Automakers turn to software upgrades to keep the cash flowing

This photo provided by Mercedes-Benz shows the 2022 Mercedes-Benz EQS, a large electric luxury sedan. German and Chinese buyers of this car will have to pay extra for its steering assistance feature to make tighter turns.Mercedes-Benz AG - Global Communications Mercedes-Benz Cars & Vans, photo by Daniel Maurer/Associated Press

The car is the new smartphone.

If you keep that in mind, the surprising news from BMW makes a lot more sense.

The company announced that if BMW buyers in several overseas markets want heated seats, they’ll have to pay extra for the software needed to operate them. The necessary hardware is built into every new BMW. But to activate it, customers in the UK, Germany, New Zealand, and South Africa must pay about $18 a month for a software upgrade. They can also pay about $180 for an annual subscription or around $360 to have the feature turned on permanently.

BMW says that customers who’d already paid for heated seats aren’t affected by this new policy, and that the company isn’t offering the pay-to-play feature in the US market. But BMW drivers in the US can buy software that enables remote engine starting from a smartphone app, and another program that automatically shoots a 360-degree video of the area around the car after it’s been in an accident.

For over a century, we’ve thought of a car as a piece of machinery with features and capabilities permanently built in at the factory. But the global auto industry is adopting a radical new concept ― the “software-defined car.” In other words, your car’s capabilities are controlled primarily by bits and bytes, not steel and rubber.

A typical modern vehicle contains about 150 microprocessors running about 100 million lines of software code. It oversees everything from suspension to braking to climate control. This digital infrastructure has become the most important component of today’s vehicles. That’s why a shortage of computer chips has led to massive production cuts at carmakers worldwide. And just this week, the board of auto giant Volkswagen fired the company’s chief executive, partly because he failed to fix serious software problems in VW vehicles.

Since so many auto features are software-dependent, owners can add new features to a car years after it’s left the factory, almost as easily as installing new apps on a smartphone. For carmakers, this is expected to become a major new source of revenue. Last year, Stellantis, the company that makes Jeep, Chrysler, and Dodge vehicles, said that it expects software sales to generate $22.5 billion in new revenue by 2030.

Electric carmaker Tesla is the best-known purveyor of pay-to-play software upgrades, with its eye-popping $12,000 fee for the most advanced version of its Autopilot Full Self-Driving software. But Tesla owners can also pay $200 to activate the car’s heated rear seats in the company’s Model 3 sedans.

This week, Tesla announced that it would no longer include free lifetime Internet connectivity with its new cars. From now on, vehicles will get a free online connection for eight years; after that, owners will have to start paying $10 a month or $99 a year.

Owners of the electric Porsche Taycan are able to install software priced at $12 a month that limits the car’s speed and extends its driving range. Mercedes-Benz’s lavish electric EQS comes with built-in rear-wheel steering to help the car make tighter turns. But buyers in Germany get only a limited version of this feature, unless they pay about $575 a year for software to fully activate it, and Chinese owners must pay an extra $750 for full activation. Happily, US customers get the fully capable version at no extra charge.

General Motors is offering Maps+, an upgraded navigation service that can run on GM cars built as far back as 2018. The service comes at no extra charge to drivers who already subscribe to GM’s OnStar network, priced at $14.95 and up. But GM is betting that Maps+ will attract a stream of new OnStar subscribers who will find it a better option than the navigation app on their smartphones.

With software-defined cars, buyers can purchase a lower-priced model with fewer options, then download new features in the future.

“If you own the vehicle several years, it’s not the same car all the time,” said Marc Amblard, former director of global product strategy and planning at French carmaker Renault. “The car evolves.”

But using software to activate unused hardware features, like a seat heater, comes at a cost. The carmaker must build in the hardware, without charging the customer for it, and then hope that a large percentage of car buyers will pay extra for hardware activation. This might lead to losses if too few customers sign up.

Bryan Reimer, research scientist in the Center for Transportation and Logistics at the Massachusetts Institute of Technology, said that auto manufacturers can actually save money this way, because it’s so expensive to build multiple versions of the same car with different hardware features. “The cost of just putting it in is cheaper than the cost of putting it in some cars but not in others,” said Reimer.

He predicted that more and more cars will ship with every available option on board. The buyer can then pay for the software needed to activate any or all of them.

Still, some consumer advocates worry that software-defined cars could put consumers at a disadvantage. Christine Hines, legislative director of the National Association of Consumer Advocates, said that “manufacturers may turn any new innovation into a subscription. So new safety features or energy-efficient benefits ... will become subscription-based and only available to the limited number who are willing and able to pay for it.”

For instance, South Korean BMW drivers can pay an extra $8 a month or a one-time fee of $183 for a feature that automatically dims the car’s headlights to help oncoming drivers see better. William Wallace, associate director on safety policy for Consumer Reports, said that a feature like this, designed to make driving safer, should be made available to all drivers, not as a premium option. “Companies simply should not be allowed to deactivate proven safety systems,” Wallace said.

And there’s one other major hitch — lots of consumers don’t like the idea. A survey released in April by Cox Automotive found that three-quarters of car buyers don’t want to pay extra fees to activate extra features. An overwhelming majority of those surveyed said that safety features such as lane assistance and automatic braking should be included in the purchase price; an even larger number said the same about heated seats.

Some of these consumers may even seek out illicit ways to activate software-locked features. The online publication Vice reported recently that there’s a lively online community of hackers dedicated to unlocking automotive options without paying the manufacturer a dime.

They’ll probably get plenty of practice, since the world’s carmakers are committed to making consumers pay again and again, for the same car.