Will We Get Our Cars For Free In The Future?

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And there’s another Tesla-Killer from China… The Beijing Motor Show was not only crowded by people, but Chinese manufacturers such as BYD (partly owned by Warren Buffet), BAIC, Cherry and Quintu showed their electronic concept cars. A very interesting view on electronic cars came from LeSEE, founded by billionaire Jia Yueting. Eventually, Jia said, the LeSEE could be offered free to its customers. The car would become only a part of an ecosystem. Jia’s LeEco, short for Le Ecosystem, seeks to disrupt the world by establishing a ‘future transportation ecosystem’ were the car is just another place were applications and subscriptions are used.

Ambitious Chinese billionaire

LeEco, formally known as LeTv or the ‘Chinese Netflix’ sees itself as a better innovator, than traditional carmakers, or Tesla for that matter. Even disruptors Uber, Apple, Amazon and Netflix don’t have the requirements to produce a mobility ecosystem. To underline its ambition to challenge the big names in Silicon Valley, the company opened its North American headquarters in San Jose on April 28th. The 80,000 square meter office, home for 800 employees, will also hold LeEco’s autonomous driving research center. LeFuture AI Institute, as the center will be called, is a partnership with Faraday Future, which is also backed by the Chinese billionaire Jia. In addition, LeEco is partnering with Aston Martin. The British sports car manufacturer seeks to offer its customers better experiences by using applications and content from LeEco. In return, LeEco benefits from Aston Martin’s know-how to turn the LeSEE into a real sports car.

“Hardware is dead”

The basic premise for the so-called ‘future transportation system’ is that there’s not a lot of money to be earned from hardware in the future. “Hardware is dead” and the car is just another product which enables the use of applications and services from the cloud. For instance, LeEco speaks of Video-as-a-Service (VaaS), a more or less comparable concept to the other cloud concepts IaaS, PaaS or SaaS. The idea is that it doesn’t matter through which device consumers use online video streaming services. Whether it’s a PC, smartphone, TV or even a car: all can be used to stream the newest movies and series. As a result, LeEco launched smartphones and smart TVs recently and the LeSEE is the logical next step to bring VaaS to end-users.

In the end, LeEco founder Jia believes that cars could be even offered free to consumers. Money will be made from subscriptions and other services. Obviously this should include much more than only VaaS to earn decent amounts of money. As indicated during the presentation of Faraday Future on the CES in Las Vegas earlier this year, the future of cars may come in form of a subscription, rather than the old model of owning a car.

Subscription revenues versus hardware costs

In essence, we already see other products and services that show us this particular concept. Think of Amazon, which offers Prime Video and Kindle Unlimited through its Kindle tablets and e-readers. But a car is definitely a totally different league. First of all, the main ‘service’ a car provides is mobility or transportation: getting customers from A to B. Mr. Jia may have a point that cars can be used for using video-streaming or other services, for now it’s just a by-product. Second, hardware costs are very high. Offering a car for free is certainly out of the question for the next few years, even offering at cost price wouldn’t be feasible. Think of Tesla’s struggles to become break-even, and the car maker is certainly not selling at discount prices.

The future: mobility subscriptions?

Nevertheless, thinking in terms of mobility subscriptions could well outline the future of transportation. It could be the next step from current monthly car subscriptions, or private lease. Consumers don’t actually own their cars during a (for instance) 36-months period, just like corporate lease. Ride-haul services such as Uber and Lyft bridge a gap between car ownership and mobility in cities. Outside cities, smaller communities experiment with local car sharing programs. But what if cars indeed become fully autonomous? A subscription based ride haul service could become an option. Combined with subscription to other services, transportation becomes a new experience. Car ownership is no longer needed when the transportation becomes on-demand. These developments explain why General Motors and Lyft formed an alliance recently.

There’s a big catch, underlining the statement of LeEco’s Jia that traditional car manufacturers may have difficulties to transform to this future reality. The need for cars could drastically decrease when cars can be shared during autonomous driving. Daily commutes could be planned more flexible, since the ride is no longer lost time. So that could mean much lower sales. A subscription model isn’t the problem, as manufacturers already show with private lease concepts. However, a world with less cars is probably not a desired outcome for traditional car makers…

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