Owning a car used to be easy – you pay down and finance part of the car or you pay all the amount to buy the car. Once you’ve bought the car, you’ve paid for the fuel, annual insurance premiums, and periodic maintenance on your car. Your car was really yours. But will it remain so in the future?
If the auto industry had its way, users would have to pay an annual or monthly fee to use their cars, even if they bought them. This is why Subscription Pricing or Hardware and Feature as a Service or HaaS & FaaS are becoming more and more popular in the auto industry. Photo credit: Daimler
If the auto industry has its way, they don’t want you to own your car, at least not entirely. Automakers want you to pay more for the car you “own” and continue to pay until you own the car. And how do they go about it? By charging you for features your car already has.
A scary scenario
Imagine you are driving your brand new car after a hard week at the office. The car you drive is the top-of-the-line version with all the bells and whistles that the car company offers. You love driving and having a good time. You try to tune the infotainment system to your favorite podcast, but you get a pop-up saying you have to pay a small fee to change what the infotainment system plays for you. They ignore the message and try to adjust the air conditioning. You’ll get another popup saying you need to buy a subscription to change your car’s air conditioning temperature. Want to turn on your ventilated seats? There’s that pop-up notification again.
Tired of all this, you just keep driving until you find an empty stretch of road, thinking that you’d like to try that super-fast acceleration of your new car that your sales advisor kept talking about. You floor the pedal and expect the car to take off like a stabbed rabbit, but instead you see your car just start rolling as it normally does – again there’s a pop-up message saying you’ve got the Super To experience the rapid acceleration your car is capable of, you must subscribe to a Hyper Performance Package from your dealer or car manufacturer.
All the things we asked you to imagine are happening in real life today as you read this article. Welcome to the dystopian world of hardware and features delivered as services.
The insidious trap
Most automakers have shareholders to whom they are accountable. And more than anything, shareholders want continued and explosive growth and a sustainable source of growing revenue. So how do automakers keep their shareholders happy? By developing a system that allows them to charge their customers more than what they pay for their cars, in the form of a recurring fee.
In North America, Mercedes has locked “advanced” acceleration behind a $1,200-a-year paywall. Photo credit: Daimler
Well, one way to do that is to ensure users have their cars serviced at authorized service stations, where the markups are ridiculous. However, implementation has proven to be a nightmare. Enter subscription pricing or hardware/feature as a service.
Automakers have made it clear that they view “software as a service,” as it’s called in business jargon, as a significant revenue stream that will help them recoup some of the billions of dollars they’ve invested in research and development vehicles. Stellantis, the US parent company of Jeep, Dodge and Chrysler, once said it expects to make $22.5 billion annually from software and subscription revenue alone. Ford, Volkswagen, Daimler, BMW and General Motors have made comparable forecasts.
What car manufacturers actually do
Automakers like BMW, Mercedes, and Tesla have already implemented a paywall model, where they charge for the features their cars already have. For example, BMW has locked features like heated seats and heated steering behind a paywall in some European and North American countries. Similarly, some of Tesla’s advanced features, like higher levels of ADAS or “autopilot” driving, are locked behind a paywall.
Tesla locks part of its battery pack behind a paywall. Customers have the option of paying a hefty one-time fee or an annual fee to unlock and extend the range of their Tesla EV. Photo credit: Tesla
However, one of the most insidious examples of this would be Mercedes and what they have been doing with their electric vehicles in North America. One of the hallmarks of an electric vehicle is the quick and instantaneous acceleration that its powertrain offers. However, Mercedes has “increased” acceleration and other performance features locked behind a paywall that costs $1200 annually.
The whole point of buying an electric vehicle or car from Mercedes or any other premium brand instead of a Ford or Jeep is the performance and speed that comes with it. What Mercedes has done here is lock down the very nature of their car, an annual paywall. Think of it this way – as a Mercedes customer in North America, you’re not paying for more acceleration or better acceleration. You will be deprived of the regular acceleration your fancy brand new Mercedes EV is capable of unless you pay an annual ransom.
And mind you, Mercedes isn’t the only one doing this, other EV manufacturers including Tesla have similar practices when it comes to acceleration and performance.
For years, Tesla sold the Model S and Model X with the same 75 kWh battery, but had the powertrain software locked to 60 and 70 kWh. The customer had the option of paying an additional one-time fee of $3,000 for the additional 30 or 40 miles of range or an annual fee for the range unlock.
What automakers are up to
Automobile manufacturers, at least in Europe, North America and some Asian countries, hope that in the future they will have as few variants of a model as possible – if possible only a single variant. This one variant has the hardware required for all the top-notch features they have to offer. This will allow automakers not only to save on production and inventory costs by streamlining manufacturing and having to produce fewer SKUs or SKUs, but also asking more of customers – base variants have very slim profit margins for automakers, the idea is , to completely eliminate base variants.
BMW and several other European automakers have locked amenities like ventilated seats, heated steering wheels and advanced infotainment options behind a paywall.
The car you buy has the hardware to support every feature you could want. If you want a specific feature, you pay an annual fee. If you don’t want the function when you buy the car, you don’t have to pay the fee. However, if you want to activate the feature a few months later, you will have to pay a significantly higher annual fee.
And yes, the packages are most likely billed annually in most cases. In certain use cases, subscriptions can be offered on a monthly basis, but then they are proportionally much more expensive. We’ve already seen a similar pricing principle being adopted for other subscription services.
Users don’t own the car they own
This brings us back to our original question. In the not too distant future, will you really own the car you own, pay the EMIs and insurance premiums for? Unlikely. This gets worse when you consider how fast we are moving towards a world full of electric vehicles and where the internal combustion engine is going the way of the dinosaur. EVs will rely heavily on software anyway, even for the most basic functions, all of which can be terminated with a remote button press.
Think of it this way: do you really own something if you have to pay an annual or even monthly fee to get the most out of it, or are you just renting it at that point?
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