Global OEMs, such as General Motors, VW, Ford, Stellantis, and Hyundai, aim to establish subscription-based businesses in the coming years, with GM targeting an additional $20-$25B by 2030. These OEMs have conducted customer research indicating an average willingness to pay over $100 per month for subscription services. The appeal of this model lies in its financial advantages, with regular and high-margin revenues and lower capital requirements. The investment community’s pressure to demonstrate progress towards subscription models has prompted OEMs to emphasize this strategy in their investor day presentations.
Key to a successful subscription services strategy is ensuring vehicles can support new software-based services delivered securely over the air. Therefore, global OEMs are making significant efforts to adopt a “Software-Defined Vehicle” design for their electrical and data systems. However, challenges have emerged, such as delays encountered by OEMs like VW. In addition, OEMs plan to hire and develop thousands of software developers to create, deploy, and manage software-based subscription services. While these efforts are essential, they may not be sufficient for OEMs to succeed.
In addition to vehicle design and software skills, OEMs must enhance their capabilities in subscription marketing and partnering. Successful subscription companies excel at ongoing customer engagement — analyzing data, and swiftly responding with new services, packages, and pricing. Traditional OEMs, focused on mass manufacturing and distribution through dealers, are not accustomed to direct customer engagement or rapid service deployment based on customer demand.
To succeed with a subscription strategy, OEMs must also master partnering. Collaborations with external software developers will be crucial to offer a wide range of software-based services to customers. No single OEM is likely to monopolize innovative ideas, and leveraging the creativity of outside developers will be important. Additionally, OEMs will need to work with partners to enable services that can function across different OEMs, avoiding the need for separate applications for common vehicle-related services.
There are existing examples, both within and outside the auto industry, that can serve as valuable references for global OEMs. For further information about current best practices and successful models, please reach out for a more in-depth discussion.