How will Car Companies Make Profit from Electric Cars?

Over the last three years, we have witnessed a considerable increase in the number of electric cars in the market. Starting with Tesla, many other manufacturers introduced electric vehicles in their range of models, including Mercedes-Benz, BMW, and Audi.

This trend is not something new, and it was ignited by Tesla. Early in 2013, BMW introduced the i3 and i8 models. At this point, there were only a few electric cars. Now, Mercedes literally offers every ICE car in an electric version. BMW and Audi are going in that direction as well. I am sure VW Group will implement this strategy in the rest of their brands.

All of this is good news for the consumer, and it’s nice to see a shift from ICE to electric cars. The rise of electric vehicles in the market will increase competition, quality, and the range of choices.

There is one thing unique to electric cars, and many people haven’t realised it yet. They realised it as a benefit! Servicing! Electric vehicles have literally no moving parts. The Porsche Taycan is the only electric car with an automatic gearbox.

Electric motors don’t need servicing. This is because there is no engine oil, air filter, spark plugs, clutches, or catalysers. As a result, servicing your electric car will be cheap. Probably, brake pads and brake fluid will need to be replaced from time to time. You may also need to check the condition of the electric motor, and maybe few other bits.

This is good for consumers but bad for car companies. These companies make lots of profit from servicing. Manufacturing a car is an expensive process, but servicing it is really easy! So, the profit margin for servicing a vehicle is high.

Given the limited servicing frame for electric vehicles, then, how will car companies compensate for the lost profit? One option is to increase the price, but this may backfire.

Now let’s have a look at Apple’s business model. You buy an iPad and keep it for a long time; Apple can’t sell you an additional iPad that easily. So, how does Apple make a profit from you? The answer is, again, services! These include Apple Music, Apple TV+, and all the other apps you’ve subscribed to. Your iPad is nothing without those services.

I believe the car industry may go in a similar direction. That’s to say, after you buy your electric car, you may be required to pay a subscription fee if you wish to use services.

Mercedes-Benz is already doing something similar with its EQS. You have to pay for it if you want to have extended angle rear-wheel steering, and Mercedes-Benz will enable it over-the-air. This model is similar to how Apple’s AppStore used to work. If you pay once, the model doesn’t work; everything needs to be on subscription.

Over the next ten years, we will probably see car manufacturers rolling out many subscription services to compensate for the financial loss of vehicle servicing.

Photos Daimler