Next, Tesla did not, and still does not, offer a free trial on its subscription services. Free trials are a simple way for companies to showcase how their technologies deliver value and reduce the uncertainty associated with purchases of novel technologies like autonomous driving by allowing customers to experience them before committing to buy. Research shows that driving-assistance capabilities tied to driver and passenger safety can be highly sticky: drivers can quickly get used to them once they discover how helpful they are, significantly increasing their willingness to pay. It also signals that the automaker has confidence in the services’ ability to deliver value. Tesla could offer a 15-day or even a 30-day trial to convince drivers and entice them to subscribe. Since the automaker already has a firm handle on data, the company should use time-sensitive driver engagement tactics to ensure a smooth journey from trial through conversion and retention. However, this hasn’t happened, and there is no indication that it will.
Last but not least, Tesla still fell short on transferability, the ability of vehicle owners to transfer their subscriptions between cars, similar to how you can activate music streaming subscriptions on newly owned devices. To the disappointment of most Tesla owners, a purchase of FSD for a Tesla vehicle does not give owners the ability to transfer the software to a different Tesla, new or used. Similarly, the language Tesla uses to describe a Full Self-Driving subscription suggests that it is not transferable. An FSD subscription is tied to the account owner and the vehicle for which it was purchased; the balance of the FSD subscription likely will not transfer to your next new or used Tesla. On the other hand, GM’s OnStar subscriptions can be transferred across vehicles as long as the new car is equipped with OnStar and the primary driver stays the same (more on GM’s OnStar in the next section).
We can go on and on about Tesla and its underwhelming adoption of subscription best practices. Despite this, automotive executives continue to obsess over every single move Tesla makes in the hopes of quickly replicating it. This slippery slope can lead an entire industry to adopt practices unfriendly to consumers, which would decelerate the attractiveness of subscriptions in automotive for OEMs and customers.
GM, on the other hand, An enlightening counterexample is GM’s OnStar, which has not only managed to develop a substantial subscription-based revenue stream but is now positioning the offering as a springboard for NexGen mobility solutions. GM officially launched OnStar in 1996 as a dealer-installed device for Cadillac models. After roughly 530 patents and 25 years, the technology is the undisputed leader of in-vehicle connected services, offering a series of features as four bundles ranging from $24.99 to $49.99 per month.
Adopting subscription best practices, including flexibility and affordability, pays off. According to GM, OnStar has 4.2 million paying subscribers and generates about $2 billion in revenue at a margin of more than 70 percent. GM’s research also shows that customers are willing to select multiple services if they are purposely designed and offered in flexible packages or bundles. On average, most customers choose a bundle of 25 different services proving that flexibility drives acquisition and adoption. By 2030, the automaker predicts that 30 million of its vehicles in the U.S. will have connected car technology, leaving it with a serviceable addressable market of $80 billion. GM aims to generate between $20 billion and $25 billion annually via cross-selling, $6 billion of which is expected to come from insurance. The automaker currently has a traditional insurance offering in 46 states and Washington, D.C. As part of GM’s vision to offer a more compelling insurance product to its customers, the automaker is working on a safe driving behavior algorithm in partnership with American Family Insurance and plans to start selling it soon in Arizona, Illinois, and Michigan. The mutual benefit to GM and its customers is twofold. For one, GM won’t have to spend $10 billion yearly on U.S. car insurance advertising, which is more than what auto companies spend on advertising cars.
Stellantis’ Free2move car sharing service recently acquired ShareNow, a similar service initially introduced by BMW. ShareNow will add 10,000 vehicles to Free2move’s free-floating fleet of 2,500, and 3.2 million users to its existing 2 million, reaching a total of close to 6 million customers worldwide. It wants to grow that to 15 million by 2030 with almost $3 billion in annual revenue, up from $42 million in 2021. Although a single automaker owns Free2move, Stellantis’ depth and breadth of models across multiple brands and in many countries could pose a serious alternative to car-sharing first movers like Zipcar. For example, in Paris, Free2Move users can access a Citroen AMI or a Peugeot iOn for 0.39€ per minute or an even more attractive 0.26€ per minute rate for those subscribing to a monthly 9.99€ monthly membership. This acquisition also confirms BMW’s and Mercedes’ shift in strategy. The two leading automakers have decided to focus instead on digital multi-mobility and digital services related to the charging of electric vehicles.
