Tesla’s plan to leave the auto industry behind on in-car infotainment

Tesla’s plan to leave the auto industry behind on in-car infotainment

The average car already has more than 150 million lines of code, according to a 2018 KPMG report, and a greater percentage of software will be devoted to in-car entertainment in the future.

Tesla always has been known for putting “Easter eggs” — secret surprises discoverable by owners — in its cars, such as a function that makes the car’s lights go into disco mode. But novelty aside, Tesla CEO Elon Musk is serious about in-car entertainment. On the company’s most recent earnings call, the Tesla CEO said the goal is to create an infotainment system that provides “the most amount of fun you can have in a car.”

Musk threw shade at other car companies, too. “The goal for the infotainment system is to say what’s the most amount of fun you can have in a car. I don’t think other car companies really think about it that way,” he said during Tesla’s recent earnings call. “It’s not just some sort of transport utility device with no soul and no character.”

The competition in the electric car market is heating up, with Ford unveiling its all-electric Mustang Mach-E SUV, which includes a large center display screen. And as self-driving cars come closer to reality, the inside of an automobile is going to “become much more of an entertainment opportunity,” Musk said.

Tesla recently added a “Caraoke” library of songs and lyrics; Model S, Model X or Model 3 owners can now connect their Netflix, Hulu and YouTube accounts to the center console (when the car is parked). Tesla is also adding access to Spotify Premium and more games to the existing Tesla Arcade. It has a partnership with gaming company StudioMDHR for its game Cuphead.

Tesla is leading the infotainment race

Tesla is leading the infotainment race with these in-car entertainment services, said Dan Ives, managing director at Wedbush Securities and Tesla analyst. “Tesla is taking it to a whole new level. … They’re miles ahead of other car manufacturers in terms of how they’re thinking about the in-car experience.”

But Ives said other car manufacturers are starting to play catch-up, improving their infotainment systems in order to compete with what Tesla is introducing.

Will Kaufman, content strategist at car information site Edmunds, said that right now one of the biggest advantages of infotainment options is that they are a “parking-lot talking point.”

“It’s something else cool they can show off about their vehicle,” Kaufman said, adding that it will mainly be for the backseat passengers to use and not the driver.

Most automakers have not added features such as games or video entertainment apps to infotainment screens because of safety and regulatory concerns as well as relevance.

But Kaufman said that car companies are going to have to implement systems that are unique in order to stand out.

“Especially the luxury automakers — they are definitely looking at ways to make their offerings something that stands out from competitors,” he said. “There’s no sense in selling a car with a DVD player for the backseat anymore. Whose kid in this day and age would really want that?”

Ford, GM connectivity advances

Car manufacturers including FordGM and Volvo are starting to partner with big technology companies, such as Alphabet’s Google, Apple and Amazon.

“Sync 4 is really a cellphone on wheels now,” said Gary Jablonski, Ford’s chief engineer who worked on its recently announced Sync 4 system.

Ford’s first all-electric SUV comes at a pivotal time for the automaker as it restructures operations and spends $11 billion by 2022 on EV and hybrid vehicles. It also comes with a 15-inch display screen.

Ford Motor Co.

In its fourth generation, their Sync system offers services like a more accurate navigation system, a standard cloud internet connection and a built-in music streaming service. Apple CarPlay and Google’s Android Auto will also be available over the in-car Wi-Fi.

“Connectivity technologies in vehicles are an important part of the purchase decision, for some customers even more important than the horsepower or fuel economy,” Jablonski said.

In some new models, such as the just unveiled Mach-E all-electric Mustang, Ford will introduce larger, 12-in. and 15-in. touchscreens (the Mach-E has the 15.5-in. screen, the biggest size the new Sync 4 supports, as well as a second, smaller screen for more traditional car information, such as speed), which will be their largest display offered in their cars, in addition to the over-the-air software platform, which will update the cars’ software from within the car.

Musk sent a tweet congratulating Ford on the new Mustang electric car on Tuesday, saying it would encourage more car makers to follow the sustainable electric car trend.

Ives said the main driving force behind the in-car infotainment movement is the consumer.

“Consumers are used to the technologies they see in their smartphone, they see in their living room, but yet they go into their automobile and they have a flashback to 1988. They want the technology that they see in 2019 in their car,” the Wedbush analyst said.

GM said in a September announcement that by 2021 many of its car models will include an advanced Google Android system and in-car Google Assistant, and the automaker cited consumer demand for a car’s infotainment system to match the phone they hold in their hands. It also announced a deal with Amazon to bring Alexa into cars.

Volvo’s partnership with Google allows the car to support all of Google’s services as they are integrated into Volvo’s car interface.

