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?
Photos: Porsche, Mercedes, Toyota, Volvo
What if the OEM suddenly decides to “cancel” some whiz-bang feature that you’ve already “subscribed” to? Of course they can later offer a “new and improved” version that you can pay for (again)….
The whole idea grates on me. When I shell out the loot it takes to get into a pricey car — does anyone else see the irony in the “MBUX” system? I thought so) — I want it complete in every function.
That said, I’d pay extra for an Infotainment Screen Delete. I’d up the ante for physical buttons and switches, too.
I suspect most of us have gone through this with other devices — think “cable TV” and computers — and it just isn’t going to stop.
I guess it depends on the Terms and Conditions.. I am sure there will be tons of lawyers going after Mercedes if that happens.. since it is a European companies and their government is a lot “bigly” than Americas.
Waiting for the weird hack to jailbreak your Mercedes.
“There’s an exploit in Angry Birds that gives you access to the core memory, so if you plug a drive into the bottom USB-C port it will let you install “ButtShaker3000.bin”. That unlocks the performance mode and unlocks the installed seat massagers.”
AUTOMAKERS HATE HIM!
ONE WEIRD TRICK: LEARN HOW TO UNLOCK YOUR CAR’S FEATURES
I was actually just talking to DT about this. It all has huge implications for tuning. You know, for example, VW isn’t going to be as cool with a company like APR doing some equivalent of EV performance tunes. They want you to use, and subscribe to, the one they’re selling. I fully expect some version of EV jailbreaking to happen eventually.
The tuners find a way! They always do!
Tuners are already kind of hackers, they will just become primarily hackers.
There are bounty programs for Tesla, they give away a 3 at PWN2OWN every year the last few years.. the question is would Mercedes corporate culture accepts it.
No, there is nothing on a car I would agree to subscribe to, even if it got me entry into the Publisher’s Clearing House Sweepstakes.
Also, I thought PAODU is what’s left behind every time Jason’s little Nissan shits the bed.
It seems to me peoples view on subscriptions depends on their outlook:
1. You’re paying for an extra you wouldn’t otherwise have, therefore subscription is ok, if priced reasonably.
2. The manufacturer is withholding an extra that is already fitted to the car that you’ve already bought, therefore you’re paying twice, in which case the manufacturer can get fucked.
I’m strongly in camp 2.
I find the number of subscriptions I’m currently managing to be exhausting. I swear there’s some sort of auto-debit hitting my checking account seemingly every day. Keeping track of it all sucks. This sort of subscription is the worst kind of suck, making me pay for what I already try to pretend I own, when in reality it’s pretty clear under this arrangement I own nothing. No thanks.
A tangent: It’s pretty clear the global economy is slowing down and we’re gearing up for some sort of recession, hopefully a mild one. This sort of never-ending nickle-and-diming of customers may be fine when people are throwing around cash like the party will never end, but it’s going to go over pretty poorly when it does indeed end.
I actually googled to see if there are tools to help manage subscriptions and the result was … a subscription to a service that manages your restrictions. 😐
HA. Yeah that’s where we’re at I guess.
Extra power is sure to impact the warranty costs, at least a little.
So I’d be willing to accept a payment option to unlock extra power that’s already there.
For those who don’t buy the extra power, you can take comfort in knowing that you’re getting slightly better hardware than your money would otherwise buy.
Fixed, one time pricing only, please. Would never consider a subscription and would actively avoid any efforts to place me in one.
Will the subscription also come with an extra badge to stick on the back of the car?
For a lot of people the extra power doesn’t matter as much as other people knowing you have the extra power. And by “a lot of people” I mean the ones buying new Mercedes, and by “other people” I mean poorer people.
A small screen on the rear displaying the model number in place of a badge is surely only weeks from launch on a BMW or Merc.
Want an extra 80bhp, £90 a month,
Want to APPEAR to have the 80bhp, only £75 a month for the M/AMG electronic badge package.
We’re both going to feel terrible when this happens.
Especially if it happens in…
>does quick calc for lead time to release automotive software<
…about two years from now?
True. To get more power in the past, you had to buy the model with the bigger engine. Back when Mercedes model numbers meant something, that meant you’d get the E550 instead of the E350. People who knew, knew you had the V8 in there. I’m sure plenty of Mercedes buyers felt pride at buying the “more expensive model” and showing the world with the badge.
Are many Plaid model S sold with a badge delete?
