- Automated Driving
- Advanced Driver Assistance Systems
- Subscription Pricing
Assisted and Automated Driving as a Key Revenue Enabler
“Software is a core competence of a car company.” That was the conclusion of the recent Mercedes-Benz Operating System (MB.OS) briefing from CEO Ola Källenius. The truth is that software has been a core competency of automakers and suppliers for decades, and they would be unable to meet regulatory requirements without it. What Källenius was talking about is more modern software capabilities that enable new revenue-generating opportunities rather than just the core functionality of being able to sell a product. While Mercedes-Benz avoided some of the unrealistic projections of doubling revenue this decade, one of the key software-enabled features that is expected to drive revenue is assisted and automated driving.
Tesla has already demonstrated this revenue potential with its enhanced AutoPilot and Full Self-Driving (FSD) capabilities. While I won’t discuss the efficacy of FSD here, nearly 400,000 customers in the US alone have paid anywhere from $7,000 to $15,000 for the function, which adds nothing to the bill of materials since all of the sensors are built into everything Tesla produces. That’s probably an average of about $11,000 per car of pure profit, or about $4 billion straight to the bottom line.
Other automakers are also recognizing this potential, including General Motors with its Super Cruise system. While Super Cruise has typically been priced as an option between $2,500 and $5,000 depending on the vehicle and how it’s packaged, after the first 3 years, customers have also had to sign up for a premium OnStar connectivity package in order to get the map updates needed to use Super Cruise.
BMW has been notable in attempting to get customers to sign up for subscription plans for more mundane features such as heated seats and Apple CarPlay support. The reaction to an $80/year subscription to use CarPlay (a feature that is included for free on almost all new vehicles from other manufacturers) was so negative that BMW quickly backtracked. More recently, the company has experimented with an $18 monthly fee for heated seats in select markets. It’s unclear how well that is going, but executives from other automakers, including Ford’s Doug Field, have said they have no plans to follow suit.
In fact, when Ford announced in October 2022 that Argo AI would be shutting down, CEO Jim Farley said the following about conditionally automated, hands-off, eyes-off driving systems: “Yes, this is a huge addressable market, and the potential for highly accretive new revenue streams tied to Level 3, but at the end of the day, this is about giving millions of people that time and eliminating the monotony of highway miles and stop-and-go traffic.”
During the MB.OS presentation, Mercedes-Benz CFO Harald Wilhelm discussed the business model for the company’s assisted and automated driving systems with NVIDIA. Lane-centering assist Level 2 features will be included with the vehicle, while eyes-off Level 3 features will be offered as an option that can be purchased with the vehicle or as an over-the-air update, all enabled by the software-defined nature of the company’s next-generation vehicles. With Mercedes-Benz handling hardware integration and NVIDIA responsible for the software, the two companies will split the incremental revenues, which will likely be several thousand dollars per vehicle.
The potential for partial or conditional automation features to reduce driver workload and allow drivers to read or do other activities on long trips could prove to be much more appealing to customers than paying for seat heaters. Mercedes-Benz, NVIDIA, and the rest of the industry will have to prove the safety and reliability of these systems first—but that’s a tale for another day.