The car industry is in the midst of its biggest transformation since the first Model T rolled off the assembly line. And no, it’s not just about shifting to electric vehicles.
It’s about software, which goes hand-in-hand with the EV transition. Automakers are betting that apps designed to work natively with infotainment systems, over-the-air updates, in-car movies and gaming, and on-demand features will be major drivers of revenue in the future.
Hyundai is one of the automakers that wants to get there first. And not by charging subscription fees for features that drivers are accustomed to getting upfront, like heated seats. Instead, Hyundai wants to develop and launch new products and services that owners value, such as downloadable features for dog owners or sports fans.
The South Korean automaker has set a lofty target for software-driven features to make up 30% of future profits, one of the company’s top mobility executives in the U.S. told TechCrunch earlier this month at the New York International Auto Show.
Up until now, Hyundai has been most visibly trying to get ahead of competitors with hardware-driven features; hardware-driven features such as electric vehicles with more than 300 miles of range and the ability to charge household devices.
The interior of a Hyundai Kona N EV at 2023 New York International Auto Show. Image Credits: Stephanie Keith/Bloomberg / Getty Images.
Now, Hyundai’s shifting its resources and attention to software design as well as personalization and customization of the interior of the vehicle, Olabisi Boyle, who is vice president of product planning and mobility strategy for Hyundai Motor North America, said in a recent interview.
“That’s where some of the future profits are going to be, maybe up to 30% comes from that,” she said.
Boyle clarified that’s meant to be an additional 30% on top of what Hyundai reports now, not in place of another revenue stream. Many industry watchers speculate the coming crop of EVs could last longer on the roads than conventional cars and may drive less revenue from parts sales.
Last year, Hyundai Motor Group posted revenues of $107 billion (142.5 trillion KRW) and a record $6 billion (7.9 trillion KRW) in annual net profit.
The tricky part will be pinpointing which features customers actually want or value. A young adult driver will likely have different needs and preferences than a grandparent using the same family vehicle. If automakers want this to work, they may have to throw a lot of different ideas at the wall and see what sticks.
But getting buyers to wrap their heads around this at all could be tougher than Hyundai expects. Car owners are still more or less used to the same ownership experiences they’ve had for many decades. And with household budgets already stretched thin by inflation or the growing number of subscriptions to services like streaming services, prospective car buyers have repeatedly bristled at the idea of paying monthly for functions they once got up front.
A recent survey of intended new-car buyers by the marketing and research firm AutoPacific revealed fairly low interest in features like remote vehicle control, streaming video, internet browsing and in-car gaming if those options hypothetically cost $15 per month.
Interest in such features tends to be higher among EV and plug-in hybrid shoppers who need something to do while charging, and higher among younger consumers more used to subscription features.
Downloads, not heated seat subscriptions
Boyle, a 20-year auto industry veteran whose career included a run in connected commerce tech at Visa, seemed cognizant of this tension.
The goal for Hyundai’s subscription features, she said, is “not for stuff that you already used to have, like for heated seats, but for actual features that would make you more productive in the interior space of your car.”
That’s a not-so-veiled reference to BMW’s much-maligned Functions on Demand plan, which in several markets offered drivers access to certain features like heated seats for a monthly fee. News of that rollout sparked considerable online backlash last year. BMW responded by saying some U.S. models offer a subscription dash cam function and remote start, but that such offerings exist for now on a “small scale” here compared to other global markets. It’s likely BMW will find more ways to trial such features on future cars.
But lately, “heated seat subscription” has become a kind of shorthand for everything car owners could hate about the forthcoming software-driven cars.
Boyle said for this to work in Hyundai’s favor, the features have to become almost essential, not unlike the backup cameras that are now ubiquitous (and mandated) in new cars.
“These functions that we’re seeing, they’re new, and they’re not perfect in their consumer experience, but those are all going to improve,” Boyle said. “And then that’s just going to be a baseline for when there’s a use case for this or that.”
She added that the focus will be on “things you can download in the EV that you wouldn’t have expected.”
“If you keep a dog in the car, maybe it regulates the climate or rolls down the window or something,” she said. “Do you want to pay for that feature?”
Other examples Boyle suggested included downloadable engine sounds for EVs — automakers like Dodge are already working on ways to simulate the noises lost with internal combustion — or even sports team-themed displays inside. (The latter was mentioned repeatedly to TechCrunch by Hyundai Motor Group executives and product planners at the auto show, including with subsidiary Kia.)
“You need to have the tech stack available for these use cases,” Boyle said. “Let’s say you love the Boston Red Sox, or whatever the case may be. Not everybody wants that, but you can download it for your particular EV.”
Hyundai aims to be one of the first large automakers to make the transition to producing vehicles with the capability of wireless software updates and downloadable features that extend far beyond the infotainment system. It has said all of its cars will be capable of over-the-air software updates by 2025 and many updated models are rolling out with this ability right now, and that will include bug fixes, battery management and eventually a more advanced automated driving assistance system.
Future-proofing
Almost every automaker will be racing toward “hyper-personalization” in the software era. In addition to seeing who can offer the most EV range, fastest charging times and best driving experience, the next few years will be a race to see who can offer the most features people want with the best software user experience.
Automakers are already going down this road. Arguably the highest-profile current example of this is Tesla’s so-called Full Self-Driving Beta, which can run up to $199 per month, or a total of $15,000. That gives owners a suite of advanced automated driving features that can be used to navigate city streets, though, despite its name, Tesla’s cars are not fully self-driving.
Hyundai too has been dipping its toes into this world with its Bluelink and now Bluelink+ subscription connectivity systems. Those services offer features like remote start, emergency roadside assistance and vehicle diagnostic checks for a monthly fee, not unlike General Motors’ long-running OnStar service. The new Bluelink+ service offers many of these features, but complimentary through the entire duration of ownership, with no trial period or subscription fees for new car owners. (Used car owners will have to pay for it after a trial ends.)
The auto industry’s next wave of subscription features could go much deeper. The Volkswagen Group, for example, is launching an in-car app store that will bring native experiences for Spotify, TikTok, Zoom and more. In-car movies and gaming are also expected to be major revenue drivers as EVs wait to juice up at charging stations. And as they (theoretically) become more automated in the future, passengers will need something to play and work on while being driven around.
Experts say that’s a long way off, if it ever happens at all. Car companies are still dedicated to automated driving. However, many, most notably Ford, are putting greater resources toward active driver assistance features like hands-off, eyes-off driving on highways. That includes Hyundai, too, which is working to commercialize autonomy with ventures like a robotaxi service in Las Vegas.
Boyle’s job is essentially future-proofing Hyundai. That also includes its big EV push and its investments in robotics, urban air mobility and hydrogen power.
“Fifteen years ago people would’ve said there’s no infrastructure for electric vehicles; why are you bothering with that stuff?” Boyle said. “But these are things you have to invest in early.”
Inside Hyundai’s plan to turn software into a profit machine by Patrick George originally published on TechCrunch