投资策略

Car manufacturers shift gears to profit from your data

Who knows you best? If you bought a new car recently, it may be your four-wheeled friend. Automakers are discovering the value of data collection.

日期
作者
Jukka Väänänen, guest author
阅读时间
5 minutes

A red car drives towards lights at night
Automotive manufacturers could add as much as USD 800 billion to their annual revenues by monetising data, according to an estimate. This translates to one-third of the industry's current global turnover. © Getty Images/Emanuel M Schwermer

Nowadays, the moment you sit in your car (and sometimes before) it's collecting data about you. Today, 50 percent of new vehicles sold globally are internet connected, and that percentage is increasing. Global consulting firm McKinsey & Company estimates that 95 percent of all new cars will have internet connectivity by 2030.

The treasure trove of data this produces is a lucrative source of revenue. Automotive manufacturers no longer depend solely on car sales, parts, and servicing for income. Now they also generate revenue from subscription-based services and selling consumer data to third parties.

Automotive industry eyes consumer data

What began as a side hustle for car manufacturers could become big business. CapGemini, another global consultancy firm, estimates that automotive manufacturers could add as much as USD 800 billion to their annual revenues by monetising your data. That's nearly one-third of the industry's current global turnover.

This year, Stellantis, the world's fourth largest car maker, owner of brands like Peugeot, Fiat, Alfa Romeo, and Maserati, announced it would launch a new business unit called Mobilisights, with the aim of generating EUR 20 billion in annual revenue from connectivity by the end of the decade. 

A rear view of the Peugeot 'IncepGon Concept EV' on display at a trade fair
Stellantis, the world's fourth largest car manufacturer and owner of brands such as Peugeot, Fiat, Alfa Romeo and Maserati, has been one of the most active car manufacturers in terms of connectivity. © James Atoa/UPI/laif

"Stellantis has been one of the most active automakers regarding connectivity," says Dr. Tilman Dumrese, Senior Equity Analyst at LGT Bank. "Annual revenues for Stellantis are around EUR 180 billion, which is estimated to be higher by 2030, so we're talking about up to 10 percent of overall revenue from software services. As yet, that's still modest."

Modest or major, the numbers are big enough to drive car manufacturers to broaden their software-related offerings. Since electric vehicles require fewer parts than internal combustion engines, reducing the need for servicing and new components, new sources of revenue are needed to make up the shortfall. This is where connectivity, through technology and data collection, comes in.

Driver operates electronic console in the vehicle
There are always concerns about privacy and security when it comes to data, even in your car. © Shutterstock/metamorworks

We all know that our smartphones collect huge amounts of information about us, and we willingly give up much of it. However, what we actually do, or say, or even sing in our car (who doesn’t like a bit of solo car karaoke?) also produces a ton of information.

Knowing your driving style, how you interact with your car, what you have on your music  playlist, which podcasts you listen to, who you call, and how many passengers are with  you, reveals valuable information about you. This data can be analysed to create "inferences" about you, say on your hobbies, and car companies can use and sell on this information.

Can you trust your car with your secrets?

There are always concerns about privacy and security when it comes to data, and it looks like car manufacturers are collecting and using ours. They appear to be one step ahead of the regulators.

Few of us ever read the fine print, so it's a good thing there are organisations to do it for us. This year, the Mozilla Foundation spent 600 hours researching car manufacturers' privacy policies, and they published a study on their findings. The results regarding privacy were far from reassuring.

From a legal perspective all privacy starts with consent: you give permission for the collection of your data and how the receiving party can use it. This is where those pesky "Terms & Conditions" come into play, to which we tend to simply click "I agree".

close-up under the hood of a Nissan engine
Thanks to connectivity and technology, vehicles can automatically schedule service and repairs, adding them to your calendar and informing your service centre to ensure the necessary parts are available. © Unsplash/Carlos Freire

When it comes to consent, in many cases car companies simply assume your consent. In Tesla's case, for example, they attempt to frighten you into providing consent by hinting that you may be in danger if you do not: "If you choose to opt out of vehicle data collection (with the exception of in-car Data Sharing preferences), we will not be able to know or notify you of issues applicable to your vehicle in real time. This may result in your vehicle suffering from reduced functionality, serious damage, or inoperability."

