Automakers Want You to Never Go Without a Monthly Payment

For more than 15 years automakers have been desperate to be perceived like technology companies. Back in January 2007, most automotive journalists like myself were in Detroit covering the launch of the Chevrolet Volt concept at the North American International Auto Show. But at CES in Las Vegas, then-Ford President Mark Fields joined Microsoft founder Bill Gates on stage to announce the first version of the SYNC infotainment system. In the years since, the auto industry’s presence in Las Vegas only became more pronounced, and the Detroit show ultimately gave up competing and moved to September.

However, being valued by the financial markets the way tech companies are requires much more than just making product announcements at the right shows. It requires a different way of doing business. One of the factors that drove the market capitalization of companies like Apple and Google to $2 trillion and beyond in recent years was the growth of revenues from in-app purchases and subscriptions on their mobile operating system platforms. Those added revenues came from users of already purchased devices. There was effectively zero marginal cost of goods sold to deliver new bits and bytes, meaning 100% profit.

Historically, automakers made lots of profit from selling aftermarket accessories to upgrade vehicles, but the margins were nowhere near 100%. The beauty (at least for manufacturers, if not necessarily for consumers) of the shift to software-defined vehicles (SDVs) is the ability to sell upgrades and new features on hardware that has already been paid for. That’s why in October 2021, GM CEO Mary Barra spoke of the potential to add upwards of $25 billion in additional annual revenue by 2030 based on software and services.

The challenge for automakers is finding the price point for features that customers will actually pay for. A few years ago, BMW tried to charge customers $80 per year for the ability to use Apple CarPlay. That went over like the proverbial lead balloon and was abandoned. However, BMW is still trying, and in some markets the automaker charges $14 per month for a subscription to heated seats. It’s not clear that strategy is working any better than the CarPlay fees. Tesla, the pioneer of SDVs, offers its “full self-driving” capability for $199 per month as an alternative to paying a one-time fee of $15,000. Tesla doesn’t reveal how many customers go for either option, but since the technology doesn’t actually work as promised, the subscription is a much cheaper way for customers to discover that.

When Ford announced the shuttering of its automated driving partner Argo AI last fall, the automaker said it would focus on deriving revenue from hands-off driving assist features. In the US, the BlueCruise feature is available for a one-time purchase that averages around $2,000. But when it debuted recently on the Mustang Mach-E in the UK, Ford decided to offer it as a subscription for the equivalent of about $22.50 per month—much more reasonable for someone who may only need the feature occasionally when taking long trips.

Mercedes-Benz recently announced that it would offer power upgrades for its EQE and EQS electric models. An 80-horsepower bump on the EQS, which drops the 0-60 time by about 1 second, costs $90 per month, $900 per year, or $2,950 for the life of the vehicle.

In a world where consumers are increasingly getting bombarded with monthly subscription fees, it remains to be seen which of these they will find a compelling value proposition. The one thing we know for sure is that these experiments are unlikely to go away anytime soon, as the auto industry searches for a business model that gets higher market caps.