Also, nice Parks and Rec reference in the title, Matt: https://www.bingeclock.com/memes/parks-and-recreation___money_please.png
Mercedes-Benz is “the woooooooorrrrssssttt”
There is nothing I will pay a subscription for. In fact, they can keep most of their BS—all the safety nags, the tablet, the heated or power seats, automatic climate control, and so on. At some point, I figure I’m going to be left with one option on the market that isn’t the cheapest used POS I can find because I refuse to pay a lot for a car I hate: try to daily a Morgan 3-wheeler in New England or figure out how to get year-round residency somewhere quiet overseas where I won’t need a car at all. I think I could develop a sliding canopy like an old fighter plane for the Morgan.
Here’s an idea for any legislators who might be reading this; Require all subscription paywalls for hardware installed at the factory to be removed once the warranty period expires. I’ll grudgingly give the manufacturer an interest in keeping things underclocked until its’ out of warranty or collecting more money not to, but once that warranty’s up the company’s interest is over.
Does anyone else think that pie chart looks suspiciously like a sphincter?
Just me?
Okay, whatever…
I would rather go to the aftermarket and void my warranty with an ECU flash than pay a goddamn subscription fee to a penny pinching, greed drunk corporation. I am that stubborn about this. I don’t care if it has the potential to be a worse financial decision, it’s about making a point. I will never give a manufacturer subscription money on top of the already ludicrous prices they’re charging for vehicles. The greed knows no boundaries and it’s pretty gross.
Well, the good news is that you can pay the whole thing up front and for probably cheaper than you would aftermarket without voiding the warranty. If you’re dropping down MB money, what’s another $3k on the price?
Sure, but like, by the time you buy that car, you’ve probably already said “what’s another 3k?!?!?!” like, 5 different times. At some point another 3k is going to break people? Right? Maybe I’m out of touch.
Those are the sucke… er… customers that the subscription service is for.
“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)”
$1000 per year from Merc, or $1,000 once for life. Bad deal, Mercedes
https://shop.amrperformance.com/product/mercedes-benz-c300-w205-norcal-flash/
Comparing aftermarket tuning to OEM supported is only valid if you place zero value on the factory warranty.
You can delete the flash anytime you want. Just run up your key cycles before any dealership work.
Not saying it’s ethical, but it’s definitely possible.
I would certainly not bet my factory warranty on the dealer being unable to detect a flash and reflash; far too many horror stories on various forums of that gambit going badly.
This type of “subscription” is a straight up scam and I won’t have any part in it. Basically, the car is physically equipped to achieve that horsepower whether or not you pay for the privilege. So what are you paying for, exactly? Some nebulous “software update?” Beyond a joke. Mercedes may be able to gouge its customers on this, but I’d imagine that there will be a lot of pushback if mainstream brands try the same thing. At least with old school subscriptions like OnStar, you’re getting a service and can see the value proposition there (even if you don’t personally think it’s worth it).
Charging people a recurring amount to use features on a durable good they paid for is straight up degen behavior. Just jaded is all. I have no problem supporting you guys with a membership, but it feels like every megacorp is not only gouging you on the purchase price but insists on reaching into your pocket every month ad infinitum. It’s annoying as all hell.
We’ve talked about subscriptions before, and I still maintain that unlocking features present in the car (performance, heated seats, etc.) should be one-time fees to unlock (or included in the package). Features that require outside support, content, and/or updates (satellite radio, navigation, app-based remote features routed through a server (not to be confused with things like remote start on the key fob), and the like can be subscription-based, because that ensures they remain supported.
Beyond the annoyance of subscribing to features included in your car, there are practical considerations. How often does your car check? If you go somewhere without cell service, will your car start up and decide you don’t have any of your subscriptions until it can verify? It adds a layer of complexity that causes issues for no good reason.
WTF? Just no. Course I am biased after spending 2 1/2 hours dealing with the bastards at Sirius Radio this am. Shit, for what they charge it would be nice to speak with an agent for whom ENGLISH is the first language learned. I hate to have to call those turds…
Hard no from me, but im not the target audience either. I don’t buy new, my newest ride is a 2000 and honestly I’m not very fond of the computer in it. My next vehicle will be 90s or older.
Were I a driver of an EQ Mercedes, I’d gladly pay a subscription for the vehicle to look less ugly.
BMW should take notes. I’ll gladly pay for a factory beaver teeth grill delete on an M3 or M440i sportback.
