Original link: https://www.latepost.com/news/dj_detail?id=1303
In September 2017, Super Hurricane Irma made landfall in Florida, USA. Before the hurricane, a message appeared on the big screen of some local Tesla owners: We temporarily unlocked extra power in your car, hoping this will allow you to escape the hurricane and get to a safe location.
The vehicles that are unlocked are Tesla Model S and Model X 60/60D models (60kWh of daily usable power). At that time, Tesla cars had 4 different mileage versions, but only 75kWh, 90kWh, and 100kWh battery packs. The 60-series models are powered by a 75kWh battery pack, but Tesla has software locked to 15kWh of power — for 30-40 miles of range. Typically, owners pay an extra $9,000 to unlock the remaining charge.
Tesla’s move has been praised by public opinion, and it also revealed an easily overlooked fact-Tesla already has the ability to remotely modify vehicle performance through software. Although Tesla was often compared with Google and Apple before, its system upgrades before 2017 mainly revolved around in-vehicle entertainment systems and autopilot functions.
Tesla shares rose more than 6% on Monday after the push to unlock the battery. This is the new story in the auto industry – smart electric cars can make money from software. The gross profit margin of traditional car companies such as Volkswagen and Ford is less than 10% all year round, but software companies are different. Google’s gross profit margin was 56.8% last year.
Over the past five years, software has become more and more powerful in the car. Automakers can use software to modify not only a vehicle’s range, but also its braking, steering and acceleration performance. Of course, there are also increasingly powerful autonomous driving functions and in-car entertainment systems that are gradually moving closer to mobile phones.
That means automakers will have more revenue models, and consumers will have more sophisticated cars and longer bills.
Software has become Tesla’s new profit growth point
Tesla is the first to prove that car companies can still make a lot of money from users after they buy a car.
Continuously iteratively upgraded software is the basis for Tesla to make money. Since the Model S was launched in 2012, Tesla has started to perform OTA upgrades (Over-The-Air technology, remote download and update software) for cars, once every 60 days on average. Car owners only need to connect to WIFI or mobile network to download the software package, and they can own a car that is constantly evolving.
Early Tesla software upgrades revolved around in-car entertainment systems and driver assistance features. For example, the system UI interface is optimized, the voice recognition function is improved, the in-vehicle application software is added or upgraded, and the automatic parking and automatic lane changing functions are optimized.
Tesla’s first revenue from software came from autonomous driving.
In October 2014, Tesla announced that it would launch Autopilot, an assisted driving feature. After that, every car that was shipped from the factory was equipped with the hardware (Hardware 1.0) required to realize this function, including a forward millimeter-wave radar, a forward-looking camera, 12 ultrasonic radars, and a set of high-precision Electronic auxiliary braking system, and a motherboard with Mobileye EyeQ3 chip.
However, after purchasing a Tesla car equipped with Hardware 1.0, users cannot directly use the Autopilot function, but need to pay an additional $2,500 to download and install the software to unlock. Since then, Tesla has created a model of pre-embedded hardware and software paid for unlocking.
“Autonomous driving service can be regarded as a piece of hardware that relies on software to continuously iterate. When the autopilot capability of the vehicle increases, it also means that Tesla provides consumers with more powerful ‘hardware’. From Tesla’s perspective Judging by the fact that this ‘hardware’ should get more expensive as the features increase,” a person close to Tesla told Late Auto.
The first generation of Autopilot only supports functions such as automatic lane change and automatic parking space search. Later, with the continuous improvement of technology, the functions gradually improved, and the price became more and more expensive.
In October 2016, Tesla launched the second-generation intelligent driving hardware architecture (Hardware 2.0) based on the NVIDIA Drive PX2 platform, replacing the supplier Mobileye’s solution with a self-developed algorithm. Autopilot continues to evolve under this generation of architecture. It was iterated to Autopilot V9.0 in October 2018. The self-guided navigation assisted driving function NOA (Navigate on Autopilot) has been added. Features such as automatic overtaking. The unlocked price of Autopilot has also risen to $5,000.
