Key Takeaways
- With the increasing level of automobile intelligence, the current smart car also has a software profit model similar to that of the mobile phone industry, which is achieved through software subscription or “hardware embedded + paid activation/upgrade” mode. Subscription payment has provided more space for imagination for the capital market, and has also become the direction of continuous efforts for many automakers.
- As early as 2016, Tesla captured user demand in the software and application ecology and launched corresponding subscription services such as FSD and seat heating to give new added value to the models. This model has also been appreciated and followed by new automakers and some traditional automakers.
- From the perspective of consumer acceptance, the acceptance of new automakers is higher and more willing to pay for technology intelligence functions, but the acceptance of traditional cars is relatively low. On the one hand, user consumption habits have been forced to change, and they have not adapted from selling the entire vehicle to subscribing to payment. On the other hand, some subscription services provided are relatively basic and unable to maintain differentiation, and consumers regard automakers as “cutting leeks”.
- When considering subscribing to paid projects, it is recommended that car owners consider three factors: firstly, to clearly understand whether they can enjoy the subscribed paid project in a timely manner; secondly, to understand if the function has clear importance to them personally. Thirdly, regarding the choice of paying configuration, it is recommended that consumers compare the price of the subscription system and the one-time purchase price of the project and choose the best option.
- At present, the commercial model of automakers’ paid subscription services is not yet mature. In the future, smart cars may become more and more similar in terms of hardware, and there will be more differentiation in terms of software subscription unlocking, providing personalized services for car owners.
Overview
After buying a car, do you still need to pay to unlock features like seat heating? As a consumer, can you accept it?
Recently, Mercedes-Benz and BMW have successively launched hardware pay-to-unlock functions, and the news has caused controversies, criticisms, and accusations. Netizens have even made fun of whether the accelerator pedal and steering wheel will also require paid unlocking in the future?
The phenomenon of subscription services sweeping automakers has already shown signs. As early as 2016, Tesla started the subscription model and launched corresponding subscription services such as FSD and seat heating. Until now, paying for software has gradually become an important component of Tesla’s revenue. In 2021, Tesla’s service and other business revenue, including autonomous driving software, was $ 3.802 billion, a year-on-year increase of 65%, accounting for 7.06% of total revenue.
This model has also been appreciated by some domestic new car manufacturers. NIO Pilot from NIO, XPILOT from XPeng, and many traditional automakers have also started various subscription payment methods.Can the pay-per-subscription business model go far in the automotive industry? What risks does paying for car subscription bring? In the second episode of “EV Talk”, Photon Founder Wang Pan, Supercharging Station Founder Chang Yan, and Future Automotive Daily Editor-in-Chief Li Huanhuan were invited to have an online conversation to explore the issues behind car subscription payments. The following is a summary of the highlights of the live broadcast:
Paying for subscriptions can sometimes be more cost-effective than buying individual features
Wang Pan: Many cars offer service packages, and people can still accept subscription payments from cars such as XPeng and NIO. But why do people hesitate to pay for features such as Mercedes-Benz’s rear-wheel steering and BMW’s heated steering wheel?
Li Huanhuan: Actually, consumers have a higher acceptance of software. Rear-wheel steering is a hardware feature that users have already purchased when buying a car, but the function is not fully open. Therefore, users feel that they are being “cut” from the service.
Chang Yan: I agree with Li Huanhuan’s point of view. There are mainly two reasons. First, users have different definitions of the nature of hardware and software payments. For example, many users think that automatic driving-related functions are very technological and intelligent, and the acceptance of these subscription payments is relatively high. But if it’s for existing hardware in the car, consumers would think: why do I have to spend more money to buy something that has already appeared in my car?
Secondly, in the current mainstream media and public opinion ecology, consumers are more inclined to “New Forces” because these brands represent the forefront of technology in the minds of the general public. But if traditional cars also offer subscription services, users will have a skeptical attitude. Consumers’ spending habits are forced to change from whole-car sales to subscription payments. On the other hand, the services provided by paid subscription services are more basic and cannot maintain differentiation, and consumers believe that car companies are “cutting” them.
