It used to be simple. Pick your car, pick the trim and options, pay with cash or arrange financing, and drive off the lot with your new car.
Now, however, the price you pay to own your car may be just the beginning. Your vehicle might be equipped with heated seats, assisted driving features and extended electric range, but whether you have access to them could depend on whether you pay a monthly or annual subscription fee, or a one-time charge to upgrade your car. That’s because new cars are wirelessly connected to the internet, giving automakers the power to remotely enable – or disable – the features you want.
This has advantages for carmakers – and even some drivers – but as recent product offerings from Polestar, Tesla, Mercedes-Benz, BMW and others show, there are right ways and wrong ways to sell connected-car upgrades.
The big advantage for automakers is the magical ability to boost monthly and annual revenues, but arbitrarily locking features behind paid subscriptions is one way to anger customers fast.
First, it’s important to understand just how high the stakes are. Revenue from connected cars and the data they generate could be in excess of US$550-billion by 2030, up from about US$64-billion in 2020 according to report from consulting firm McKinsey & Co.
General Motors currently earns US$2-billion in annual software and services revenue from products including OnStar, which can contact emergency services in the event of a crash, offer live roadside assistance and locate your vehicle. Monthly subscription plans in Canada range from $25 to $50.
The company has 16 million connected vehicles on the road today, but by 2030 it aims to have 30 million, generating US$25-billion annually through software and services. For context, that’s the kind of revenue generated by subscription giants like Netflix and Spotify.
Similarly, Stellantis, the maker of Chrysler, Dodge, Ram, Fiat, Jeep, Peugeot and other brands, claims it will generate €20-billion ($28.9-billion) from a fleet of 34 million cloud-connected vehicles by 2030.
The shift to connected and autonomous cars makes the shift to electric vehicles look “kind of easy,” the former chief executive officer of Volkswagen, Herbert Diess, said last year. As if to underline that point, problems at the company’s software unit contributed to Diess’s departure in July.
However, drivers who may have just spent $35,000 to $80,000 on a new car might understandably be less than enthusiastic about the prospect of being nickel-and-dimed after they drive off the dealership lot.
Only one-quarter of people surveyed by market research firm Cox Automotive expressed some willingness to pay subscription fees for in-car services. The survey, published this year, found, “the vast majority of buyers expect features and services to be part of the total purchase price.”
But what if you could upgrade your 2022 model-year car to 2023 specifications? Polestar is doing just that. The Swedish electric-car maker is offering a $1,595 over-the-air upgrade that grants an additional 68 horsepower and 15 lb-ft of torque, bringing long-range dual-motor 2022 Polestar 2s into line with the 2023 Performance Pack models. No dealership visit required.
Just as Tesla has done with similar Acceleration Boost upgrades, Polestar is offering the power bump as a one-time purchase, not a subscription.
A company representative confirmed the upgrade stays with the car, meaning the second or third owner won’t need to repurchase it. In theory, at least, buying the power boost will increase the value of the vehicle, perhaps allowing the owner to recoup some of the upgrade’s cost when it’s time to sell.
Mercedes-Benz, on the other hand, will soon offer U.S. owners of certain EVs a $1,200 Acceleration Increase option that makes the cars slightly quicker. The difference is that, unlike Tesla and Polestar, Mercedes isn’t selling a one-time upgrade, but an annual subscription. Stop paying and your car will get slower. There’s no potential benefit to residual value either.
It’s not as if Mercedes technicians need to go under the hood and tinker with the motors to boost power every year. In the United States, it seems like a bad deal compared with Polestar’s one-time purchase offering. In Canada, however, a company spokesperson said pricing for the Acceleration Increase has not been finalized and, “the goal is to generally offer on-demand features … both as a subscription model (annual) and as a lifetime product.”
In South Korea, BMW sold a heated-seat subscription plan that would keep your butt warm for the low, low price of US$18 a month. It generated a lot of negative reaction from customers and media commentators, and the plan appears to have been dropped. Heated seats will be enabled from the start.
Thankfully, a BMW Canada spokesperson confirmed there are “no plans to introduce subscription services such as this here in Canada.”
The lesson here is that the devil really is in the details when it comes to over-the-air upgrades and connected-car add-ons. People can tell when they’re being ripped off, and they hate it.
At worst, connected cars have the potential to become a kind of dystopian nightmare. (“I’m sorry, Dave. I can’t turn on the car’s heater right now. You haven’t paid for the Warmth Package this month.”) You could also imagine an endless barrage of in-car microtransactions. (“Tap your credit card on the dash to access 10 extra kilometres of electric driving range.”) No thanks.
At best, however, connected car and software updates have the potential to reduce planned obsolescence, keeping old vehicles feeling newer for longer, and offer drivers greater personalization and customization.
Which future we’re heading toward is still unclear.