Automakers spent more than 100 years perfecting the science of the internal combustion-powered car. They know how to build them, market them, and sell them in huge volumes with massive profits. They know how to make them feel a certain way. Then, they know how to service them when they break, also for huge profits.
We are, right now, in the peak-profit phase of cars. Guess what? EVs are expensive to make. They don’t need as much service. Many of them largely drive the same. Profits are slim for most. What is an automaker to do? Subscriptions!
Automotive subscriptions are a classic example of bean counter-first thinking. Subscriptions are nice because they’re recurring revenue you can continue to book after you sold the car. (Side note: please become an Autopian member.)
The problem is… what’s worth actually subscribing to that you wouldn’t otherwise put on a car? We’re gonna explore that today, as well as talk about how Toyota, Volvo, and Penske are fairing in the late-ICE stage.
On The Mercedes ‘Performance Acceleration On-Demand Upgrade’
There are practical limits to how fast your electric car can go but, much like gas-powered cars, it’s rare that automakers give you 100% of the go-fast horsepower right off the dealer floor. This is why it’s still popular to “flash” ECUs on cars to try and squeeze extra power by adjusting various parameters. In theory, this is also possible with electric cars, which are primarily designed to optimize range over performance.
Mercedes just announced its plans to do exactly that, with the succinctly named: Performance Acceleration On-Demand Upgrade. (Editor’s Note: Or PAODU. I can’t wait for this to catch on at Cars and Coffee. “Say, what kinda PAODU you got?” -PG)
The full press release is here if you’re curious, though I shall summarize or quote the key parts:
Mercedes-Benz EQE and EQS customers in the North America can now opt for even more performance with the new Acceleration Increase On-Demand upgrade for select Sedan and SUV models. Optionally available as an Over-the-Air update, this new feature raises the vehicle’s output by up to 80 hp and improves acceleration from 0 to 60 mph by as much as a full second. It is available to customers in the Mercedes me connect Store with the option of a one-time purchase for the lifetime of the vehicle or the flexibility of monthly and yearly options.
Acceleration Increase is offered exclusively to Mercedes-Benz EQE 350 4MATIC and EQS 450 4MATIC Sedan and SUV customers in the U.S. and Canada. On eligible EQE models, it boosts output from 288 hp to 348 hp – a 60 hp increase – to deliver up to 1.0 second quicker acceleration from 0 to 60 mph (SUV). Applicable EQS models receive an additional 80 hp for a total output of 435 hp, enabling impressive 0-60 mph acceleration in as little as 4.5 seconds (Sedan). These enhancements are achieved without impacting the vehicles’ electric range.
There’s even a handy-dandy chart showing how this all works:
So, 60 extra horsepower costs $60 a month or $600 a year. If you want 80 horsepower, that’s $90 or $900 a year (why not $80/$800?) On a monthly basis, making up the lifetime upgrade is about 33 months. Obviously, if you plan to own the car for three years or more, just get the one-time deal.
This raises all sorts of fun questions, however, like: How quickly can you dial up the horsepower of your car if you end up at a stoplight next to another car? Can you just cancel it immediately after you win or lose the stoplight drag race? Is this secretly a good deal?
(Additional Editor’s Note: I actually don’t think this is a terrible deal! You pay less than a grand per year to make your Mercedes go a full second quicker 0-60 mph. Tuning a gas Mercedes to do that would be a lot more expensive, probably, when you include parts, labor, time and so on. -PG)
Mercedes does a nice job of optioning even its lower trim models, so both the EQE 350 and EQS 450 have almost everything you’d want or need in a vehicle. Additionally, all the EQEs and EQSs have the same-sized battery pack along their ranges, so an over-the-air flash might be a reasonable upgrade.
Think about it this way: An EQE 500 Sedan costs $85,900 (before taxes and delivery) and gives you 402 horsepower and 4.5 seconds of 0-60 acceleration from the same battery pack. If you add $1,950 to the $77,900 starting price of the EQE 350 it’s somewhere nicely in between a base 350 and the 500. The weird thing about Mercedes electric cars is, generally, you’re paying more money for less range.