In April 2019, Tesla replaced NVIDIA’s solution with its self-developed FSD chip and launched the third-generation architecture Hardware 3.0. At the same time, Tesla began to layer its autonomous driving services: the basic version of Autopilot is provided to users free of charge, with functions such as lane keeping and auxiliary braking; the enhanced version of Autopilot supports NOA functions on highways and requires $6,000 to unlock. Tesla’s latest Full Self-driving Computer (FSD), which can deal with more complex scenarios such as NOA on urban roads, costs $7,000 to unlock.
Shortly after the release of the FSD, Musk tweeted that the price would increase by $1,000 for each premium feature added to the service. At the end of last year, the price of FSD has increased to $12,000 after optimizing functions such as automatic braking and cornering, and it is expected to increase to $15,000 in September this year.
Earlier this year, Musk also said that as the FSD function is gradually improved and recognized by regulatory authorities, the price of this function will reach $100,000 in the future.
In addition to the autopilot function, Tesla’s software upgrades also include SOTA (Software OTA) upgrades related to in-vehicle entertainment systems, and FOTA (Firmware OTA) upgrades related to vehicle performance.
SOTA upgrade mainly includes the update of in-vehicle system and application software, and the optimization of functions such as voice recognition. These upgrades are free, but starting in December 2019, Tesla began charging for its connected services.
Since July 2018, Tesla has divided its connected services into standard and premium versions. The standard version only offers basic navigation maps, music and video playback via Bluetooth, WiFi-based OTA updates, and more. In July, Tesla announced that the service would start charging after eight years of being free to users.
Premium version of networking services, including satellite real-time rendering of navigation maps, in-vehicle audio and video software (QQ Music, Himalaya APP, etc.) and network connection to in-vehicle browsers, unlocked at $9.9 per month, and the Chinese version is charged at $9.9/month moon.
A person in the Internet of Vehicles industry believes that the upgrade of the in-vehicle entertainment system has little room for commercial imagination. “Tesla charges 9.9 yuan per month for advanced networking services, which is actually the traffic cost of the SIM card in the car. At the beginning, Tesla helped users bear this cost.”
The innovation of automotive electronic and electrical architecture led by Tesla is providing it with greater room for software charges. With FOTA upgrades, Tesla can modify vehicle performance through software. In addition to the aforementioned, Tesla cars with a battery capacity of 60kWh can pay $9,000 to unlock the remaining power. In September 2020, Tesla also launched a paid-to-unlock rear seat heating in the Model 3 Standard Range Upgrade. , to improve acceleration performance and other functions.
Among them, the rear seat heating and unlocking cost 2400 yuan. The paid acceleration performance only supports the Model 3 long-range all-wheel drive version. The owner spends an additional 14,000 yuan, which can increase the car’s acceleration time from 100 kilometers to 4.1 seconds from 4.6 seconds.
These software payment services have become Tesla’s new profit growth point. In April this year, Citibank predicted that the global penetration rate of Tesla’s FSD kit is about 27%. This means that for every 100 cars Tesla sells, it can earn an additional $324,000 through FSD. Tesla’s financial report shows that services and other contributions to revenue are increasing, and the first quarter of 2022 was $1.279 billion, accounting for 6.8% of the quarter’s revenue, compared with $893 million in the same period last year.
CICC calculated in a research report in July last year that if Tesla invests 50 billion yuan in research and development of autonomous driving before realizing fully autonomous driving, when the penetration rate of FSD reaches 40%, a single new car can contribute to Tesla. 10,000 yuan of profit; when the penetration rate reaches 60%, the profit of bicycle software can reach 28,000 yuan. FSD revenue alone can match the profitability of Mercedes-Benz bicycles in the era of gasoline vehicles.
Pre- embedded hardware, who pays the cost
Stimulated by Tesla, more car companies have begun to explore the software charging model.
NIO’s self-driving solution basically replicates Tesla’s, and the entire system comes standard with intelligent driving hardware, which can only be used by paying for software to unlock it. Its assisted driving function NIO Pilot was launched in June 2019 with an unlocked price of 39,000 yuan. In 2020, Weilai has launched a simplified version of this function, priced at 15,000 yuan.