Li Huanhuan: Yes. First, the paid services provided by car companies must be able to attract and stimulate consumers’ purchasing desires, and secondly, give consumers more choice space, so that consumers can experience a comfortable transaction process.
Chang Yan: It is actually not necessary to mix traditional car companies and new car manufacturers together. There are also two reasons here: First, the automatic driving that consumers are willing to pay for actually first purchases the hardware, and then subscribes to pay for the software fees. For example, whether the car owner of Tesla is willing to pay for automatic driving or not, this chip is already paid for when buying a car. Therefore, there is no difference between hardware and software here.
Second, it is recommended to calculate the cost of paid features to see if it is cost-effective. Is it more cost-effective to use subscription than to buy individually?## Consider Two Fundamental Premises for Subscription Payment
Wang Pan: Why do car companies launch such subscription functions? How to determine reasonable pricing for consumers? From personal experience, are you satisfied with the subscription payment?
Chang Yan: I am not very satisfied with the subscription payment project I purchased for myself. There are two main reasons:
Firstly, I did not enjoy the subscription function in a timely manner. In 2019, I bought a Tesla Model 3 and spent 60,000 yuan to unlock Tesla’s FSD function. But now it is 2022, and the function has not been fulfilled yet. From a consumer’s point of view, I have not experienced the 60,000 yuan consumption for three years, and if I consider selling the car someday, can I realize this value?
Secondly, I did not know whether the purchased function was necessary for me when I bought the car, as some sales policies may be bundled with new cars. For example, some car owners buy a Xpeng new car and unlock NGP to save some money, but later find out that the function can only be used when there is a high-precision map outside the Fifth Ring Road in Beijing, and the frequency of use is not high.
Based on these two situations, I personally prefer subscription payment, which has two advantages: first, it can be stopped whenever we want. Second, we can determine whether to subscribe and pay after trying some functions. If we do not want to subscribe, we can turn it off.
In the future, these services can be bundled with the owner’s account. For example, after buying a smart car, we can log in to the APP to bind it. If we have a business trip to another city, the function can also be unlocked for another car, which will improve the experience.
Li Huanhuan: At present, intelligent electric vehicles have reserved a large space for software upgrades in the future. From an ideal perspective, as the car owner, we hope to enjoy new technologies with relatively low cost. This concept is reasonable. However, we still need to discuss the specific pricing plan.
Regarding the price, I think it can be subscribed in smaller payment units, such as monthly, daily, or even hourly subscriptions. We can turn it off whenever we try it or feel that we no longer need it. As for the cost, it should be difficult to have a unified pricing system in the short term. After all, this business is in the development stage, and there are few car companies that test the water. It’s hard to reach a unified standard in the short term.Chang Yan: We often mention the saying, “If an automaker masters software, it masters the future.” If an automaker can proficiently and professionally handle on-demand payments or software subscriptions, the entire capital market will consider them to have made significant progress in software capabilities. Based on these two aspects, subscription payments give the capital market greater imagination, and therefore it is willing to give higher valuations to such automakers.
Wang Pan: Yes. If we look at the market value comparison between Toyota and Tesla, why is Tesla’s market value several times that of Toyota despite its volume being only a fraction of Toyota’s? It is because the capital market sees more earning potential in Tesla due to its ability to earn money through software. Professor Chang Yan just mentioned that in the future, we will define cars using software. From the user’s perspective, in the future, is OTA upgrades possible for automakers to use as a tool to “cut grass”?
Chang Yan: I believe that OTA for automakers has gradually become a project that concerns ordinary consumers. Because when there are more and more subscriptions, there is actually a kind of uncertainty about property. The subscription model gives people the feeling that they are always renting services, which will make people feel insecure, and this will involve the value of the car itself. Of course, this year’s national policies also mentioned that all OTA projects need to be reported to and approved by relevant departments, and it is very necessary to establish related procedures.