I drove an EQE 450 4MATIC and it wasn’t as blisteringly fast as other EVs, but I didn’t feel like I needed more power. I also wouldn’t exchange the range for more power. Still, I wish I could dial up an extra 30 horsepower in my E39 BMW on demand.
I’m sure some Mercedes accountant somewhere would be quite happy if you just checked the box for more horsepower and let that subscription go forever! Assuming the car is usable for 10 years, that would be $7,200 for an over-the-air update if you paid monthly. Obviously, don’t do that. Buy it upfront or don’t buy it at all.
And if you’re asking, “What happens when I buy it used?” Sorry, these cars aren’t being designed for you. That’s long been the case. Expect that trend to get worse.
Because this is an additive feature, I don’t hate this as much as the GM CarPlay plan or all the stuff BMW wants to charge for that should just come with the car. We’ll keep reporting on this because expect to see more of it as automakers try to maintain their revenue in the uncertain future.
Volvo Is Happy Making Money, Thank You
Tesla is really screwing it up for the rest of the OEMs, and it’s largely to the benefit of consumers. Sure, they’re charging money for features that don’t exist or don’t work, but Tesla’s price war means every other automaker has to try and compete on value.
There’s definitely an alternative future where Tesla doesn’t lead the way into the EV future and, instead, it’s Hyundai Motor Group or BYD. If automakers were the ones in charge, there’s a possibility that the inevitable price decline would come slowly, over many years. Instead, we’ve got these Plaid-speed price cuts.
Still, gas-powered cars are making money, and with production lagging and rich people still remaining rich, it’s a great time to be a premium automaker. Take, for example, Volvo. Its Q1 report is out, and here are the highlights:
Revenues for the first three months grew 29 per cent compared to the same period last year to SEK 96 bn. The increase came on the back of the double-digit growth in retail sales for the quarter versus the corresponding period in 2022.
EBIT during the first quarter, excluding joint ventures and associates, increased 7 per cent compared to the corresponding period last year and reached SEK 6.3 bn. The increase in EBIT was delivered despite raw material prices remaining at elevated levels.
This performance was the result of higher volumes sold during the period, increased price realisation per car, a favourable geographical mix and the effects of pricing actions initiated last year, especially in Europe. The company-wide resource optimisation and efficiency initiative is also gathering momentum through direct savings which helped the underlying profitability. The company will continue to focus on this initiative.
The bolding is mine and it goes back to what I said at the top: Premium gas-powered cars are still highly profitable. We know the average transaction price is basically $50,000, which means that premium automakers are in a great position to not only squeeze more money out of their traditional customers but also target people who are getting asked to pay BMW money for a Toyota and might be persuaded to look at a nicer car.
Volvo, of course, is going to be all-EV by the end of the decade, so it’s gotta make those profits while it still can.
Penske Automotive’s Car Sales Business Is 72% In The Premium Sector
If you talk to anyone high up at any of Roger Penske’s operations, you’ll hear them talk about “stacking pennies.” The concept is that you’re constantly doing all the little things thoughtfully, stacking one thing carefully on top of the other. It’s probably one of the big reasons why Penske’s companies and racing teams are so successful across the board.
The company also released its Q1 financial report and there’s something in here that jumped out at me and, I’ll be honest, I hadn’t realized this before: 72% of its retail car revenue is from premium automakers.
I knew the company had a lot of BMW and Porsche dealerships, of course, but not to this extent. Did you know a full quarter of that revenue is BMW/Mini, followed by Audi at 11%, Mercedes at 10% and JLR at 9%? Non-premium, non-U.S. brands make up a dwindling part of their earnings, with GM/Stellantis brands now about 1% of the total.
That probably explains some of their performance:
For the three months ended March 31, 2023, total retail automotive revenue increased 4% to $6.3 billion. Same-store revenue increased 2%, including a 10% increase in service and parts revenue. Total retail automotive gross profit increased 1% to $1.1 billion, including a 2% decrease on a same-store basis. Same-store service and parts gross profit increased 9%. Excluding the impact from foreign currency exchange, total retail automotive revenue increased 9% (same-store +6%) and total retail automotive gross profit increased 5% (same-store +2%).
