Connected digital services becoming an increasingly important slice in automakers’ revenue pie

Although some automakers have publicly quantified multi-billion dollar revenue ambitions from connected/digital service models, these today generate only a relatively modest percentage of automakers’ global revenues. That said, automakers emphasize that software margins are far higher than hardware, so even modest revenues materially lift margins.

As vehicles are getting increasingly software-defined, continuous universal connectivity enables them to communicate with their environment, collect data in real time, and send it to the cloud. Using this data, connected features and services are being delivered and continually enhanced using over-the-air updates. Beyond regular connected services, a suite of EV-specific digital services are emerging too, such as those related to charging, including remote charging, searching for nearest charging station with vehicle status data, etc. Connected digital services are becoming core to automakers’ revenue strategies for several structural reasons — both economic and technological — that fundamentally shift where value is created in the automotive industry.