Surely BMW could (over) engineer some stealthy doors that would open and allow the beaver grille to be hidden behind, should one wish?
I guess in that scenario the subscription would be to keep those doors closed.
Miss a payment and they open. The shame!
They can, and they’ll tie them to a bespoke electronic system that can only be accessed by removing the entire engine that’ll go bad within 20-30 minutes of warranty expiration. OH NOOOOO…repairing them is a 3 day process once we get the parts from Bavaria, which will take a month. Parts are $3,000 and labor will be $5-7000. Here’s a Mini you can drive in the interim, we’re SOOOOO sorry.
When I owned my Volvo C30, I could have paid $1500 to Volvo for an increase of about 25 HP, but I never did it. In comparison, the Mercedes cost for a lifetime 60 HP bump is a pretty good deal.
Thanks to Mercedes, we know what Pao stands for: “Performance Acceleration On”. I picture Torch out driving his Pao and, much like Johnny Storm/Human Torch, saying “Performance Acceleration On!”, and experiencing a burst of speed that allows him to pass that damn semi blocking him in the right lane on the highway.
All Torch needs is a gross of bottle rockets duct taped to the trunk and a long fuse…
I want micro-subscriptions on a Push-to-Pass feature. Need to get somewhere fast, mash the button, get dinged $20.
I actually love this and think automakers would do extremely well with it.
I had an RX7 and every time I used full throttle I used to worry about how much the fuel cost. So that’s much the same feature.
Vehicle subscriptions need to die. Once I buy a product I don’t want to be dinged constantly just to keep it going, or for “improvements” I didn’t want in the first place.
From everyone in this business I talk to, they aren’t going to die.
But those same people don’t realize how hard it’s going to be to get buyers to want these features.
They also don’t realize that their endless price gouging has limits, credit can’t be treated like an infinite resource, and that the “everyone stretching themselves financially to pay $65,000 over 6-7 years for a $35,000 vehicle that you’re charging $50,000 for because you can” model they’re currently drunk on is going to blow up in their faces and it’ll be 2008 2. And guess what? I hope the government doesn’t bail them out this time.
“But those same people don’t realize how hard it’s going to be to get buyers to want these features”
Exactly. I can imagine some of the wealthy but hard working folks I know just saying no.
I won’t pay subscriptions but so as long as they are offering a one-time fee option I’m fine with it. But only for specialized features. If they try charging for AC or some stupid shit like that then it’s a hard no.
Honestly, the lifetime price of those options is pretty reasonable compared to what it generally takes to upgrade an engine.
One wonders why they don’t just offer it as a window sticker option. Unless they think people are dumb enough to just keep paying monthly (possible!) or it affects the powertrain warranty or something.
I paid $900 for a GMP factory tune that significantly increased the torque and HP on my turbo4.
The reason it didn’t come like that from the factory is that it requires premium fuel (which is hard to justify as standard), is noisier (due to an extra 8 PSI boost), has a tq curve that is not as smooth (drivability) and is less efficient (mileage issues). So I understand why it was an aftermarket item.
The only thing in this Merc case is maybe some durability issues and they are trying to cover warranty costs or something. Also, maybe trying to cover some hardware costs that they sunk into the car (every car apparently). Otherwise, it seems like they just sandbagged what is standard so they have something to sell later.
But many cars will let you buy various tunes of basically the same engine as factory installed window sticker options.
The Chevy Colorado actually has three different ratings for the 2.7L. So unless MB is trying to pull a fast one here somehow, it’s unclear to me why the subscription model is even offered.
It’s offered for the people too stupid to realize that it’s cheaper to pay up front or who think they’ll be clever by subscribing and then canceling off and on when they don’t think that they’d be using it like a Netflix subscriber waiting for the new season of Stranger Things.
Yeah, the lifetime is a pretty decent option. I think you’re right that they are just hoping some people will just leave the monthly charge on autopay forever. And there will likely be some who will.
Probably they figure many buyers are lessees who will pay the monthly subscription at the dealer since it’s cheaper over 2 years. Then the 2nd/3rd/4th owners can repeat the payment, since it would not have come with the extra HP “from the factory”.
Sounds like something from Star Wars. PAODU-wan. No wonder Anakin turned to the Dark Side.
Regarding subscriptions, I follow the advice of Fenster from The Last Jedi-
“Live free, don’t join.”