Just as a fun point of comparison, here’s a pie chart of what that revenue looked like in 2010:
We’ll all have to wait and see what happens in a few years when the marketplace is flooded with new EV models, but in the interim it’s a fun time to sell fancy cars.
Toyota Is Still Making Cars, In Case You Forgot
I love reports. I love numbers. I love data. Toyota’s business year ended on March 31st and Reuters has the details on how they did from a production standpoint:
Japan’s Toyota Motor Corp (7203.T) set a global annual output record in the business year ended in March, just edging past its target of 9.1 million vehicles as factory disruption from global chip supply woes and pandemic lockdowns eased.
But the world’s biggest automaker by sales warned it continued to see impacts from the long-running global chip shortage, saying it remained hard to predict its effect going forward.
That’s up from 8.57 million cars in the prior year, which is good for Toyota, though I’m not sure that’ll be enough to help keep the company from bleeding share in key markets. Here’s the more interesting data, to me:
It disclosed it has so far sold just 17,473 battery electric vehicles (EVs) worldwide, including those of its luxury Lexus brand, for the first three months of 2023.
That compared with 24,466 battery EVs sold by Toyota worldwide for the whole of 2022.
Woof. That’s an improvement but, also, not a lot of cars. Now you know why Toyota is so desperate to catch up on electric cars. By comparison, Polestar delivered 12,000 cars in Q1 of 2023 and GM managed to sell more than 19,000 of just the Bolt/Bolt EUV.
The Big Question
Like it or not, the subscription thing is coming and it’s a huge part of every OEM’s software pivot. So is there anything you’d actually pay a subscription for on your car?
- Scary Indy 500 Crash Sends Tire Past Fans And Into Parked Car (UPDATED)
- Someone Imported A 2005 Toyota Camry From Japan And I Just Don’t Get It
- Only One Industry Can Tell You What To Stick In Your Hole: COTD
- Studebaker K10 Tow Truck, Lancia Hyena Zagato, Harley-Davidson XR1200: Mercedes’ Marketplace Madness
Photos: Porsche, Mercedes, Toyota, Volvo
Not just no, but hard no. I’d also like to wish a very “eat turds” to any greedy marketing dingus who suggests these schemes, too. That’s the nicest pair of words I can muster for them, anyway.
Based on evidence in the news, these cars are not impossible to hack. I predict people will want to access the software running on their property that they paid and the manufacturer already profited from, and do what they want with it.
*DING* Your car will now pause for an ad. To opt-out of this interruption, subscribe to…..
“(Additional Editor’s Note: I actually don’t think this is a terrible deal! You pay less than a grand per year to make your Mercedes go a full second quicker 0-60 mph. Tuning a gas Mercedes to do that would be a lot more expensive, probably, when you include parts, labor, time and so on. -PG)”
I’m just not going to do it. In the first case a manufacturer has made their car worse than it was built to be, so that you will pay them to make it not worse. In the second case the manufacturer has made a car, and then you pay someone ELSE to make it better than it was. I’m just not doing the first.
Will NEVER pay for subscriptions…not just saying that. If forced, will sue. Will be over my dead body (Also applies to EV’s!)
“Faring,” as in “Fare well.” A fairing is a device that blends surfaces to lower drag.
So the Sacklers have branched out into automotive now?
I have a subscription to SiriusXM. I can’t think of anything else I’m willing to rent.
“So is there anything you’d actually pay a subscription for on your car?”
If I had a BEV, I would pay a subscription for access to a fast charging network.
For those who don’t like to read into sub comments.. There are aftermarket hacks out already for Teslas ~$1200USD for extra 50horses https://ingenext.ca/
Good or bad it is coming. But since Benz uses ARM/NVIDIA architecture it might take a while for hackers to catch up vs x86 for Teslas.
I remember back in the day Hondata stuff costs more and a whole lot more involved.
I would prefer they do it by piece meal.. I don’t want ambient lighting, and I don’t wan to pay for that.