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McKinsey projects that more than 90 percent of vehicles sold in 2030 will be connected, up from 50 percent today.1Michele Bertoncello, Christopher Martens, Timo Möller, and Tobias Schneiderbauer, “Unlocking the full life-cycle value from connected-car data,” McKinsey, February 11, 2021. To capture the full value of this growing market, OEMs and other mobility players should consider the following three questions:
About the authors
This article is a collaborative effort by Alexander Baule, Michele Bertoncello, Ben Ellencweig, Florian Garms, Goran Mirkovic, Felix Rupalla, Tobias Schneiderbauer, and Kilian Zedelius, representing views from McKinsey’s Automotive & Assembly Practice and the McKinsey Center for Future Mobility.
- What is the importance of connectivity for different customer segments, including those defined by region, demographic characteristics, and selected vehicle powertrain?
- How can OEMs and other mobility players create a winning connectivity offering (including attractive features, customer willingness to pay, and smart bundling)?
- How can OEMs and other mobility players maximize the commercial opportunity from connectivity through different payment models, such as one-time payments and subscriptions?
The McKinsey Automotive Digital Services Customer Survey: Methodology
The McKinsey Automotive Digital Services Customer Survey was conducted online in October 2023. It garnered responses from 1,649 customers in three key markets: China, Germany, and the United States. The survey was designed to identify the vehicle connectivity bundles that customers most value, as well as the best options for generating revenue from both bundles and individual services.
Some connectivity features in our survey can be digitally unlocked, even after vehicle purchase, as part of a connectivity offering (exhibit). While some connectivity features mainly rely on customized hardware, others are software enabled. They can be grouped into six clusters: safety and security, comfort, autonomous driving, performance, infotainment, and assistant services. Examples of some innovative connectivity features include the following:
- advanced remote control apps that allow customers to control their vehicles remotely and assist drivers with unlocking and locking their cars, climate control, checking maintenance status, and geolocating vehicles
- adaptive-suspension upgrades that adjust vehicle suspension depending on driving behavior
- advanced steering assistant that improves performance
- customizable interior car settings, which can adjust driver and passenger space based on individual preferences (for instance, loading a driver’s music profile, seat, and temperature preferences)
- full autonomous-driving capabilities
- racetrack mode (lap time tracking), which provides tips for driving on racetracks and tracking pace
- intelligent in-car ambience control, which helps create a specific in-car mood suited to a driver’s individual preferences by customizing lighting, temperature, and sound
- human-machine interface and co*ckpit individualization, which allows drivers to customize the layout and configuration of the controls and displays, such as the position and size of the infotainment screen, to suit their preferences
- preference-based navigation, which considers a driver’s route preferences, electric-vehicle charge, calendar, and other data
- in-car office functions, which allow drivers to create emails with voice command, check emails when the vehicle is stationary, employ auto dial-in for conference calls, and perform other office functions
- in-vehicle concierge services, which provide on-the-go assistance with locating various businesses, such as pharmacies and hotels, and then navigating to them
To support mobility players in the connected-car ecosystem, we recently surveyed more than 1,600 automotive customers in China, Germany, and the United States. The survey focused on 39 different features that could be part of a connectivity offering in six overarching categories: safety and security, comfort, autonomous driving, performance, infotainment, and assistant services. (For more information on the methodology, see sidebar “The McKinsey Automotive Digital Services Customer Survey: Methodology”). The survey findings allowed us to identify nine key implications that can help mobility players understand the current market, including regional differences, and capture the full value from connectivity by identifying features that consumers value, developing strong offerings, and setting the right price.
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Why connectivity is important
Car buyers often prefer vehicles with strong connectivity, and the survey results reflected this enthusiasm.
1. Connectivity will be crucial to win in growing segments globally, especially in the battery-electric-vehicle segment and in China
Strong connectivity is essential to win in China and to attract battery-electric-vehicle (BEV) customers globally. In the McKinsey Mobility Consumer Pulse survey, 55 percent of Chinese respondents and 57 percent of BEV customers were willing to change automotive brands to get better connectivity.1We used information from the McKinsey Mobility Consumer Pulse survey to supplement the findings from the more recent McKinsey Automotive Digital Services Customer Survey.
