That opportunity in front of the customer — does that look like commercial opportunities? Are you going to sell more things in the car?
Not only. Right before Christmas, I had a chance to drive the next generation of the software, which we are going to deploy to some of our ID cars in the lineup. It’s a huge improvement in the driver assistance functionality — it’s really empowering. Even in Europe, this driver assistance is better performing than some of our American competitors. This experience of being able to improve the car and the user experience in the hand of the customer is such a new thing. Normally, we would have worked until launch. Then we’d prepare a model year update, and then update after another three years. Then we’d forget the car and think about the next.
This idea now of getting the car better in the hands of the customer is really exciting. It’s not only about additional business opportunities. It’s about additional satisfaction: getting close to the customers to understand them better. This will change our business model.
Talk to me about that. That’s a big change: you have engineers working on the ID.4’s driver assistance stack. You have to pay them — and I assume you pay them well — which is a cost. Then the engineers have to deliver the stack over a network. You have to provision and provide for that wireless network that will hit the car. That’s all just cost. I agree with you that this is a great benefit to the customer — but at some point, you have to line up revenue against that cost. That is the heart of the business model change: instead of assuming that there’s a two- or three-year upgrade cycle, you’re weighing the cost of supporting the cars for longer and comparing those costs with the revenue associated with that platform support. Are you realizing any of that revenue yet? Are those plans in place?
We have that revenue in mind for sure as well. Customers will be prepared for some features they didn’t buy at the start, probably after a few years or after a few months — even if they consider taking another option or another software feature, the customers would be prepared to pay a monthly fee or a one-time expenditure. We estimate that the big difference is that we keep the residual value of the car higher, we keep the car fresher, and we get a better customer experience. When Apple started the smartphone business, the income from their services, from the apps, was very, very low. Now, it’s—
Reasonable. Yeah. That income is reasonable, but still, they are making a large margin on their hardware because people are prepared to pay for it because of the services they get. I think this logic will also apply to our industry. People will not buy any more cars that will fade out quickly and lose residual value fast. State-of-the-art will be a decisive customer criteria. At the end, it’s about competition: if we can deliver better service, better cars, and a better customer experience, then the customers are prepared to pay for mobility. We see that mobility has a value. Customers are probably even prepared to spend more on mobility because they love mobility. They love cars; they love individual mobility.
Let me ask you a very reductive question: do you think the future of Volkswagen is a hardware company, a software company, or a services company?
It’s combined. It’s all three. We will remain a hardware company because we need excellent manufacturing skills as well as finish quality in the future designs. We need direct customer contact, so we will remain part of that. Software will be decisive for the differentiation and for gaining the economies of scale, so we will become a software company as well — talking to the customer and delivering day in and day out. We will also become a service company because mobility will change. Pay-by-use sharing fleets, mobility services, and autonomous vehicles will change mobility quite considerably. People may not own a car anymore: they may just use cars, and we will be a part of that game. We will definitely become all three of those companies, so we will remain a bit complex, but a lot more vertically integrated.