A brave new road

Do you need a car? Or do you need access to a car? As we make the transition to electric vehicles (EVs), will changing expectations and high costs drive consumers to adopt new models of vehicle use based on access rather than ownership? A Netflix for autos?

The industry thinks it’s possible. Boston Consulting estimates the car subscription market in Europe and the U.S. could reach $40 billion by 2030 – up to 15% of new car sales, with Europe potentially the largest subscription market. Frost & Sullivan believes around 600,000 UK vehicles will belong to subscription fleets by 2025, accounting for nearly 10% of total sales across Europe and the U.S. IHS Markit anticipates 14.2% of all new registrations will be for car subscription vehicles by 2030, and McKinsey says one out of three new cars sold could potentially be a shared vehicle as soon as 2050.

There are various mobility-as-a-service (MaaS) business models, including purchase and lease, rental and ride sharing. Subscription combines a little of all three. Subscription schemes are typically shorter term and less restrictive than leasing, longer than rental, and enable consumers to access vehicles they may otherwise be unable to afford. They may offer added value – insurance, road tax or maintenance costs – and usually let you change vehicles almost as easily as upgrading Netflix.

Reflecting on a changing world

These changing business models meet a transforming world. Climate change demands we find new energy sources even as manufacturers of next-generation electronic, semi-, and fully autonomous vehicles meet unavoidable challenges, such as raw material and processor shortages and the environmental consequences of mass production. Meeting green targets makes it unlikely we’ll be able to replace every vehicle on the road while changing consumer expectations reduces demand.

But as the industry accelerates toward looming climate change targets, manufacturers and governments know they must find ways to enable consumers to abandon hydrocarbon vehicles for new breeds of EV. In this sense, car subscriptions give consumers the flexibility to try electric vehicles without fear of being stuck with an expensive car they don’t like or a huge battery replacement bill they can’t afford – and to be able to upgrade as EV technologies improve.

We know the demand is there. Car subscription company MyCarDirect says EV uptake is twice as high among its customers and says no one returns to petrol or diesel once they drive an EV. That and the drive to zero emissions are intensifying competition in Europe, with traditional brands facing pressure from tech firms and new-to-the-region Chinese brands.

Auto giants embrace subscriptions

Major car manufacturers are embracing the opportunity. Evidence for this is everywhere: take Volkswagen’s Europcar purchase or Volvo’s Care subscription service, which now accounts for 15% of the company’s new vehicle registrations. Ford, Cadillac, Porsche, BMW and others are experimenting within the car subscription space. Many also collect and monetize driver data, which McKinsey predicts will be a $400 billion business by 2030. Honda is exploring how to monetize data – from driving distances to entertainment habits – gathered by smart vehicles. In this big picture, such information promises to increase ARPU (Average Revenue Per User).

The drive toward autonomy continues. Volkswagen will make autonomous vehicles available through Europcar after 2025. Christian Dahlheim, CEO of Volkswagen Financial Services, said: “Our expectation is that by far most people will still prefer individual mobility by 2030, but it will be more about using and less about owning vehicles.” Subscribing to autonomous transportation will be life-changing for some consumer cohorts.

Insurers also recognize the impact emerging models of mobility will have on their business, so they seek to stake claims in the new subscription opportunity. Santander Consumer Finance, for example, introduced Ulity, a white-label tech platform for vehicle subscription services.

Car subscriptions will not be limited to providing a car and away you go. Stellantis – the owner of Fiat, Chrysler, Peugeot and Citroen – will offer software-based feature upgrades, such as performance updates, for a fee. It hopes to generate €30 billion in annual revenues from such offerings and subscriptions by 2030. Other manufacturers, like Tesla, already offer such upgrades. Capgemini believes over a fifth of automotive revenue will be software derived by 2030.

Modern vehicles are connected vehicles and, given that cars are inherently mobile devices, pervasive 4G and 5G network technologies will help drive innovation. Technology can track assets, assess driving skills, and even deliver over-the-air software upgrades for a fee. Carriers will transmit maintenance and vehicle information, and advanced vehicles increasingly support emergency crash detection systems. Orange IoT Managed Global Connectivity already supports emerging business cases for subscription vehicles, including Mobileye’s road safety solution used by 25 major automakers.

New consumers

Changing patterns of ownership reflect changing demographics. Younger Generation Z consumers are already accustomed to subscription-based services. For them, the flexibility of access over ownership is understood. These switched-on consumers are motivated to combat climate change by any means necessary. However, at this stage in industry evolution, the relatively high monthly cost of car subscriptions can be a barrier. Edmunds.com estimates the average cost to be $600-$700 per month, higher for premium brands, and at Kyte, you can hire a Tesla for $995. In the UK, a premium Land Rover from Range Rover can be £2000 per month, including road tax, insurance, maintenance and roadside assistance.

That gap between the financial realities for most consumers and the ambitions of the premium brands that currently lead the car subscription market could end up being filled by innovative business offers. In the U.S., Fair once offered used vehicles on a subscription basis for around $200 per month. While that company no longer operates, it hints that effective monetization of the used vehicle market could bring car subscriptions to consumers currently underserved by costly existing offers.

Car subscriptions offer many of the advantages of ownership for a monthly fee. Still, the big benefit is the flexibility of these schemes to meet the rapidly changing needs of a transforming consumer market while also enabling the new mobility-as-a-service business models. At a cost, customers can sign up for short periods, cancel when they wish, upgrade and benefit from additional services. At the end of life, vehicles return to the manufacturer for recycling, with components re-deployed across closed-loop manufacturing systems.

For more information, discover our solutions for the automotive industry, including global IoT connectivity and AI, and read our blueprint for the future of mobility.

Jon Evans

Jon Evans is a highly experienced technology journalist and editor. He has been writing for a living since 1994. These days you might read his daily regular Computerworld AppleHolic and opinion columns. Jon is also technology editor for men's interest magazine, Calibre Quarterly, and news editor for MacFormat magazine, which is the biggest UK Mac title. He's really interested in the impact of technology on the creative spark at the heart of the human experience. In 2010 he won an American Society of Business Publication Editors (Azbee) Award for his work at Computerworld.