BEV disruptor OEMs and Chinese OEMs have long understood the importance of connectivity and are significantly beefing up their offerings. Seamless and AI-based voice assistants, subscription models for autonomous driving, advanced security features, and entertainment features such as gaming are creating a buzz. Western incumbent OEMs are improving connectivity, but their offerings often trail behind Chinese OEMs. Many features that Chinese OEMs offer as standard are still priced as separate options at Western volume and premium OEMs.
2. OEMs can expect average take rates of about 40 to 60 percent for connectivity features, if packaged and priced well
For individual connectivity features, an average of 40 to 60 percent of survey respondents indicated that they were highly likely to make a purchase. These numbers were even higher for respondents in China and for BEV owners in all countries, with an average purchase likelihood of about 60 percent and 58 percent, respectively. Such findings again emphasize the importance of creating compelling connectivity offerings in these segments. For example, about 285,000 customers bought a specific EV with autonomous-driving features in 2022, reflecting a global take rate of 20 percent. And in China, another OEM equips its vehicles with the company’s multisensor platform and has achieved take rates of over 50 percent for driving-assistance features.
How to create a winning connectivity offering
OEMs and other mobility players face a complex challenge when developing connectivity offerings because they must understand what customers in select segments want and what those customers are willing to pay. The bar for strong offerings is already high, especially in China, and will only rise higher.
3. Chinese OEMs are setting new standards in connectivity offerings
In China, both Western and Chinese OEMs include many connectivity features—more than 60 percent of the 39 features discussed in our survey—in their base configurations. Chinese BEV players are propelling this trend by creating strong connectivity offerings in an attempt to differentiate themselves from competitors. In Western markets, Chinese OEMs and electric-vehicle pure players offer more than double the number of connectivity features in their base configurations than incumbent OEMs, which tend to sell single connectivity features as options. As BEV pure players and Chinese OEMs gain ground in Western markets, incumbent OEMs should consider revisiting the balance between base and optional offerings. Of course, they should also consider that BEV adoption levels remain uncertain in many countries, including the United States, and could vary based on shifting consumer preferences and subsidy fluctuations.
4. Connectivity features and offerings must be highly tailored to specific regions and customer segments
While some connectivity features are in high demand, many advanced offerings, such as in-car gaming, have a niche appeal. Feature preferences also vary widely among regions. For instance, more than 50 percent of the top ten features in China relate to more advanced technologies, such as advanced-driver-assistance features, while German and US customers favor comfort and convenience features. Similarly, the likelihood of considering connectivity features is more than 25 percentage points higher for customers in urban populations compared with suburban or rural customers. Click on the country names in the exhibit for more information on each location.
To maintain control over customer interfaces and data, some OEMs are restricting the offerings of third-party tech players in their vehicles.
5. Connectivity features and offerings must reflect customer relevance and willingness to pay
Connectivity features fall into several archetypes based on willingness-to-pay (assuming a one-time payment):
- Must-have features: Most customers are extremely willing to purchase these features; OEMs can consider integrating them into base configurations.
- Niche features: These features are typically of low interest to mainstream customers but are associated with a high willingness to pay within certain groups; OEMs can create dedicated offerings for these to exploit revenue potential.
- Halo features: Customers have a high absolute willingness to pay for these features, which have take rates between 40 to 60 percent; OEMs can consider pricing halo features as single premium features.
- Bundle features: These features are associated with medium interest and medium-to-low willingness to pay; these could be combined with selected halo or must-have features in smart bundlesto increase customer interest. Given the high number of features in this category, OEMs investing in smart bundling strategies could see significant returns.
Safety and security features
Safety and security features span multiple categories. Willingness to pay and relevance vary.
Comfort features
Many comfort features are combined into bundles. More than 50 percent of respondents were willing to purchase most of these features.
Autonomous-driving features
As with comfort features, many autonomous-driving features are combined into bundles, and more than 50 percent of respondents were willing to purchase most of these features. None of the features currently fall into the must-have category.
Performance features
Of the three performance features in the survey, only one was associated with a high willingness to pay and was rated as “likely to purchase” by more than half of respondents. One feature is still considered niche.