In 2021, NIO will launch the NAD (NIO Autonomous Driving) function based on its second-generation hardware architecture, which is equivalent to an upgraded version of NIO Pilot, which can realize Navigate on Pilot (Navigate on Pilot, referred to as Tesla NOA) NOP) and other higher-level functions. In order to lower the threshold for use, NAD’s payment model has changed from a one-time buyout to a subscription system, 680 yuan per month.
Tesla also launched a subscription-based FSD service shortly after that, and users can subscribe to this service for $199 a month after paying a base fee of $1,500.
Traditional car companies are not far behind in exploring software payment models. Stellantis Group, the world’s fourth-largest auto group formed by the merger of Peugeot Citroen and Fiat Chrysler, said in March that it planned to achieve annual software revenue of 20 billion euros by 2030. Currently, the group has about 12 million connected vehicles worldwide, of which 400,000 car owners have paid for its software, mainly for vehicle Wi-Fi and audio and video streaming services.
Mercedes-Benz also launched a pay-to-unlock rear-wheel steering service in July this year. The entry-level and high-end versions of the Mercedes-Benz EQS are equipped with a steering system that also supports 10-degree rear-wheel steering, but the rear-wheel steering of the entry-level version is locked at 4.5 degrees. Owners can choose to spend 4998 yuan / year to unlock the rear wheel steering range to 10 degrees.
But after Mercedes-Benz launched this model, it has been questioned. Some voices believe that the car purchased by the car owner already has the corresponding hardware, but it can only be used after the second payment, and the behavior of the car company is “cutting leeks”.
Regardless of whether it is an automatic driving function or an upgrade related to vehicle performance, there is a big premise – the car company pre-installs the hardware, and the user pays for it to unlock and use it through OTA. Whether car companies provide consumers with one more choice or “cut leeks” depends on the core: who will bear the cost of pre-embedded hardware?
In theory, car companies have pricing power and can pass on hardware costs to consumers through price increases. However, in the free market, the price of vehicles must follow the law of market competition. For car companies to ensure that their products are competitive, pricing must be reasonable. Since all component costs are included in the BOM cost (Bill of Materia, total cost of materials) of car companies, if the cost of pre-embedded hardware increases, then car companies will reduce gross profit.
“Reasonable price” is related to various factors such as brand premium, product power, and the development strategy of car companies, so there is a certain room for adjustment. Products with higher gross profit and stronger premium ability have more space.
With its strong cost control ability and scale effect, Tesla can still achieve a gross profit of 30% when all models are equipped with intelligent driving hardware as standard.
Mercedes-Benz’s gross profit in 2021 is 12.7%, but EQS priced at 1 million-1.5 million is a high premium product. A ZF steering system engineer told Late Auto that the BOM cost of a 10-degree rear-wheel steering system is mostly less than 5,000 yuan.
If the product premium capability is not high enough, car companies will face greater cost pressures for pre-embedded hardware.
Xiaopeng Motors, which is the benchmark for Tesla, does not provide the latest generation of intelligent driving hardware as standard for all models like Tesla. Instead, an optional mode is adopted, allowing consumers to choose models that support XPILOT 3.0, XPILOT 3.5 or without XPILOT according to their own preferences and budgets. The first two cost 20,000 yuan and 35,000 yuan respectively.
In addition to the optional fee, Xiaopeng initially charged an additional fee for software unlocking, which was 36,000 yuan and 45,000 yuan for the two versions. However, starting in May this year, in order to lower the threshold for purchase and use, Xiaopeng exempted software unlocking fees.
Xiaopeng did not adopt the pre-embedded model of hardware, which may be related to the price sensitivity of its market. In 2021, the average price of Xiaopeng’s car sales is 203,000 yuan, with a gross profit of 11.5%, which is lower than NIO’s 20.1% and an ideal 20.6%, with limited room for profit. In the low-end market, it is generally difficult for products with low gross profit to bear the cost of embedded hardware.
Useful software to make money
Car companies are willing to compress gross profit when selling cars, and their core appeal is to make more money after selling cars. As long as the software revenue can exceed the total cost of the embedded hardware, this model will work.
