There's a lot of change happening across the automotive industry. Companies such as General Motors (GM 0.85%) are racing toward driverless vehicles, Tesla (TSLA 3.85%) is producing fleets of profitable electric vehicles (EVs), and automakers like Ford Motor (F 1.53%) are trying to prove to investors that there's growth to be had from new avenues.
One of those avenues is generating billions in revenue from software. But which companies are best positioned to do so? A recently created ranking gives investors a clearer picture.
Billions from auto software? Really?
Yes, really. While most investors don't think of traditional automakers as growth stocks, technology packed inside vehicles is opening up opportunities for additional revenue.
In fact, Stellantis (STLA 1.96%) anticipates generating roughly $22 billion in revenue from software-enabled products and subscriptions by 2030 -- and the automaker only ranks 14th out of 20 in a recent index from consulting firm Gartner, which evaluated automakers in eight software-centric areas. The entire idea behind Gartner's index is to rank which automakers are best positioned to monetize their automotive software.
Ford has similar goals and recently announced it would be installing hands-free highway driving hardware on a number of Ford and Lincoln vehicles. That means Ford customers can activate BlueCruise when the vehicle is purchased, opening up subscription revenue for the automaker.
How much would a subscription like this run customers? BlueCruise will cost a customer roughly $2,100 for three years, $800 annually, or $75 per month. Ford also has the option to leverage the software subscription into the purchase price to drive the ticket even higher, on certain trim levels.
Ford and Stellantis aren't the only automakers banking on subscription revenue to generate incremental revenue. General Motors said it thinks generating $25 billion in annual revenue from subscriptions by 2030 is a reasonable target.
Rankings and trends
Here are the rankings, from top to bottom, with those having a higher percentage score being more likely to cash in on subscription and software revenue.
Image source: Author. Information source: Gartner Digital Automaker Index 2023.
There are a few trends and takeaways to note from the above rankings. First, you'll likely notice that Tesla is well ahead of the curve in terms of turning its software into a cash cow, which likely won't surprise many. But it's worth noting that EVs in general are ahead of the pack.
Second, while some investors likely would have guessed that luxury automakers, such as Mercedes-Benz and BMW, would be next in line with vehicles typically loaded with more premium technology, it's actually Detroit mainstream automakers GM and Ford.
Lastly, many of the mainstream foreign automakers were lagging behind the industry in their preparedness to turn software into subscription revenue. Hyundai, Honda, and Toyota ranked near the bottom of the list despite having generally been thought of as forward-thinking automakers. An example would be when foreign autos went all-in on fuel efficiency early while Detroit got clobbered as a result of their apathy.
Not to be ignored
Some investors might look at the software features and think they're gimmicky, marketing spin, or just additional features to help sell vehicles. In reality, if a juggernaut automaker such as General Motors is going to hit its target of doubling revenue by 2030 -- a huge undertaking given GM's sheer size already -- it needs incremental revenue from new avenues like subscriptions, robotaxi service such as its Cruise company, or other innovative ideas, like BrightDrop, which focuses on helping customers deliver products in last-mile delivery.
Automakers are throwing out massive revenue targets for subscription services, and savvy investors will keep track of which automakers are on the cutting edge of seizing the opportunity. Make sure you're one of those investors.
