Will ‘connected cars’ persuade drivers to pay for a high-spec ride? | Automotive industry

When a customer said they had driven across three US states, from Texas to North Carolina, to get their car fixed, Tesla servicer Jason Hughes knew something must be up. It turned out to be an unusual problem: the Model S had lost a third of its battery range in an instant, while it was parked on a driveway.

One of the US electric carmaker’s big selling points is that it is constantly connected to its vehicles via mobile networks, offering software updates and entertainment downloads “over the air”, or OTA. That remote connection could be revolutionary for the industry, opening the door for self-driving features to be downloaded and TV shows to be livestreamed in high definition. But the connected car is having teething problems.

It was the second time engineers from Tesla had called one of Hughes’s customers after servicing to tell them they had corrected a “mistake” in the car’s setup. This time it had reset the vehicle to its original 60kWh range (about 215 miles), a big drop from the 90kWh (more than 300 miles) its battery was capable of following repairs under warranty a few years before. Tesla wanted $4,500 to change the car back to the longer range, in what has been labelled battery ransom.

Tesla on dramatic road
A new Tesla has a battery range of more than 300 miles – or can have. Photograph: AP

“They were rightfully outraged,” said Hughes, owner of car servicing company 057 Technology, 60 miles from Charlotte, NC. “If it’s sitting in your driveway I don’t think anybody should be allowed to mess with that.”

The manufacturer, which did not respond to a request for comment, eventually switched the car back to the longer range after Hughes posted about his experience on social media, but this is just the latest example of the unnerving control consumers must now cede to technology companies. What is given OTA can be taken away OTA.

Tesla is by no means the only carmaker to have irked potential buyers with features (of the kind available at zero upfront cost on a smartphone) that can be withdrawn if you don’t pay your dues. Mercedes-Benz charges £19 a year for the ability to access a to-do list and calendar through the dashboard. Volkswagen charges £590 for the navigation upgrade for recent models.

Those are software downloads, but a subscription-like “microtransaction” model is also creeping into cars’ hardware. BMW has started offering heated seats for £15 a month in the UK: the technology is installed but is usable only if paid for upfront or monthly. The revelation this month drew a barrage of incredulous news stories.

“The heated seats make everybody laugh, but there’s a logic to it,” said Philippe Houchois, auto analyst at investment bank Jefferies. It’s a way for carmakers to “try to get more recurring revenues and options from customers”.

For Tesla, this model – similar to razor-and-razor blade subscription schemes – promises to be lucrative: at the end of June it claimed to have $2.7bn in “deferred revenues” tied to software upgrades on its books. Analysts expect that to grow as its autonomous driving software improves. By 2023, half of the top 10 carmakers will be offering unlocks and capability upgrades through software updates that drivers purchase after buying the vehicle, according to research firm Gartner.

Apple iPhone 7
Apple was fined for software that deliberately slowed down older iPhones. Photograph: Régis Duvignau/Reuters

Nor are car owners the only consumers learning that software can be tricksy in a way hardware cannot. In 2017, Apple admitted that its software was slowing down the performance of older iPhones. It said that the design was aimed at saving battery life, but critics said it was an example of “planned obsolescence” – artificially shortening the life of a device to make buyers upgrade sooner. In 2009, Amazon provided a perfect metaphor for the potentially dystopian implications of the subscription economy when, without warning, it revoked copies of George Orwell’s novel Nineteen Eighty-Four from all its Kindle e-readers.

Marketing information on BMW’s online shop suggest users also need to pay for potentially life-saving features such as automatic braking if a pedestrian steps into the road. In response to the Observer’s queries, the carmaker hurriedly said that the online description was incorrect, and the safety features were fitted as standard on all vehicles.

But with more and more carmakers start charging for autonomous driving capabilities – which may or may not already be safer than much human driving – the scenario of paywalled safety features is not totally farfetched. Insurers could then refuse to cover drivers who choose not to pay for tech that reduces accidents.

BMW, which also tried in 2019 to persuade users to pay $80 a year for the privilege of linking iPhones through Apple CarPlay, claims the remote upgrades are a benefit to consumers. “It offers the opportunity to add selected features which they did not order when the vehicle was built,” said a spokesperson. “This is particularly useful for secondary owners, as they have the opportunity to add features that the original owner did not choose.”

Then there is the manufacturing logic. Carmakers are very good at building tens or hundreds of thousands of identical products at high efficiency, but every tweak to the specification for different models costs money. Installing tech such as heating elements in every car seat, and charging to activate them later might end up costing a premium manufacturer less – even if many remained unused.

“That works as long as what they offer is unique, which is rare in auto,” Houchois said. If its rival Mercedes-Benz were to make the option standard, BMW would have to follow suit.

Wasi Rizvi of stock research company Redburn said it would be “interesting to see how consumers respond to being charged for a service where the hardware has already been installed and there is no obvious incremental cost” to carmakers.

Iain Litchfield, owner of Litchfield Motors, a Gloucestershire-based company that offers performance upgrades, said manufacturers had long secretly limited capabilities such as racier engine performance. Under the new business model carmakers will have the power to disable upgrades again instantaneously.

There would be a “game of cat and mouse”, Litchfield said, as carmakers tried to push the boundaries of what owners would agree to pay for. “If they’re constantly in control of your car … it’s not really yours,” he added. “Nobody wants Big Brother watching you all the time.”

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