Connected services: An increasingly important slice of automakers' revenue pie

Traditional automotive OEMs are shifting focus from simply manufacturing and selling vehicles to offering upgradeable platforms and generating recurring revenue streams through connected services subscriptions, software-as-a-service (SaaS) platforms and mobility-as-a-service (MaaS) solutions.

As vehicles are becoming increasingly software-defined, continuous universal connectivity enables them to communicate with their environment, collect real-time data and send it to the cloud. Using this data, connected services and features are delivered and continually enhanced using over-the-air (OTA) updates.

Beyond standard connected services, a suite of EV-specific digital services is emerging, including those related to charging 
services (including remote charging) and tools that help drivers locate 
nearby charging stations using vehicle status data.

Connected digital services are becoming central to automaker revenue strategy for several structural reasons—both economic and
technological—that are fundamentally shifting where 
the automotive industry creates value.

Margin pressures on automotive hardware currently are very high. Many electric vehicles, for instance, are sold at negative margins because battery costs still account for 35–45% of a vehicle’s bill of materials.

Consumers today view cars as largely similar across brands, narrowing performance and quality gaps among automakers and making feature-driven premium pricing harder to sustain. As vehicle hardware is increasingly commoditized across brands, OEMs are differentiating models using software-driven interfaces and user experience rather than mechanical features. 

For automakers seeking recurring, higher-margin revenue streams, connected digital services and subscriptions are a welcome opportunity, offering new ways to bolster OEM revenue beyond traditional vehicle sales. Compared to typical single-digit margins on hardware, software-driven connected services deliver gross margins of as much as 70–90% while boosting investor confidence through more stable automaker revenue streams.

In 2028, GM will debut a new centralized computing platform, starting with the Cadillac Escalade IQ, which is expected to deliver 10 times more OTA software update capacity, 1,000 times more bandwidth and up to 35 times greater AI performance for autonomy and advanced features.

Automakers’ connected services revenue strategies hinge on transforming vehicles into upgradeable platforms, drivers into digital subscribers and data into a new product line. Most OEMs are bullish about connected services, pursuing ambitious subscription- and software-enabled revenue targets as they diversify into mobility services, fleet services, insurance and other revenue-generating avenues.

Major OEMs have launched their own connected services; however, most are in the early stages of adoption. As more OEMs introduce connected car services, pricing strategies and service offerings will become more critical.

Although the potential is significant, many automakers have not yet fully monetized connected car services, limiting near-term contributions to OEM revenue. Despite ambitious targets, digital connected services today generate a relatively modest percentage of automaker revenue globally, failing to cover the substantial investments automakers are pouring into software-defined vehicle (SDV) development. However, this is expected to change dramatically as the industry accelerates toward a software-driven future, featuring AI-powered service recommendations, AI-generated content, more natural interactions and advanced levels of autonomy. 

OTA update capability and cloud infrastructure are critical to a successful connected services business model, prompting OEMs to pursue region-specific, multivendor cloud strategies. Setting up the right architecture, data governance and customer experience is also challenging, with many OEMs struggling to promote connected car services and convert free trials into paid subscriptions.