GM cited increasing consumer expectations of integration between the tech in their hands and the tech in their vehicle in its decision to partner with Google for a voice assistant, embedded navigation and in-vehicle applications to compatible Chevrolet, Buick, GMC and Cadillac vehicles in regions around the world beginning in 2021. (Concept image)

GM

Cars sharing similar functions to cellphones will be a more significant trend in the future, especially with the prospect of autonomous vehicles.

“As the driver becomes less necessary, there will be more options for in-car purchases and partnering with outside vendors so that you can buy stuff from inside the car, probably even buy stuff for the car from inside the car,” said Brian Moody, executive editor for Autotrader.

Making money from in-car entertainment

Today, many automakers do not talk about these infotainment systems as significant profit opportunities.

“Maybe there’s some way to monetize it, but we haven’t really thought about it that way,” Musk said on the recent Tesla earnings call.

“Tesla has pretty much always put the cart before the horseless carriage, and this isn’t really an exception,” said Edmunds’ Kaufman.

But that may not always be the case. While there are not many opportunities today where the automakers themselves are making the money, that’s going to change, according to Autotrader’s Moody.

In 2017, GM became the first automaker to offer in-car purchases for retailers via an app called Marketplace. The app is free for owners and offers deals at stores as well as payment options at select merchants. GM expected the app to increase customer loyalty and offer a profit opportunity for the company, including revenue-sharing with retailers.

Current use of a music streaming service like Spotify does not benefit the car maker’s economics directly, but as the “car as a service” model evolves, there should be clearer monetization plays, he said, a reference to the “software as a service” terminology that is being adopted by more industries as internet and cloud technology become central to many business models.

Tesla uses its own infotainment system in cars, while other car manufacturers have the driver interact with third-party platforms, or a mixture of the two, such as Ford’s Sync system.

“It gives [Tesla] more control over their vehicle as a platform for other services, for things like Netflix,” said Kaufman. “If you can make your vehicle a platform for other services and for other companies, there’s a lot of money for you.”

Relying on big tech

Traditionally, companies like Apple and Google have made money off streaming services by having users pay for subscriptions through their app-store billing. Netflix is pushing back against this now, forcing people to pay for Netflix separately.

“I don’t imagine that battle is over, because there’s hundreds of millions of dollars annually at stake. Of course, Apple and Google have serious leverage with their platforms,” Kaufman said. “Tesla, for their part, is adding value now and getting users accustomed to extra features, leaving the door open to finding routes to monetization. What remains true is that they have total control over their infotainment system and what streaming services function on it, so they could pull Netflix whenever they want, for any reason.”

Tesla can also add other services or start their own wallet service for apps on their system. Netflix could respond simply by dropping Tesla support, Kaufman said, which right now is not a big deal given Tesla’s overall sales level. Tesla hasn’t yet sold a million vehicles total in its lifetime, while Toyota, as an example, sells more than 2 million vehicles a year in the U.S. But it’s a different question if the fight involves millions of subscribers instead of hundreds of thousands.

“If Tesla gets to the point where they’re moving millions of units annually, their control over their platform gives them leverage,” he added.

Another way to make money is by charging for basic connectivity for all of these services. Ford’s Mustang Mach-E has embedded 4G LTE. Ford declined to say if it will charge for some LTE services, such as a mobile hotspot.

Many automakers have offered in-car WiFi for years through one-time data charges or monthly and annual subscriptions.

Tesla has announced an annual subscription fee for “premium connectivity” features, but Kaufman described the fee as nominal and likely more to cover expenses than produce meaningful revenue.

In deals like the one Volvo made with Google, the tech company will have a lot of power to implement new features and let developers integrate apps with the system. But other automakers can use Google as on OS and “run their own skins,” Kaufman said, creating a user experience where Google is essentially invisible beyond the functionality it adds to, say, maps and voice commands.

“The more control you cede to Google, and the more the user is directly connected to their Google accounts, the less opportunity you have as an automaker. Imagine Volvo trying to roll back added Google functionality after its buyers have grown accustomed to it?”

A GM spokeswoman said in an email that pricing for plans and packages that include these services will be announced “as we get closer to launch of the first vehicles that will include these services.” The GM spokeswoman added that the terms of its agreements with any partner companies are confidential.

Tesla and Volvo did not respond to requests for comment.

The problem automakers have is that they can’t invest as much in platforming their vehicles when they also have to invest in vehicle development, and companies like Google have a huge head start, making the quickest, easiest solution letting Google in the car door.

“I do think that the more the technology and the user experience are handed over to Google, the more monetization opportunities car companies cede, but they may be in a place where they can’t offer certain features now without giving up those opportunities down the road,” Kaufman said.

For now the in-car entertainment may come at an added cost to consumers folded into an automobile’s sticker, Moody said. And in some cases, car shoppers may want to be skeptical about the value of these services.

“Why do I need an in-car navigation system that costs $1,000 when that’s already on my iPhone?” he said.

Source: www.cnbc.com

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