Infotainment features
Willingness to pay and relevance varied widely for infotainment features. They were divided among the niche, bundling, and must-have categories.
Assistant services
Assistant services are still associated with relatively low willingness to pay and relevance.
6. Bundling increases average customer relevance of connectivity features
When presented with bundle options for connectivity-enabled features, respondents’ interest in purchase was more than 16 percentage points higher than the average interest in single features in all regions. This finding is especially relevant for OEMs in the German market, where incumbent OEMs typically offer connectivity services as paid optional add-ons. OEMs that bundle features that generate medium consumer interest, such as infotainment, with other offerings can potentially increase take rates, upsell single features, and capture higher willingness to pay.
A new breed of car financing: Feature bundles and embedded services
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How to commercially master the connectivity opportunity
7. Customers favor subscription models for connectivity services but prefer yearly payments over monthly payments
Thirty-nine percent of customers favor subscription payments for connectivity, compared with 30 percent who favor one-time payments. For subscriptions, more than 60 percent prefer yearly payments.
Recurring-revenue service models will become increasingly important for OEM connectivity offerings, and this has significant implications. First, OEMs must shape the customer journey and expand engagement beyond their dealership networks. Second, OEMs will need to consider undertaking a comprehensive transformation, moving away from a start-of-production-centric approach and focusing more on continuous improvement. In addition to frequently updating digital features, they will need to clearly convey the benefits of such upgrades throughout the entire sales process and customer journey. An omnichannel strategythat merges the offline and digital worlds will also be essential to renewing subscriptions seamlessly and to understanding how customers value different features.
8. Pricing connectivity features is more complex than expected, and finding the right balance between price level and take rate is crucial
The amount that customers are willing to pay for connectivity features is about 80 percent of the current average prices offered by premium OEMs. This suggests a tendency toward inflated prices for single connectivity features. For some features, willingness to pay is well under the 80 percent level, which could potentially explain relatively low take rates. These findings indicate that OEMs can refine pricing for connectivity features to ensure that they closely reflect perceived customer value. A strong pricing strategy will ultimately increase take rates.
9. Continuous customer activation beyond first car owner is essential to capture connectivity’s full potential
Subscription models accrue higher cumulative revenues than one-time-payment models only after three to five years, although this varies greatly by region. On average, this amount of time is 60 percent longer for yearly subscriptions compared with monthly subscriptions.
Given that the average holding period for vehicles is around five years and the average leasing period is around three years, OEMs will need to work with their retail and service partners to demonstrate the value proposition of connectivity subscriptions to second vehicle owners if they want to generate revenues similar to or above those for traditional one-time payments. In addition, OEMs must monitor feature activation rates and, with vendor assistance, ensure that offerings remain attractive throughout the entire holding period.
Recapping: Winning the connectivity race
About the McKinsey Center for Future Mobility
These insights were developed by the McKinsey Center for Future Mobility (MCFM). Since 2011, the MCFM has worked with stakeholders across the mobility ecosystem by providing independent and integrated evidence about possible future-mobility scenarios. With our unique, bottom-up modeling approach, our insights enable an end-to-end analytics journey through the future of mobility—from consumer needs to a modal mix across urban/rural areas, sales, value pools, and life cycle sustainability. Contact us if you are interested in getting full access to our market insights via the McKinsey Mobility Insights Portal.
Winning the connectivity game requires several fundamental activities:
- obtaining a sophisticated understanding of customers, including how their needs differ across regions; behavior-based segmentation can help reveal such nuances
- developing features that strictly adhere to customer requirements
- adjusting current processes, including those for R&D, product management, marketing, and sales and services, while simultaneously shifting to recurring revenue models
- creating a strong commercial strategy that combines both sophisticated bundling and pricing in compelling offers and then ensuring that the value proposition is clearly communicated to customers and delivered through all sales channels
Alexander Baule is a consultant in McKinsey’s Berlin office, where Florian Garms is an associate partner; Michele Bertoncello is a partner in the Milan office; Ben Ellencweig is a senior partner in the Stamford, Connecticut, office; Goran Mirkovic is a consultant in the Vienna office; Felix Rupalla is an associate partner in the Stuttgart office; and Tobias Schneiderbauer and Kilian Zedelius are partners in the Munich office.
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