Tesla – Subscription blues

Tesla does not need to acquire users.

• While Tesla might just get away with charging for data and services, I think that the rest of the industry will have to tread very carefully when going down this route as I think the example of BMW shows (see here).
• Tesla’s deadline for charging users for data and services came and went last July with no event but we forgot that Tesla operates on Tesla Time rather than Planet Earth Time.
• Consequently, July 2018 in Tesla Time really means January 2020 in Planet Earth Time and sure enough, Tesla starts charging for data and services next month.
• Any vehicle that was ordered on or after July 1^st will now need a $9.99 per month subscription to keep most of the services that users currently enjoy working.
• Effectively Tesla is now charging for the data that the vehicles consume as it is the heavy data services like satellite rendering, video streaming, music streaming and Internet browsing that are now chargeable.
• The one exception is Live Traffic Visualization which is extremely useful to have for navigation but does not consume much data.
• I suspect that this is because Tesla has to buy this data from providers and is now passing that costs onto the owner.
• I think that even for Tesla, this is dangerous territory albeit not nearly as dangerous as it is for the likes of BMW, Audi, Toyota, Ford etc.
• This is because Tesla already has very good engagement by its users with its infotainment system which combined with its brand loyalty leads me to think that most of its users will simply swallow the charge.
• The danger of this comes in that by charging users to engage with one’s infotainment system one is incentivising users to stick with their smartphones.
• For example, why would a user pay BMW or Ford for live traffic updates when he can get them from Google on a smartphone for nothing?
• RFM research indicates that all of the OEMs face an existential threat from a potential 65% decline in demand for vehicles caused by the transition to electric and autonomous vehicles over the next 20 years (see here).
• Their one hope is to have a seat at the table in delivering digital services to users of their vehicles meaning that they should be able to earn a share of the revenues generated.
• These revenues have the potential to be both large and profitable and could replace the profits that will be lost from lower vehicle demand.
• However, in order to get access to this opportunity, the user’s digital engagement must remain in the infotainment unit.
• Therefore, all OEMs should be doing everything that they can to ensure that the smartphone remains in the user’s pocket as much as possible.
• Media Consumption and Navigation are by far the most used Digital Life Services and so it is these that the OEMs need to concentrate on most closely in order to initially drive engagement.
• These are the minimum that needs to be offered subscription-free otherwise users will be enticed to carry on using their phones meaning they will remain unaware of anything else the OEMs have to offer.
• I would take this a step further and offer services over and above this also for free in order to drive loyalty, engagement and build a large number of active users.
• This could then be a captive market for developers from which OEMs would be in a position to earn a revenue share.
• OEMs do have the option of making a one-off charge upfront at the time of purchase which I think will work much better than a per month subscription.
• There have been a few signs that the OEMs are beginning to get behind this position, but I think that much more is needed and within a fairly short period of time.
• I am a little bit more hopeful but not overly optimistic.