Multiple hidden dangers brought by car subscription payments
Chang Yan: There are currently two major concerns regarding paid subscriptions: first, will the cost of subscription services increase? For example, a feature costs 5000 yuan for the first year, will it increase to 8000 yuan for the second year? Because subscription services inherently come with uncertainty, which is price stability.
The second point is whether automakers will introduce some extra “tricks” on paid services? For example, we can see on content platforms that after we buy a membership, there is a possibility of “early access,” which becomes a bottomless pit.
Li Huanhuan: There is no need to worry too much. The rules for charging subscription services will gradually become like those for leasing houses. In the future, a market price will gradually form, and there will be related regulatory mechanisms, and companies will not and cannot arbitrarily raise prices.
Wang Pan: Some netizens have asked in the comment section: is it possible that some users do not want to subscribe and only want an entirely free service, which might create some grey areas, such as some people learning to crack the software? Could these vehicles possibly lose their normal maintenance functions?
Chang Yan: There are indeed cases of cracking cars nowadays, including Tesla, which have encountered such things. Regarding software cracking, I think there are three different states:
The first category is mainly some traditional car brands. Some hidden or high-level car functions can be brushed out through the vehicle system, but most of these do not require connectivity and are single-car functions.## Second category
For example, there have been some hacks for Tesla software, some via hacking methods and some via hardware. Although this may bring more playability and performance improvements, it will make the car worthless. For example, if Tesla encounters such things, the official will lock these, and no longer provide services and related warranties. On the other hand, some hacks are irreversible, which may damage the car’s battery and motor hardware.
Third category
If the owner is legitimately unlocking some software services as long as the whole process is within the official service, it will not affect the value of the car.
If it is one of the first two, it will indeed affect the value of the car. Returning to the understanding of pricing, the market will make a fair judgment. As the industry develops more and more, it will gradually be standardized.
Li Huanhuan: Personally, I do not recommend cracking. Cars involve our safety. If it is through a non-official organization, or a third-party to crack, there will definitely be some security risks. More importantly, if the vehicle has any problems after cracking, it will cause a lot of trouble to find the official for repair.
Chang Yan: I agree. We do not recommend attempting this, which is not worth it. It is very dangerous to leave greater hazards for a little bit of pleasure and experience.
“Basic software + Paid subscription” will become the core competitiveness of intelligent vehicles
Wang Pan: If many subscription models benefit car owners more, does this mean that there will be more function modes that need to be unlocked for payment in the future, and buying a car will no longer be a one-time deal?
Chang Yan: This trend will become more and more obvious. Why do so many car companies try to make paid subscriptions? Actually, it is mainly to verify and connect the intelligent capabilities of hardware and car company software.
In the era of intelligent electric vehicles, the cost of cars needs to be reduced. One of the most important ways is to expand the scale of production. For example, the ideal ONE car is a configuration. From the perspective of manufacturing costs, batch production can push down costs. If people hope to have some personalized experiences on this basis in the future, different functions can only be unlocked through software.
Generally speaking, the similarity of the hardware of the cars consumers will buy in the future will become higher and higher, and the core functions that truly differentiate them will be the combination of “software + paid subscription functions” of the car, which will become a common practice in the automotive industry in the future.
Li Huanhuan: If in the future everyone’s cars can be updated and iterated through software upgrade, will the frequency of consumer purchases also decrease?Chang Yan: The subscription function of software may accelerate everyone’s desire for new cars. For example, why do we like to change phones or smart watches so much now? A very important reason is that the OTA of products has opened up some new functions, which increase the impulsive consumption of consumers. In the future, the development direction maybe that the similarity of hardware of cars will become higher and higher, and more differentiation will be made in software subscription unlocking, providing personalized services for car owners.
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.