Strategically thinking, Free2move is moving towards achieving critical mass based on larger fleets to drive profitability, which has been a key challenge in car-sharing. It also has a footprint of complementary services, including more than 250.000 EV charging stations. Free2move’s official press release states, “Leveraging Free2moves’ financial discipline and ability to manage a profitable business, this acquisition will further enhance its economies of scale and synergies, contributing to its Dare Forward 2030 ambition of growing the profitable mobility service to net revenues of €2.8 billion with a first step of €700 million revenues in 2025.” As if all of the above were not exciting enough, Free2Move also marks the “grand return” of Citroen with the AMI car in the U.S.
While OEMs initially experienced mixed results from launching subscriptions for physical products, NIO’s Battery-as-a-Service (BaaS) service proves that offering what other EVs are missing can be highly successful. The subscription plan reassures electric car owners since the cost of the battery is separated from the cost of the vehicle, and better car resale value since the heavy depreciator (battery) is serviced separately, on a subscription basis, via the company’s 484 battery swap stations.
In short, the subscription solves two unique problems for electric car owners: 1) battery degradation (46% of consumers believe that their battery will last 65k miles or less) and depreciation (battery replacement fees of upwards of $10,000 act as “liabilities” to electric car ownership).
The bundle is offered to all vehicle owners and combines unique services like door-to-door valet and practical driver support like lifetime free roadside rescue. This infrastructure can now expand to support the growth of BaaS, forming a subscription-based services platform and “growth springboard” similar to GM’s OnStar. At the same time, this infrastructure is already in place to support bi-phasic subscription monetization strategies identical to Amazon’s Prime video, as we explain in detail here. Last but not least, NIO’s “platformization” could be interpreted as an effort to “own and protect” car experiences and behavioral data while serving as “safe environments” for testing novel services and products for current and future NIO customers, or better said, subscribers.
But could NIO’s BaaS become the mainstream model in the lucrative market of battery asset management? It has prerequisites. It solves a particular, justifiable problem in an emerging market with significant growth potential, and it uses the most effective strategy to do so; subscriptions. For battery swap stations serving passenger cars, a utilization rate of about 20 percent, or 60 services per day, is the break-even point—profitability increases as utilization increases. At 100 vehicles per day, the net margin per station is about 18 percent, according to NIO. The company will continue to invest in growth and expects to add more than 3,000 new battery swap stations in China by year-end, bringing the total to at least 4,500. From 2022 to 2025, NIO is expected to add 600 battery swap stations annually in the Chinese market alone. Interestingly enough, Vietnam’s VinFast EV Car OEM is entering the U.S. market with a similar Battery-as-a-Service subscription model
So, what have GM, Volvo, Wabi, and Clyde done right? Well, they got many of the most critical-to-success subscription management principles right. Among others, they:
For laggards like Tesla and most other OEMs, a clear roadmap for accelerating their Journey to Usership has been designed and successfully tested. They can avoid mistakes by applying proven methods and tools and launching viable offerings to generate recurring revenues in new and existing markets. Zuora’s Subscribed Strategy Group has helped improve the top and bottom line performance, including a Top-3 US OEM currently leading the in-car connected services race. We offer the following guidance:
Becoming a leader in the subscription economy takes resilience. If you doubt that the future of the global economy lies in subscriptions, Zuora’s proprietary research will help you gain the confidence required to take the first steps. The Subscription Economy Index™ tracks the rapid ascent of subscription-based companies worldwide in key verticals and regions. The SEI reports have helped countless executives strengthen their business cases for change and become true subscription champions, achieving more than 6.7% higher growth vs. the S&P 500 Index . Zuora also regularly publishes proven success stories of our automotive clients, including Ford, Stellantis, Jaguar, and LandRover.
Although there are frontrunners in the mobility race, most growth is still untapped, with plenty of room for new business models. Zuora has identified three “strategic plays”: 1. Connected Services, 2. Repackage-to-Recurring Services, 3. Product-as-a-Service. Each strategy points to different transformation requirements and services monetization models, detailed in our “Reaping the Recurring Benefits of Industry 4.0 and The Blueprint to Monetize Anything-as-Service.”