"Subscription Economy for Vehicle Features is More Profitable than Selling Cars"

Korea Automotive Research Institute Analyzes Subscription Economy Scale
"Win-Win for Companies and Consumers... Subscription Services Increasing"

Tesla Autopilot Self-Driving

[Asia Economy Reporter Choi Dae-yeol] An analysis has revealed that the market size for subscription-based services offering additional automotive features such as autonomous driving, music, and gaming is larger than the traditional manufacturing-based market of producing and selling new cars. This is the background behind major global automakers aiming to become software companies.

According to an industry trend report compiled on the 25th by Jang Dae-seok, Senior Researcher at the Korea Automotive Technology Institute, the average annual operating profit of the top 11 global automakers plus Tesla (based on the last three years) is estimated to be around $109 billion (approximately 135 trillion KRW).

On the other hand, revenue from subscription service-based business models for features is estimated at about $39 billion (approximately 49 trillion KRW) annually if about 10% of vehicles worldwide adopt such services. If around 30% adopt them, the revenue could reach $118 billion (147 trillion KRW), surpassing the scale of earnings from new car sales.

This estimate is based on a global vehicle count of 1.5 billion units (as of 2019) and assumes Tesla’s current autonomous driving service monthly subscription fee of $199, with connectivity services and gaming each at about $10 per month. Although the usage data from subscribed customers’ services is considered to have significant value, it was not included in this analysis.

A subscription service-based business model refers to purchasing specific services by paying monthly or periodically, similar to music streaming or video OTT services. In the automotive context, examples include Tesla’s autonomous driving and Hyundai’s BlueLink services offering remote control, safety security, and vehicle management. There are also entertainment-related services such as in-car video and music, and cases like Mercedes-Benz’s rear-wheel steering system, which is being piloted in some regions as a subscription feature.

Researcher Jang explained, "Consumers can reduce economic burdens and flexibly use specific car functions according to their preferences, while companies can prevent customer churn and simultaneously increase sales or reduce costs. Subscription-based services have the potential to create a market of considerable scale."

Until just a few years ago, superior hardware directly translated to product competitiveness, but now the trend has completely shifted. Not only has the powertrain changed from internal combustion engines to motors, but software competitiveness in areas such as autonomous driving and various media implementations is driving purchases. The industry expects this trend to grow even further.

Jang anticipates that if supply chains normalize within the next one to two years, automakers may face declining profitability, making subscription-based businesses increasingly important. He said, "As consumers experience the pros and cons of the subscription economy across various industries, the success of automotive feature subscription services depends on product quality, technology, and consumer acceptance. If automotive safety features appear as subscription services, negative perceptions such as ‘selling safety’ could spread."

This content was produced with the assistance of AI translation services.