But it’s not easy. Taking Tesla 60D and 75D Model S with the same battery pack as an example, the cost of ternary lithium battery in 2017 is about 1800 yuan/kWh. When Tesla assembles a 75-degree battery on the 60D Model S, it bears a battery cost of about 27,000 yuan, which is 20% more. At that time, the 60D owner had to pay $9,000 (about RMB 60,000) to unlock the battery. Based on this rough calculation, Tesla can recover the excess battery cost only if more than 45% of 60D owners choose to pay to unlock.
This might not be a good idea. A person close to Tesla told Auto Late that an important reason for Tesla’s early pre-installation of batteries was that the production of battery packs at that time was unstable. efficiency and reduce production costs,” the source said. Tesla is no longer pre-installing batteries after production deliveries have stabilized.
But Tesla launched a software-unlocked rear seat heating function in September 2020, priced at 2,400 yuan. In December 2021, a heated steering wheel was also introduced on the same model.
The move remains to ease the burden on the supply chain. But heated seats and steering wheel cost far less than batteries and are easier to achieve commercially.
Mercedes-Benz is equipped with the same rear-wheel steering system as the high-end version in the entry-level EQS, which may be more for the sake of simplifying the supply chain system and improving production efficiency. The aforementioned ZF insider said to “Late Auto”, “electric vehicles In the era, the net sales value of a single model is still very low, and most car companies will not choose to complicate production lines and supply chains. If Mercedes-Benz does not do this, they will purchase one more category of steering systems, open more production lines, and turn the rear wheels to BOM. Most of the cost is less than 5000.”
In this case, the main purpose of car companies implementing the pre-embedded hardware model may be to guide consumption. Under the traditional sales model, consumers choose high-level configurations and need to spend a one-time sum of money when purchasing a car. The paid unlock function allows users to use higher-level functions at a more favorable price, and does not need to pay a one-time payment when purchasing a car, and can unlock it at any time according to their own needs during the long process of using the car.
Among the software services provided by car companies, autonomous driving has the greatest room for imagination. In order to do a good job in autonomous driving technology, car companies have another important purpose of pre-embedding hardware, which is to collect effective data.
Tesla’s “shadow mode” (shadow-mode) allows the system to collect data in the background when the autopilot function is not turned on. The system does not participate in vehicle control, but can simulate decision-making and compare it to human driving behavior. Trigger data postback under some specific conditions to accumulate valid data for the training algorithm.
Weilai and Ideal have both learned Tesla’s model. Xiaopeng’s software self-development started earlier and invested more, but Xiaopeng’s intelligent driving hardware architecture is an optional model, so if the same number of cars are sold, the measured data collected will be less than NIO, which is ideal.
The ideal car, which started software self-developed at the latest, adopts the most favorable mode for accumulating data in terms of automatic driving, and provides the intelligent driving software and hardware architecture as standard for all models, and it is completely free to use.
The facelift of the Ideal ONE, which was launched in June last year, first replaced the supplier Mobileye’s solution with a self-developed algorithm, and at the end of the year launched a navigation-assisted driving function similar to Tesla’s NOA. According to the official data released by Ideal in June this year, the total mileage of this function was 24.62 million kilometers after it was launched for half a year, exceeding the mileage of Xpeng’s similar function NGP (Navigation Guided Pilot) for one year (19.25 million kilometers).
Autonomous driving technology is still in its early stages, and the more people use it and the more data it accumulates, the more perfect the system will be. Car companies want to make money through software, but only easy-to-use software can make money.
Before making the software easy enough to use, car companies have to try to charge, while racking their brains to lower the threshold for use. Xiaopeng exempted the cost of unlocking the self-driving software, and Weilai’s NAD function replaced the buyout with a subscription, all of which are the same.
The head of Volkswagen’s software CARIAD division told Bloomberg last month that Volkswagen will introduce a subscription or pay-as-you-go model for self-driving assistance features, “if you want, you can choose to enable autonomous driving for the next 50 miles.”
This article is reprinted from: https://www.latepost.com/news/dj_detail?id=1303
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