Data visualisation against backdrop of urban area
Car companies see the greatest potential in selling subscriptions to software as a service, which is why they are investing heavily in software. © Mobilisights

It's not just your data that car manufacturers are hungry for; they want to know about your passengers as well. If you have a Nissan car, you have some reading aloud to do before you begin your journey, as they expect you to do their legal work for them by requiring you to: "Promise to educate and inform all users and occupants of your Vehicle about the Services and System features and limitations, the terms of the Agreement, including terms concerning data collection and use and privacy, and the Nissan Privacy Policy."

Their privacy policy, by the way, is 9,461 words long. So before giving someone a ride in your Nissan, be aware that before you start your car (based on average reading speeds) your journey just became 38 minutes longer.

Europe has some of the strictest guidance worldwide on the use of personal data, and this gives those who handle private data legal certainty on to how to handle it. Paradoxically, while restrictions on personal data may appear to hamper its use and sale, according to McKinsey, "European companies are much more likely to sell personalised data than those in the United States."

The benefits of car connectivity

To be successful, any business model must provide benefits for the customer. Connectivity and technology provide plenty of those. Vehicles could automatically schedule services and repairs, slot them into your calendar, and simultaneously inform  your service centre to make sure the necessary parts are available, thus minimising waiting times. The data your car collects about your driving style could optimise its settings to make your ride safer, and minimise vehicle wear and tear.

Close-up of BMW rims
USD 18 per month for heated seats and USD 10 per month for a heated steering wheel: In 2022, BMW tried charging its customers for certain comforts. © Unsplash/Jaddy Liu

Whereas in the past, manufacturers could profit only once from the sale of a vehicle, and then intermittently from servicing and selling parts, technology and connectivity now let them sell subscription services to owners, like a Netflix or iTunes for cars.

Indeed, this is where car companies see the most potential: selling subscriptions for software as a service. And they're investing big in software. For example, over the past two years, 70 percent of General Motors' new hires have been software experts. "Ultimately, it's about innovating products and services that people are willing to pay for," says Dumrese. "For new cars, people expect some of these services to be built in, so getting customers to pay extra for them is a challenge."

The first attempts at offering subscriptions to car owners have focused on traditional features. For example, in 2022, BMW took a "budget airline" approach by attempting to charge its customers for comfort: USD 18 a month for heated seats, and USD 10 a month for a heated steering wheel. Mercedes began selling performance by charging USD 1 200 a year for faster acceleration. 

Who knows you best?

Tilman Dumrese, LGT Senior Equity Analyst
Tilman Dumrese, LGT Senior Equity Analyst

Combining mobility and software services offers car manufacturers new opportunities to create recurring revenue throughout the lifetime of a car. "Competition is fierce in the auto industry; every manufacturer's volumes are under threat from their competitors," says Dumrese. "Instead of complaining about the rain, a smart company will offer you an umbrella. So companies have to consistently innovate and provide new solutions to consumers. Connectivity is part of this innovation and a potential source of additional revenue."

Today, and even more in the near future, when you're in your car, you're no longer just a driver on the road; you’re a source of data and continuous income. Collecting your data raises concerns about privacy, which will lead to wrestles with legislators as the car companies dig deeper into data. Regulation will serve both consumers and  manufacturers, and a clear rulebook will create trust between the two - provided that manufacturers adhere to the rules, which hasn't always been the case. However, the prospect of hundreds of billions in new revenue streams is something the industry simply cannot ignore. Which is why, sooner or later, it will be your car that knows you best.
 

Market information from our research experts

关于经济、投资与生活中美好事物的重要资讯

LGT’s experts analyze global economic and market trends on an ongoing basis. Our research publications on international financial markets, sectors and companies help you make informed investment decisions.

联系我们