Inside Hyundai’s plan to turn software into a profit machine

The auto industry is in the midst of its biggest transformation since the first Model T rolled off the assembly line. And no, it’s not just about switching to electric vehicles.

It’s all about software, which goes hand in hand with the EV transition. Automakers are betting that apps designed to work natively with infotainment systems, over-the-air updates, in-car movies and games, and on-demand features will be the biggest drivers of revenue in the future.

Hyundai is one of the car manufacturers that wants to get there first. And by not charging subscription fees for features drivers are used to getting in advance, like heated seats. Instead, Hyundai wants to develop and launch new products and services that owners value, such as downloadable features for dog owners or sports fans.

The South Korean automaker has set a lofty goal for software-driven features to account for 30% of future profit, one of the company’s top US mobility executives told TechCrunch earlier in the day. this month at the New York International Auto Show.

Until now, Hyundai has more visibly tried to get ahead of the competition with hardware-based features; hardware-driven features like electric vehicles with 300+ miles of range and the ability to charge home devices.

hyundai kona new york auto show

The interior of a Hyundai Kona N EV at the 2023 New York International Auto Show. Image Credits: Stephanie Keith/Bloomberg/Getty Images.

Now, Hyundai is shifting its resources and attention to software design as well as vehicle interior customization, Olabisi Boyle, vice president of product planning and mobility strategy for Hyundai Motor North America, said in a recent interview.

“That’s where some of the future gains are going to be, maybe up to 30% will come from that,” he said.

Boyle clarified that it’s meant to be an additional 30% on top of what Hyundai is now reporting, not in lieu of another source of revenue. Many industry watchers speculate that the next crop of electric vehicles could last longer on the roads than conventional cars and could generate less revenue from parts sales.

Last year, Hyundai Motor Group posted revenue of $107 billion (KRW 142.5 trillion) and a record $6 billion (KRW 7.9 trillion) in annual net profit.

The hard part will be identifying which features customers really want or value. A young adult driver is likely to have different needs and preferences than a grandparent using the same family vehicle. If automakers want this to work, they may have to throw a lot of different ideas at the wall and see what sticks.

But getting buyers to understand this could be more difficult than Hyundai expects. Car owners are still more or less used to the same ownership experiences they’ve had for many decades. And with household budgets already squeezed by inflation or the growing number of subscriptions to services like streaming services, would-be car buyers have repeatedly chafed at the idea of ​​paying monthly for features they once got upfront.

A recent survey of potential new car buyers by marketing and research firm AutoPacific revealed fairly low interest in features like remote vehicle control, video streaming, Internet browsing and in-car gaming if those options they hypothetically cost $15 per month.

Interest in such features tends to be highest among buyers of electric and plug-in hybrid vehicles who need something to do while charging, and highest among younger consumers more accustomed to subscription features.

Downloads, not heated seat subscriptions

Boyle, a 20-year auto industry veteran whose career included a career in connected commerce technology at Visa, seemed aware of this tension.

The goal of Hyundai’s subscription features, he said, is “not for the things you already had, like heated seats, but for the actual features that would make you more productive in your car’s interior space.”

That’s a not-so-veiled reference to BMW’s much-criticized Functions on Demand plan, which in several markets offered drivers access to certain features like heated seats for a monthly fee. News of that release sparked considerable backlash online last year. BMW responded by saying that some US models offer a subscription dash cam and remote start feature, but that such offerings exist for now on a “small scale” here compared to other global markets. BMW will likely find more ways to test these features in future cars.

But lately, “heated seat subscription” has become something of a shorthand for everything car owners might hate about upcoming software-driven cars.

Boyle said that for this to work in Hyundai’s favor, the features need to become almost essential, not unlike the backup cameras that are now ubiquitous (and mandatory) in new cars.

“These features that we’re seeing are new and they’re not perfect in the consumer experience, but they’re all going to get better,” Boyle said. “And then that’s just going to be a baseline for when there’s a use case for this or that.”

He added that the focus will be on “things you can download into the EV that you wouldn’t have expected.”

“If you have a dog in the car, maybe regulate the climate or roll down the window or something,” he said. “Do you want to pay for that feature?”

Other examples Boyle suggested included downloadable engine sounds for electric vehicles (carmakers like Dodge are already working on ways to simulate the noises lost with internal combustion) or even sports team-themed displays in the interior. (The latter was repeatedly mentioned to TechCrunch by Hyundai Motor Group executives and product planners at the auto show, including with the Kia subsidiary.)

“You need to have the technology stack available for these use cases,” Boyle said. “Let’s say you love the Boston Red Sox, or whatever the case may be. Not everyone wants that, but you can download it for your particular EV.”

Hyundai aims to be one of the first major automakers to make the transition to producing vehicles with the ability for over-the-air software updates and downloadable features that extend well beyond the infotainment system. It has said that all of its cars will be capable of over-the-air software updates by 2025 and many updated models are rolling out with this capability right now, and that will include bug fixes, battery management and eventually more advanced automated driving assistance. . system.

future proof

Almost all car manufacturers will rush towards “hyper-personalization” in the age of software. In addition to seeing who can offer the longest EV range, fastest charging times, and the best driving experience, the next few years will be a race to see who can offer the most features people want with the best user experience. of software.

Car manufacturers are already going down this path. Arguably the highest-profile current example of this is Tesla’s so-called full self-driving beta, which can cost as much as $199 per month, or a total of $15,000. That gives owners a suite of advanced automated driving features that can be used to navigate city streets, though despite their name, Tesla’s cars aren’t fully autonomous.

Hyundai has also plunged into this world with its Bluelink and now Bluelink+ subscription connectivity systems. Those services offer features like remote start, emergency roadside assistance and vehicle diagnostic checks for a monthly fee, not unlike General Motors’ long-running OnStar service. The new Bluelink+ service offers many of these features, but for free for the entire duration of ownership, with no trial period or subscription fees for new car owners. (Used car owners will have to pay for it after the trial ends.)

The auto industry’s next wave of subscription features could go much deeper. The Volkswagen Group, for example, is launching a car app store that will provide native experiences for Spotify, TikTok, Zoom, and more. In-car movies and games are also expected to be major revenue generators as electric vehicles wait to be recharged at charging stations. And as they (theoretically) become more automated in the future, passengers will need something to play and work on while driving.

Experts say that’s a long way off, if it ever happens. Car companies continue to engage in automated driving. However, many, most notably Ford, are devoting increased resources to active driver assistance features, such as hands-off and eyes-free driving on the roads. That also includes Hyundai, which is working to market the autonomy with companies like a robotaxi service in Las Vegas.

Boyle’s job is essentially preparing Hyundai for the future. That also includes its big EV push and its investments in robotics, urban air mobility and hydrogen power.

“Fifteen years ago, people would have said that there is no infrastructure for electric vehicles; Why do you bother with such things? Boyle said. “But these are things you have to invest in early.”

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