The Digital Car Is Coming. It Might Not Be More Profitable.

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Chrysler owner Stelantis on Tuesday chalked out a strategy to generate additional revenue from in-vehicle software sales

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At the heart of its new approach is “STLA Brain,” a new technology platform that will pave the way for more powerful vehicle software updates by 2024. That’s the point when the new Jeep and RAM trucks will start to feel more like smartphones in terms of their potential for personalized services and continual improvement — benefits Stelantis hopes it can charge, as will Apple to some extent. Does it with iPhones.

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All the big car makers are deviating from this path. In October, General Motors planned to create $80 billion in revenue from software and other new businesses in 2030, including a wildly ambitious $50 billion from Cruise, its majority-owned driverless taxi operation. Separating Cruz—Stellantis Alphabet in Numbers . does not include any revenue from its association with‘s

Robotaxi business Waymo- The estimates of the two carmakers are not miles away.

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Automakers already generate some revenue from in-vehicle services. Stelantis said it will make about €400 million in 2021, exclusively from selling navigation and live-traffic data, while GM’s OnStar roadside-assistance service probably brings in the bulk of its $2 billion in annual service revenue. Auto insurance based on actual driving data is more low-hanging fruit: Stelantis said it would launch a program next year.

The condition is that this is the first movement of a new business model that may over time dominate the automotive industry. Stock investors are also betting. One of Tesla’s justifications‘s

A market value of $1.2 trillion—and a massive increase in the entire sector’s share-market valuation over the past two years—is the potential for high-margin recurring software revenue, especially as the cars get better at driving themselves.

Stelantis and GM are right to be ahead of the curve, but for now the business model has yet to prove anything on a meaningful scale. Tesla’s vehicles lead the software-focused trend, but Tesla still has to make more money from software. The big risk is that digital services, with few exceptions, become another in-car tech improvement that consumers don’t have to pay for, as the car industry remains highly competitive and everyone is investing in similar areas. Is.

Even taking Stelantis’ and GM’s projections at face value, revenue will actually start to rise only in the second half of the decade. Meanwhile, the necessary investments are yet to happen. Like its Detroit peers, Stelantis is trying to entice a number of expensive software engineers away from more traditional tech businesses to lead their charge.

Auto manufacturers need to make their bets early because of the time it takes to plan vehicles, especially when their technology is changing fundamentally. Investors don’t need to follow suit — and probably shouldn’t when so unproven.

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