Could car subscriptions be the next big thing for electric vehicles?
Last week I wrote about the trend to move away from auto dealer sales and take direct-to-consumer approaches, especially when it comes to selling electric vehicles. As sales of app-enabled vehicles increase, I wonder: Do âcar subscriptionâ models have any chance of being the next big thing?
The Boston Consulting Group (BCG) seems to think so. The consulting firm is taking the trend of direct-to-consumer car sales a step further by suggesting that the market will continue to move away from car buying altogether. In the new report âWill auto subscriptions revolutionize auto sales? “ BCG calculates that by 2030, car subscriptions could become a $ 30-40 billion market opportunity in Europe and the United States, accounting for 15% of total new car sales.
Interest in car subscriptions seems a natural progression from the shift towards in line car purchases and reflects the growing tendency of consumers to prefer to invest in new and varied products experiments on the material ownership of products. From a sustainability standpoint, this seems like a golden opportunity to get more people to drive electric vehicles. Startups such as those based in Los Angeles To borrow and Lead are literally rolling around and selling online car subscription services exclusively for electric vehicles – on a mission to reduce barriers to EVs.
I spoke with the founder and director of the BCG Mobility Innovation Center and co-author of the report, Nikolaus Lang, to learn the basics of this innovative new model.
What is the difference between a rental and a subscription?
Leases typically require a minimum two to four year contract, a (large) down payment, and a credit check, and they impose hefty penalties for cancellation. Many exclude additional services, such as insurance or repairs. It goes without saying that the car you start with at the start of the lease is the one you return at the end of the term.
Subscriptions cover insurance, maintenance and roadside assistance. They also (often) don’t require any down payment or credit checks, and customers have a lot more choice and flexibility with subscription services. Some, like those offered by Steer, offer the possibility of exchanging different models of cars within a few days of notice with a home delivery of the concierge type. For example, you can drive an Audi e-tron during the week and upgrade to a Tesla Model X for a weekend.
Startups like Los Angeles-based Borrow and Steer are literally offering online subscription services for all-electric vehicles, with the goal of lowering barriers to electric vehicles.
Subscriptions also make the entire car acquisition process “a modern digital experience – from shopping and comparing to transaction,” according to the BCG report. The analysis goes on to state that “subscriptions represent an opportunity for OEMs to establish a digital channel to sell to end users.”
âThere are a lot of myths and misconceptions about auto subscriptions,â said Lang, who mostly wanted to highlight the three myths outlined below, from page 7 of the BCG report.
Myth # 1: Consumers want to change vehicles regularly
In fact, only one in four consumers surveyed for the report cited the exchange as a major reason for purchasing a subscription. Affordability and cost transparency are more important to consumers, according to BCG. In addition, the exchange function and its associated costs drive up the price, which is not attractive to more people.
Myth # 2: subscriptions are too expensive
Some vehicles are available for as little as $ 250 per month, all inclusive. The perception of high cost is largely a holdover from “permutation-type models”. In Lang’s view, the failed subscription models introduced by automakers like Audi, Cadillac and BMW weakened due to their huge prices.
Myth # 3: most consumers want monthly subscriptions
Monthly plans are considerably more expensive and most consumers prefer a lower price over a premium experience and features. Monthly subscriptions (which can be canceled at any time) turn out to be low in demand, and something more like a micro-lease (like the three, six, or nine month term offered by Borrow) is proving much more in demand, according to BCG.
Lang concluded that the real deal lies in this type of all-inclusive short-term rental, which does not automatically include the ability to change the vehicle and remains in the range of $ 350 to $ 550 per month. âIt’s a digital all-in-one and better value for money,â Lang said when it came to making this model a success.