents say they would switch for superior connected-car services, while the percentage was even higher in Germany: 55%.

Prioritizing connected-car features in Europe, the U.S. and China shows clear geographic and cultural differences. There are many top choices in one region that don’t even make the list in the others. The connectivity features that U.S. buyers prioritize: anti-theft alarms (75%); smartphone integration (66%); heated seats (63%); two-zone climate control (60%); lane assist (59%); Wi-Fi (56%); advanced steering (55%); and automatic high-beam lighting (55%). In Germany, car owners prioritize human-machine interface and cockpit individualization (31%); intelligent in-car ambience control (31%); engine/driving sounds (29%); automated payments (27%); electronic logbook (21%); and in-vehicle concierge (20%). In China, the top choices are heated seats (58%); music streaming services (57%); video streaming services (53%); engine/driving sounds (53%); heated steering wheel (52%); and in-car office features (51%).

The desire for connected services depends a lot on geography and demographics. Living in an urban area, having a higher household income and driving more miles annually drive demand for connectivity services by up to 74%. People who live in dense urban areas want these services are almost twice as likely to buy them as people living in rural areas. More than half of people with household income of $9,000 per month and higher want connected services (55%) versus 43% among people making up to $3,000 per month.

The whole arena of subscription-based connected services has been a bit fraught. BMW set off a firestorm of media coverage and opinion when in 2022 it tested the waters with monthly subscriptions for heated seats as opposed to making them part of a suite of permanent features. “That was probably not the best selection of services to announce to test the waters,” says Kampshoff. Still, the McKinsey survey shows BMW was on the right track even if the media coverage may have suggested otherwise.

Thirty-nine percent of respondents say they would prefer subscription models for services and features, while 30% say they would opt for an annual one-time payment.

Automakers are banking on connected services for future revenues. General Motors, for example, aims to introduce dozens of new fee-based digital features by 2026, including one enabling a vehicle to predict when it will need maintenance. Ford, meanwhile, expects its Blue Oval Intelligence connected-vehicle platform to be in 32 million OTA-capable vehicles globally by 2028, generating some $20 billion a year in revenue by 2030.