Mercedes will certainly be expanding this avenue of business going forward.
Mercedes has reported that software-based vehicle upgrades earned it more than $1 billion in revenue last year, and the German automaker expects that figure to climb considerably in the coming years.
“By 2025, we are targeting more than €2 billion ($2.12 billion) from our connected car park,” said Mercedes-Benz sales chief Britta Seeger. “Automated driving functions are expected to emerge as our largest software-enabled revenue driver by 2030.”
These comments echo similar sentiments to those expressed last year by the CEO of Volkswagen's Cariad software company, Dirk Hilgenberg: “There is a new business model already out there – a subscription model, or function-on-demand – where you can drive autonomously […] We would support that.”
Speaking at a media event, Seeger elaborated on why Mercedes believes there is plenty of room for growth in this space, adding that digital extras like music streaming, live traffic info, remote engine start functionality, and others play a “fundamental role in the decision to purchase a car.” She continued: “Our connected car park is forecast to grow by 60% in the next three years. This will have a huge impact on our software-enabled revenue.”
Merc's push to a more connected vehicle architecture is particularly evident in the upcoming 2024 E-Class, the interior of which was revealed this week with features like TikTok integration and selfie cameras.
While subscription-based upgrades have been a contentious topic and have even come under fire from lawmakers, but according to Automotive News, dealers expect to benefit from this deal, something that Mercedes-Benz USA CEO Dimitris Psillakis is passionate about. He says that profit sharing will be a “motivational program” to encourage dealers to embrace the sale of subscription services, which will become all the more critical as low-maintenance EVs become more prevalent.
“Dealers are our partners in the business,” Psillakis said to Automotive News. “They know the customer, they know the lifestyle of the customer, they can promote and sell the products which fit the customer needs.”
Garth Blumenthal, CEO of Unstoppable Automotive Group (which runs a Mercedes dealer in Temecula, California), thinks revenue sharing makes subscription services a no-brainer for dealers to support.
“The fact [that] they were willing to give us a piece of the action for really doing nothing other than selling the car, I think that's a plus,” said Blumenthal. “It's extra revenue.”
Subscription features will only rise in popularity, and although some will take a different angle from others, the model is here to stay, and it has benefits for used car buyers too. If you buy a pre-owned vehicle where heated seats are not activated, you can enhance the capability of your car without retrofitting hardware or visiting a dealer. It's just like if you buy a used iPhone and opt for added iCloud storage.
As more consumers better understand the subscription model, it will only grow, and Mercedes can expect more than just a one ahead of its billion-dollar subscription earnings reports.
Keyword: Software-Based Upgrades Earned Mercedes Over $1 Billion