Do I Really Own My Car?
As vehicle connectivity becomes more prevalent, OEMs are increasingly migrating to a business model where consumers may own the wheels, engine, and seats in their new cars, but not the critical software that operates them. Because software “ownership” is directly related to profitability and control of key vehicle features, it is no surprise that an ownership battleground of sorts has emerged between OEMs and their customers.
Although Tesla has garnered most of the headlines over the add-on costs associated with utilizing its vehicle software, other OEMs are dipping their toes into this relatively new revenue stream. For example, BMW recently offered customers in South Korea the option of activating their seat heaters, heated steering wheel, and other comfort features via a subscription service model apparently premised on the concept that BMW “owns” the software needed to activate and operate these features. According to a recent Jalopnik article, these are the features and the prices BMW charges to use them in South Korea:
Heated seats - $18 a month, $176 for a year, $283 for 3 years, or $406 for permanent access.
Heated steering wheel - $10 a month, $161 for three years, or $222 for permanent access.
Automatic high beams - $8 a month, $84 for a year, $122 for three years or $183 for unlimited use.
Apple CarPlay - permanent access will cost $304.
Engine sounds played through the stereo - $137 for unlimited use.
BMW has not yet attempted to roll out such subscription services to U.S. customers, but the Jalpnik article cautioned that the South Korean model may be “a preview of the slow march into a money-grab dystopia of having your car’s features locked behind software you have to pay to activate.” In fact, Stellantis, the world’s fourth largest OEM, recently told investors it plans to rake in $22.5 billion in incremental annual revenue from software services and subscriptions by 2030. This prognostication is in line with what other OEMs are expecting as well.
Due to its frontier connectivity technology, Tesla appears to be the current industry leader in maximizing profits through recurrent software charges, particularly when one of its cars is traded in or changes ownership. For example, some Tesla batteries are software-limited and upgrades that unlock greater capacity can be removed by Tesla once the car is sold. Additionally, Tesla has expressly announced that its vaunted Full Self Driving (FSD) suite, which currently costs $15,000, is non-transferable and will only work for as long as you own the car. The legal argument is that only the software license was purchased, which pursuant to its terms and conditions expires when the buyer transfers ownership of the car. Simply put, vehicle software—just like your copy of Microsoft Office—it is merely “licensed” to the driver on a temporary basis and on terms dictated by the OEM. A Tesla owner doesn’t actually buy FSD, only the right to use it.
While the script is still being written, it is clear that the traditional concept of vehicle ownership and its accompanying accoutrements may become iconoclastic in a relatively short time. New vehicle owners will increasingly be able to operate the components of the vehicle they own only through the utilization of licensed software, so long as they pay subscription or license fees to the OEM and don’t violate any of the terms and conditions of their non-transferable license agreements.
In addition to turning notions of vehicle ownership and consumer expectations upside down, the development of “hybrid” or shared vehicle ownership between OEMs and vehicle purchasers is fraught with potentially challenging legal issues. For example, who has an insurable interest in these costly software activated features? How should vehicle owners be compensated by insurers for costly software activated features in the event of a total loss? Should the value of costly software activated features be factored into the threshold value insurers use to determine whether a vehicle should be deemed a total loss? At present, all of these questions and the legal issues surrounding them are in flux. We will continue to monitor this evolving area of the law and will provide updates as to any new developments as they unfold.
Copyright Nelson Niehaus LLC
The opinions expressed in this blog are those of the author(s) and do not necessarily reflect the views of the Firm, its clients, or any of its or their respective affiliates. This blog post is for general information purposes and is not intended to be and should not be taken as legal advice.