VaaS: the mobility model that is changing the automotive market

We analyze the growing trend of the subscription model in the automotive industry, and how it could transform our relationship with vehicles. What are the main advantages and challenges of implementing it versus traditional ownership?

Contents

Same services, new rules

In recent times, we can identify a growing trend towards subscription services; in particular, in the automotive market, several well-known brands are embarking on this business model. These services seek to amplify the user experience, offering functionalities such as heated seats, remote start key fobs, assisted driving or voice command recognition.

This subscription model has generated a lot of controversy, since it implies that users can make use of those features that the car already has on the condition that they pay a monthly fee. Among the brands that offer these services are BMW, Volkswagen, Toyota, Audi, Cadillac, Porsche and Tesla, among others. But what happens when the customer buys the vehicle and decides not to pay separately?

From Guidehouse Insights, chief mobility research analyst Sam Abuelsamid says, "The automakers certainly want customers to get used to this, but frankly, I'm skeptical that it's going to work. Add in the industry's trend toward producing more electric vehicles, and the average price of cars is expected to grow in the coming years, which would encourage manufacturers to double down on these services to offset higher production costs.

However, people do not accept these terms. A Cox Automotive survey revealed that 75% of respondents are unwilling to pay a subscription, either annually or monthly, to access in-vehicle features. Instead, the expectation is that these extra services and features will be included upfront in the total purchase price.

What is VaaS?

Vehicle as a Service (VaaS) is an emerging business model in the automotive industry that, as the name implies, offers access to vehicles through flexible subscription services, rather than traditional ownership. This model allows users to enjoy mobility without the obligations and costs associated with car ownership.

Through subscriptions according to their needs, customers can access vehicles for periods ranging from a few minutes to several years.

The main features of the VaaS model are:

  • Flexibility and access: It is a flexible solution that adapts to consumers' changing mobility demands. Users can choose from a variety of vehicles and services, with no long-term commitment.
  • Innovation and technology: Vehicles that incorporate the latest technological innovations, especially electric and autonomous vehicles, are often used. This offers consumers access to the best and latest technology without the need for costly investments or lengthy commitments.
  • Integrated services: Additional services such as insurance, maintenance, roadside assistance and, in some cases, electric vehicle charging are often included in the tariff. Thus, the car's needs are covered under a single monthly payment.
  • Reduced financial commitments: The consumer avoids large initial outlays and prolonged financial commitments, as is the case with traditional purchasing or leasing. This becomes attractive in an economic environment where financial flexibility is increasingly valued.
  • Sustainability and efficiency: Priority is given to electric and energy-efficient vehicles, supporting efforts towards more sustainable mobility and helping to reduce the carbon footprint.
  • Simplified digital access: Digital platforms are leveraged to facilitate the subscription and vehicle management process. Users can manage their subscriptions and services and select vehicle options easily online or through apps, making the process intuitive and hassle-free.

This model is born at a time of transformation within the automotive industry, where two disruptive forces are impacting at the same time: radical product innovation with electric and autonomous vehicles and new customer demands that push for fundamental change in the current sales model.

To understand these demands, the consulting firm Berylls conducted a study in Germany with 2040 private customers, aged 16 to 56. Their objective was to understand the where, how and why of the car buying process.

Some findings

Customers increasingly want to move from vehicle ownership to usage-based models (with a 38% increase in market share by 2025) that offer greater flexibility and access to the latest technology, while minimizing risk.

As a result, models such as VaaS gain relevance. The low barrier to entry of VaaS manages to attract people who do not own cars today, which unlocks an additional potential market of 1.32 million customers (in Germany alone).

Brand loyalty among VaaS customers is 50% lower compared to traditional customers, which represents a risk for car manufacturers and dealers. These could lose market share to new players, while allowing new electric vehicle brands to enter the market without requiring large budgets to build offline sales networks.

What does this model look like going forward?

Case in point is Helixx Technologies, a UK-based company that specializes in vehicle production, which recently announced plans to roll out its vehicle subscription services.

Their objective is to break into the micro-mobility market sector, focused on developing countries where vehicles have traditionally been imported and expensive. As part of this initiative, they also have an innovative system to offer a "factory in a box" solution, which involves the installation of a local factory in a period of only 6 months.

While the vehicles they offer may appear modest by developed world standards, they are tuned to compete in the initial target market, which is Southeast Asia.

The company's goal is to provide cost-effective transportation options for people who do not want or cannot afford the upfront costs of the ownership model and who do not need a vehicle exceeding 80km/h. In addition, its modularity and ease of assembly allows it to easily cover broad use cases.

Helixx's cheapest subscription rate is USD 0.25 cents per hour, which is USD 6.00 per day, with no upfront costs and nothing else to pay (the electrical charge is paid separately). In addition, if the vehicle stops working or suffers an accident, an instant replacement is available, which is an attractive attribute for those using it for commercial purposes, more so in operations involving large fleet management.

Challenges and prospects for implementation

In the current context of mobility, this service and pay-per-use model is disruptive in several aspects and, therefore, its adoption faces several challenges. From necessary regulations to cultural changes in the perception of ownership, these factors play a key role in the evolution of the model's adoption.

In principle, there are market-specific challenges, such as:

  • Legislation and regulations: As usage-based models such as VaaS gain traction, regulations have not been able to keep pace or adapt quickly to alternative models to vehicle ownership. Changes in technology and consumer expectations require an updated regulatory framework.
  • Technical implementation challenges: Implementing a VaaS system requires a robust infrastructure for logistics support, maintenance and fleet management, which can be a major challenge, especially in areas with less technological development. For this reason, traditional automakers, thanks to their infrastructure, would in principle be the best placed to adapt and start developing subscription models that favor access over ownership.

On the other hand, there is the consumer's perception, given that switching to this type of model would imply a cultural change regarding the need to own a vehicle. Most users value ownership as a symbol of status or financial security, but along with ownership there are also responsibilities, risks and long-term commitments that many people are no longer willing to accept.

According to a report by consulting firm Deloitte, recent years have seen a steady decline in the importance and appeal of car ownership. Cars have lost their image as status symbols, and not just for millennials.

In a dynamic world, consumers have begun to view conventional auto finance and leasing contracts as a burden rather than a benefit.

Rethinking ownership models

The VaaS model proposes that we reconsider traditional car ownership in favor of more flexible alternatives adapted to our real needs. While many consider car ownership as an extension of our personal freedom, data indicates that most of the time this valuable asset remains unused.

In the United Kingdom, the Royal Automobile Club Foundation published a report revealing that cars are idle 96.5% of the time. This means that a private car is idle on average 23 hours a day.

This leads us to question the economic and practical efficiency of owning a vehicle compared to opting for subscription-based solutions, since it underlines a crucial aspect of VaaS: the utility of each vehicle is maximized by sharing it among several users, thus reducing the total number of vehicles needed and thus decreasing the environmental impact.

Do you own a car and how much do you use it daily?


By Martin Piriz, Research & Development Assistant Quantik Labs

Martin is an advanced student of Communication Systems Engineering, with a profile focused on signal processing and machine learning.
Since 2022 he is part of QuantikLabs assisting in the research and development of projects and products.


About Quantik Lab

Quantik Lab is the area of the Quantik Group dedicated to research and development (R&D). Its objective is to foster and mature the creation of new products and technologies, which can then be scaled. Ideas for exploring new topics come from both customers and partners.

Today, he conducts research on metaverse, internet of things, electric mobility, customer experience and smart cities.

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