Car companies stand to make billions charging monthly fees for features like heated seats. Electric vehicles make that even easier for them.
- Electric cars are less profitable for automakers than gas-powered ones.
- That means auto companies have to make up that margin elsewhere.
Pricey add-ons could start ruffling EV-buyer feathers — but automakers might struggle to survive without them, a new study said.
There's a simple reason why: EVs aren't very profitable for automakers — and certainly nowhere near how profitable gas-powered cars. A Ford executive recently told the Detroit Free Press its EVs won't be profitable until 2026. GM has said it won't make money on them until 2025. And Tesla didn't bring in a full year of profits until it had been running for over a decade.
But automakers say they are all-in on electric, so they'll have to make that up elsewhere. That could mean selling their customers on all sorts of things after-sale, like subscriptions and additional features or upgrades.
Automakers have been moving toward more pay-for features, anyway — though consumers haven't always responded well. BMW, for example, got backlash for a heated seats subscription. On the electric side, Mercedes is offering an add-on "acceleration increase." EV player Polestar also offers a horsepower upgrade, though for a one-time fee of $1,195.
"For automakers, because EVs aren't so profitable in the first place, the bigger gain is in… generating revenue from that customer month over month," Alex Oyler, director of North America for SBD Automotive, said.
Subscriptions and additional offerings post-initial transactions are part of why automakers are especially interested in leasing their EVs. If they can get consumers locked into an EV lease at a reasonable monthly payment, they could capitalize on that to later upsell them on more functionalities — made possible through over-the-air software updates — throughout the contract of the lease.
While consumers might need to warm up to the idea, the industry might not have much of a choice, according to Deloitte's recent future of automotive mobility to 2035 report. The consultancy estimates 50 to 60% of future profits might be at stake if companies keep going on with business as usual.
So major changes are in store as automakers navigate shifting consumer behaviors, industry headwinds, and especially, increasingly attractive competition.
"To be blunt, the price for inaction by industry players could be fatal, especially in an industry on the move in so many directions," the report said. Changes, including vehicle feature subscriptions "are expected to unlock a variety of new revenue streams."
A profitability crisis could also mean car-buying changes
Until now, only EV startups and Tesla have eliminated the dealer as a middleman and strictly use direct-to-consumer sales models. But even traditional automakers are considering the idea, driven by supply-constrained profitability gains and "a long-term trend toward tightening margins on vehicle sales," according to the Deloitte report — largely due to the EV transition.
"This looming threat adds pressure on the traditional dealer model and threatens to impact the bottom line," the report says. Automakers "are moving to create direct sales channels to forge relationships with the end customer."
Indeed, some are teasing the idea. Ford CEO Jim Farley, for example, has mentioned shifts in the company's go-to-market strategy for EVs, including more online sales — noting Tesla's model as a guidepost for getting more profit out of each EV.