In recent years, the demand and expectation for cellular connectivity has expanded beyond consumer electronic devices, with corporations and governments worldwide taking steps to enable constant communication capabilities in their various assets, machines, and equipment. This trend has led to the rapid expansion of the cellular machine-to-machine (M2M) market, which IHS defines as the “connection of remote devices, machines and sensors to server-based applications using cellular technology for largely autonomous monitoring and control or for transparent content delivery.”
While industries ranging from healthcare to energy & utilities are increasingly reliant on cellular M2M communications, automotive has emerged at the forefront of the market in recent years. Globally, IHS estimates that active M2M connections in the automotive market exceeded 26M at the end of 2013 and expects this figure to grow to nearly 98M by 2018, at which point the segment will comprise more than 22% of global M2M connections. Just as importantly, IHS believes the automotive industry will be vital in driving greater uptake of 3G and 4G technologies in the traditionally 2G-dominated M2M market. Between 2013 and 2018, IHS forecasts cumulative 3G and 4G module shipments for automotive will exceed 55M, a figure more than double that of any other M2M vertical market during that time span.
The Tesla Model S is a prime illustration of both of these trends. As revealed in the IHS Tesla teardown project, the Model S is equipped with an embedded 3G HSPA+ cellular module. The module is supplied by Sierra Wireless, a company that was positioned at the top of the IHS global market share estimates for M2M module vendors in 2013. IHS also estimated that Sierra Wireless was the leading provider of cellular modules for the automotive sector, with global OEMs such as Volvo, Chrysler, PSA, and Toyota among its customers in recent years. Though Tesla is likely to account for relatively limited module volumes for Sierra Wireless compared to these other manufacturers, its inclusion in the Model S does suggest the company’s module portfolio is well-positioned to capitalize on the significant M2M opportunity in the automotive market in upcoming years.
Tesla’s decision to connect via a HSPA+ module is not surprising. While basic telematics system functions (such as emergency calling) can be supported by 2G technologies, much of the growth of M2M in the automotive market stems from the growing consumer demand for systems that offer more advanced infotainment features to the vehicle. In order to provide a satisfactory experience these systems require, at a minimum, 3G technology. In the Model S, the use of HSPA+ technology allows Tesla to offer a connected telematics system that provides infotainment features such as internet access, online music, and live traffic information. The vehicle is also able to provide enhanced navigation services, essential in aiding electric vehicle drivers in locating nearby charging stations. Further, with its high-speed M2M connection, the Model S is able to become a mobile Wi-Fi hotspot, a feature that provides a relatively simple and inexpensive way for an OEM to provide passenger entertainment.
Similar to other manufacturers, the embedded M2M connection in the Model S also allows Tesla to remotely access diagnostic data about the vehicle’s performance and maintenance needs, as well as deliver required software updates “over-the-air”. IHS believes vehicle manufacturers are increasingly appreciating the value gained through remote diagnostics. For one, this allows OEMs to monitor the service needs of the vehicle and relay them to the owner and local dealership, thus extending the relationship with the customer beyond the purchase of the vehicle. Real-time diagnostics also allows OEM to improve internal fault finding and identify potential problems even before they are reported by consumers. Utilizing this capability can have clear financial benefit for OEMs, while also allowing them to avoid the type of high-profile, high-cost vehicle recalls that have occurred over the last few years.
Tesla, in fact, has already taken advantage of the M2M connection in the Model S to address a maintenance issue related to a flawed charger adopter that could in some cases cause the vehicle to catch fire. Rather than require its customers to bring the car in for service, Tesla fixed the issue via an “over-the-air” software update. Tesla also used a remote software update in 2013 to adjust the suspension settings in the Model S to give it more clearance at high speeds. The remote update capability has also been used by Tesla to add new infotainment features, including enhanced remote start and power management features.
Finally, while the Tesla Model S in many ways mirrors the connected telematics systems now offered through larger OEMs (e.g. GM OnStar and Chrysler Uconnect), it should be noted that the company made an announcement this past February that does give it some differentiation. In its Q4 2013 letter to shareholders, Tesla announced that new Model S customers would receive free data connectivity and internet radio for four years. Additionally, the company stated that existing Model S customers would receive a free four year period starting on January 1, 2014. Though Tesla noted that in some cases a customer may be charged for extreme data use, this nonetheless is a much different trial-period offering than IHS has observed from other OEMs, who usually offer only one year of free connectivity.
Since many connected telematics services struggle to maintain subscribers after the free trail period, the most direct impact of Tesla’s announcement will be to boost the number of active M2M connections in the automotive market. While the Tesla Model S alone is unlikely to significantly alter our global forecasts in this area, the impact of this offer will be more significant if it’s eventually extended to Tesla’s more budget-friendly (and likely higher volume selling) Model 3. Further, if Tesla’s offer compels other OEMs to offer similar deals, this announcement could eventually lead to a rather sizable boost to the number of M2M connections in the automotive market in upcoming years.