Remember the outroar BMW caused when they announced they were going to charge a subscription fee for heated seats? It was a sign that microtransactions were racing into the auto industry. Unfortunately, that was just the tip of the iceberg, and the real flood gates will open when companies begin to launch their new software-defined vehicle platforms.
What is a software-defined vehicle (SDV)? It is a car that uses computers and software to operate most, or all, vehicle functions. SDVs combined with over-the-air (OTA) update capabilities will allow automakers to change various vehicle aspects wirelessly. OTA updates are updates to software delivered through an internet connection. In an ideal scenario, engineers can fix certain vehicle issues, especially safety ones, without having the customer go to a dealership. For example, Cadillac will launch the Lyriq EV without its excellent SuperCruise self driving but plans to activate the feature via an OTA update; all in the comfort of an owner’s garage..
SDVs also allow engineers and software designers to add new features to vehicles as they develop them. When Tesla delivered the OTA update that allowed owners to change their horns to play different sounds, it went viral on TikTok. Owners ran with this update, using a flatulent noise or a Ludacris song to ‘politely’ ask pedestrians to move out the way. Tesla could have charged their customers for that feature, but they included it for free to drive customer satisfaction.
It’s no secret that Tesla is the leader in the SDV space and has been for the last 8 years. They figured out how to integrate their physical components with software more efficiently and effectively than any other automaker. Specifically, Tesla built their own in-house software that uses fewer more-powerful computers to consolidate the system functionality. This is a stark contrast to traditional OEMs who outsource many of their computer and software development to different suppliers. Because the hardware and software components are proprietary, it makes it extremely difficult to have the modules communicate with one another. Thus, it is difficult for traditional OEMs to release comprehensive OTAs that impact the vehicle. However, that landscape is changing as GM, VW, and Toyota are spending billions of dollars to develop their own next-generation hardware and software architectures to shrink the gap to Tesla.
The biggest benefits of SDVs are that they allow manufacturers to create new revenue streams and future-proof their vehicles. They can forgo the traditional route of updating a vehicle a few years after launch and instead focus their development budget on features that will make their existing model better. In the coming years, they will have the option to charge for OTA updates that unlock different drive modes, sound options for EV motion, unique LED sequencing, the list goes on. Recently, Mercedes-Benz announced that they will charge a $1,200 per year subscription to unlock more power in their EVs. Every automaker has a team of engineers who are thinking through the development and subscription pricing structure of these features.
The ethics of charging a customer for features that already exist in a vehicle is open for debate. BMW defended their decision to introduce a subscription service for heated seats saying 90% of their vehicles are already sold with the heated seat hardware. The benefits of a lower cost vehicle to the customer along with the streamlined production and cost savings from including all the hardware in the manufacturing process make it a viable business case. It starts to look reasonable when that thought process is applied to other technologies, such as advanced driver systems, cameras, and headlight technology. New vehicles are expensive, and it might make financial sense for consumers to buy bundled features over the life of the vehicle or when they have the budget to afford them. This is where competition among automakers will be pivotal as consumers will choose their vehicle based on how manufacturers plan to release those features and at what price.
In the end, software defined vehicles are better for consumers. It provides them with the platform to update and upgrade their vehicle over time, but it will be up to the automakers to determine which features will be free and which will cost extra. As the great Ben Parker always says, ‘with great power comes great responsibility.’ In due time, automakers will have the power to control most vehicle features, but how they choose to wield that power will be decided by manufacturer’s pricing decisions. There may come a time in the not-so-distant future where we may have to either watch an ad or pay more to unlock the heated seat function in a vehicle. I hope when that happens, I am relaxing in a retirement home without a care in the world.
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