Subscription Fatigue Is Coming to Your Car

Be careful what you ask for, you just might get it. For almost 8 years, Tesla customers have crowed about getting over-the-air (OTA) software updates that add new functionality or fix bugs in their vehicles while they sleep. For nearly as long, customers of every other automaker have complained about why they can’t have the same functionality. As that changes, they are faced with a new problem: subscription fatigue.

OTA updates that magically fix a problem or add new features are great. No need to buy a new smartphone or car to get the latest capabilities. Apple leads in providing regular updates to users of its iPhones and iPads with annual major updates for 5 years or more. Android users are lucky to get 3 years of updates and, for most lower cost devices, no updates are the norm.

The Problem with OTA Updates Is Cost

The software engineers that develop, test, and distribute generally like to get a salary to pay the bills. Apple devices sell at a significant price premium to the Android devices that sell in the highest volumes. That’s in part because Apple has made the choice to build in the cost of multiple years of support. After the bill of materials cost of a low end $200 Android phone, there’s little margin left so you’re generally stuck with what you bought.

When Tesla first started doing OTA updates they were more like Apple and had relatively few customers for quite expensive vehicles that ranged in price up to about $140,000. The cost of update development was factored in. Even now, Tesla only has four models that are more alike than different. But even Tesla is having to face up to the growing cost of software development and distribution.

As the fleet has grown toward 1 million vehicles, it has changed the way OTA updates are pushed out. Customers that only have the basic complementary connectivity only get updates when their car is connected to Wi-Fi. Those that want OTA over cellular data have to pay for a premium connectivity package. In April 2020, during Tesla’s 1Q earnings call, CEO Elon Musk announced that the full self-driving package will shift from a one-time purchase to a subscription model by the end of the year.

Motor Trend reported that owners of General Motors (GM) vehicles with its Super Cruise hands-free system will start paying a subscription fee for OnStar connectivity after 3 years. Super Cruise uses OnStar to download map updates and GM provides 3 years of complimentary service when you buy a vehicle. Without the connectivity, Super Cruise will cease functioning.

Consumers Might Already Suffer from Subscription Fatigue

Guidehouse Insights’ Market Data: Connected Vehicles report anticipates that 90% of new vehicles in North America and 75% globally will have built-in data connectivity by 2023. Automakers such as BMW are moving toward offering software-driven features on a subscription basis and this trend will continue to grow. How consumers will respond remains to be seen, as they already face subscription fatigue for so many services. Consumers have an ever-growing list of monthly charges for services like Netflix, Amazon Prime, and Spotify. If car buyers do subscribe to functions, it will provide a source of recurring revenue for automakers. However, the cost for ongoing development of features like automated driving will be significantly higher than controls for heated seats or music streaming. That will likely make it unaffordable for most consumers when added to the upfront cost of hardware. For this and other reasons, most consumers might never own an automated vehicle and may instead only use them through mobility services.