Automobiles: Computers On Wheels

LeoFinance
5 Min Read
922 Words

The automotive is changing right before our eyes. This is something that many have sensed yet few realize to what extent this is happening.

Obviously, the shift towards Electric Vehicles is enormous. If this really starts to hit mainstream numbers, which many believe will happen in a few years as models reach parity with ICE, then we will see a radical shift taking place.

However, that is not even the biggest difference.

Of course, there is talk about autonomous vehicles which will drive themselves. This is also a possibility and will be a total game changer. As I type these words though, it is still a dream. There are certain advancements that were made yet there are no fully self driving cars right now.

Hence, we probably have a few more years before the technology is even available.

There is something that is in place today. In fact, it is one of the biggest innovations that Tesla introduced to the car industry, something most overlooked.

The majority of us have smartphones and computers. It is not uncommon to receive updates periodically. Hell, if you use Windows on your laptop or PC, you get updates about once a week, and they usually screw something up.

While we take this for granted in the computer world, it was unheard of in the automobile industry. Think about that for a second. A $50 smartphone could receive updates yet a $75K automobile had to be taken into a service center.

As stated, until Tesla introduced that to the world. They were the first ones to offer over the air updates. In fact, until recently, they were the only ones.

Thus, it was possible, in some ways, that Tesla cars got better as time went by. For everyone else, things got worse.

It looks like the industry is finally catching up to Tesla on this one.


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Porsche introduced their EV, the Taycon, and it is now looked at by the company as a 5,000 pound computer. This is exactly how Tesla viewed their vehicles ever since before Musk's second master plan.

Essentially, these companies are starting to see how cars are going to be Software-as-a-Service platforms. Instead of just selling the car, software products will be delivered. Many will be free, some will not. Here is where the automakers can hope to squeeze some extra profit out of the deal.

For Tesla, the self driving package is the best example. People can buy this for $8,000. While the hardware comes with the car, the software costs extra. Of course, the full self driving capability is not available yet so it is buy and wait. Some features are delivered which helps to train the system.

There is also an entertainment platform that people can subscribe to. Since each car is connected, this can be accessed for a monthly fee. While a company like Tesla has relatively few cars on the road, imagine what a Volkswagon could do if this feature was available to every car on the road.

Software-as-a-Service is the model that Apple used to perfection. Yes, it made gobs of money selling the IPhone. However, the last few years saw their services revenue explode. As they offered more options to people, they revenue per phone increased.

It doesn't take a lot per phone to add up when you sold more than 1 billion of them.

The automakers hope to follow suit. As people spend more time in cars with advanced features, or when full self driving becomes available, there is going to be a grand opportunity to offer services to their customers.

Since we live in a subscription world, this is nothing new. In fact, people will likely transition very easily.

Developing this capability will mean a lot to the car companies, especially the likes of Volkswagon, GM, and Toyota. These companies deliver the most cars a year meaning their install base with these new features can easily surpass that of Tesla. Right now, it is slow rolling out but if they can have it across their entire product line in a couple years, that will be millions of cars with it. That could be some massive revenue.

The advantage to software is the profit margins are insane. It is one of the ways Tesla believes it can push an industry leading gross margin. However, this will not be the case if the others follow suit.

So, down the road, we can expect that all will be offering our favorite shows on Netflix. There will be different packages available for entertainment. That said, the real money is in what they design themselves. The over the air update is great for things that are required to increase performance. However, it goes to a new level when something new is introduced and sold as an option.

For example, in one of its models, Tesla offered a software update for a few thousand dollars that actually sped the vehicle up. This was something they designed and most of the revenues were profit. Whatever the number sold, it was simply announced, the user selected on the control panel, and their credit card was charged. This software them was updated with the new feature.

When a company views its product as a computer on wheels, an entirely different world opens up.

It appears this is how many of the companies are now seeing things.


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