Why do car companies offer subscription-based features?

It was 2020 when at least five automakers like Audi, BMW, Cadillac, Porshe and Tesla introduced a subscription model for certain features of their high-end cars. This meant customers had to pay monthly or annual subscription fees to use features like active driving assistance or voice recognition. And that despite the fact that such features are already installed in the car.

Tien Tzuo, founder and CEO of Zuora — a company that helps create subscription programs — said, “Your car could be a gigantic, heavy phone-slash credit card. I think it’s a really short step to figuring out how to turn that car into a $30-a-month revenue stream,” he says. He added that if subscription-based models prove successful, they’re here to stay.

Cars History and Function
Subscription car model – meaning
How does a car company subscription plan work?
Pros and cons of a subscription-based model

Cars History and Function

Annual car sales worldwide (2019-2023)
Annual car sales worldwide (2019-2023)

In 1886, the German inventor Carl Benz had his Benz Patent Motorwagen patented, which is considered the birth year of the four-wheeler. The 1908 Model T, an American car made by Ford Motor Company, was one of the first cars that was affordable to the masses. In the United States, automobiles were quickly introduced to replace animal-drawn carriages and carts. In other parts of the world, including Europe, demand for automobiles increased after World War II.

Driving, parking, passenger comfort and lighting are essential parts of a car. Over the years, the automobile has evolved to include various other features and controls to make the driving experience easier. These include rear view cameras, air conditioning, navigation systems, in-car entertainment, etc. The 21st century has also seen the next generation of electric cars commercially available.

Subscription car model – meaning

The imminent future of car subscriptions

The business of building and selling cars is one that operates at relatively low margins. However, automakers aim to significantly increase their profits by charging customers monthly or yearly subscription fees for access to certain features. This was made possible by the increasing internet connectivity of vehicles, which enables over-the-air software updates developed by Tesla about a decade ago. The deep internet connectivity of vehicles means automakers can reach inside a vehicle to add new features and tweak things remotely. This technology can be monetized to offer specific services such as heated seats, remote start keys, and various other convenience features.

Mark Wakefield, head of automotive and industrial practice at consulting firm AlixPartners, noted that such an approach allows automakers to streamline manufacturing to consistent specifications, and then owners can add features of their choice a la carte.

How does a car company subscription plan work?

In 2020, automaker Porsche detailed how its subscription plan would work. Also known as Function on Demand, the service gives car owners two options — outright purchase of a vehicle feature or paying a monthly subscription fee to use the feature. The Porsche Intelligent Range Manager is currently the only feature available as a subscription feature. This feature optimizes the vehicle’s navigation system to maximize EV range and minimize charging stops. Buying this feature outright would cost $474, while a monthly subscription would cost $12 after a three-month trial period.

That same year, Tesla made its Full Self-Driving feature available as a subscription. The subscription price for the basic Autopilot to FSD feature is $199 per month and for the advanced Autopilot to FSD feature is $99 per month.

A monthly subscription fee would be charged for the Cadillac Super Cruise active driver assistance after the free trial. An Audi spokesman said the car’s Function on Demand system would allow some owners to purchase navigation after purchase. In the future, the car manufacturer will expand the navigation system with additional functions.

Another luxury car maker, BMW, allowed owners of certain car models to subscribe to features like real-time traffic alerts, navigation map updates and live concierge service from its ConnectedDrive store. The automaker is now selling a heated seat subscription service in countries like the UK, Germany, New Zealand and South Africa for about $18 a month.

In early 2022, brands like Lexus, Toyota and Subaru invited their owners to pay for the convenience of being able to remotely lock or start their cars via an app. With some BMW vehicle models, the automatic high beam can be activated by paying a subscription. General Motors and Ford offer subscription plans for access to their freeway hands-free systems. By 2030, automakers aim to generate annual sales of $20 billion with such software-based services.

Monthly subscriptions expire and do not automatically transfer to subsequent owners, unlike an outright purchase that becomes part of the vehicle’s features. A senior counsel for Consumer Law Group, Daniel Blinn, said automakers may need to include warranty coverage for features for the period the subscription is alive. He continued: “You were paid to perform this service. This extends the manufacturer’s repair obligation.”


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Pros and cons of a subscription-based model

A subscription-based model, especially for auto functions, has a very clear set of advantages and disadvantages.

advantages

  • Over-the-air capabilities present a major opportunity for automakers to introduce new subscription models over time.
  • It’s a recurring revenue stream for years after the initial purchase.
  • It builds long-term relationships with end users that lead to brand loyalty.
  • Customers only pay for required services as needed and not as part of the car’s initial cost.

Disadvantages

  • Consumers who do not opt ​​for specific subscription services may still have to pay large upfront costs at the time of purchase, since the cost of installing the necessary equipment is part of a new vehicle.
  • Since there is no law clearly stating the necessary features that are part of mandatory installation, automakers can try to play around with safety features.
  • Customers may feel like they’re paying twice—once for the feature to be built and again for activation.
  • Automakers are still unsure about subscription-based pricing, which needs to be legislated to protect consumers from high tariffs.

History, present and future of the subscription business model

The subscription business model is growing rapidly. So here’s a deep dive into its history, revenue model, and future.


Conclusion

Currently, most subscription plans come from luxury automakers because their customer base is well-equipped to absorb an annual or monthly fee. However, industry analysts predict the mass-market adoption of subscription-based car models as automakers seek new revenue streams to fund their intended plans to build electric, connected and autonomous vehicles.

frequently asked Questions

How much does a subscription to the Porsche Intelligent Range Manager cost?

Buying this feature outright would cost $474, while a monthly subscription would cost $12 after a three-month trial period.

Which car companies offer subscription-based features?

Companies like BMW, Tesla, Cadillac, Porsche, Audi, Toyota, Lexus, and Subaru offer certain additional features on a subscription basis.

What are the benefits of the subscription-based model?

Some of the benefits of a subscription-based model are:

  • Over-the-air capabilities represent a major opportunity for automakers.
  • It’s a recurring source of income.
  • It builds long-term relationships with customers.
  • Customers only pay for needed services as needed.