<img height="1" width="1" style="display:none;" alt="" src="https://px.ads.linkedin.com/collect/?pid=4958233&amp;fmt=gif">
4 min read
Andreas Mai and Andy Davies

In-vehicle payments are emerging as a lucrative and rapidly growing market. Major vehicle manufacturers and technology companies are investing heavily in this space, recognising it as a strategic control point and a key enabler for future revenue streams. While the transition to electric vehicles (EVs) is initially denting vehicle manufacturers‘ profit margins, in-vehicle payments are seen as a strategic control point for unlocking new high-margin, recurring revenue opportunities, such as software-defined vehicle (SDV) features, enhanced ownership experiences and relevant trip-related services, ultimately shaping the future of the automotive industry.


In-vehicle payments are garnering significant attention in the automotive industry. With research firms offering varying estimates for its current size and future potential, the global market is currently estimated to be between $4 billion and $6 billion, though all forecasts agree it’s poised for significant growth. Projections for the market size by 2030 range from $15 billion to $20 billion, with CAGR forecasts varying from 12% to 22%. North America and Europe command the largest market shares for in-vehicle payments.


Pie chart data of in-vehicle payments services market by region 2022


Dashboard dollars: Gamechangers for vehicle manufacturers


We think that the current market estimates are only the tip of the iceberg for how valuable in-vehicle payments can be to the rapidly changing automotive landscape. The future automotive business model will be shaped by a complex interplay of major game-changing trends: 


‘EV-olution’: denting profits today and digging digital gold tomorrow. Lower EV sales margins are compressing industry profitability in the short term. Post-sale, however, the rise of electric and connected vehicles with in-vehicle payment systems enables a cornucopia of new and recurring digital revenue streams. Subscription services, direct-to-consumer soft vehicle upgrades, reduced reliance on dealerships for revenue and a more direct connection with vehicle owners are just a few of the positive outcomes that can come of this shift.


Trip services: driving experience, not profits. Initially, vehicle manufacturers focus on adding trip-related services customers can purchase directly from their dashboards. While critical for enhancing the driving experience, the impact on the profitability of vehicle manufacturers is low because value creation and margins are controlled by third parties (like fast food chains, convenience stores, coffee shops and charging stations).


Perpetual mobile: the treasure trove of high-margin ownership services. Ownership accounts for nearly 75% of the recurring cost of driving a vehicle, and the related services command highly attractive margins. Offering ownership-related services for easy consumption with in-dash payments can drive significant margin uplifts for vehicle manufacturers.


Golden goose machine: embracing a software-defined future. With gross margin expectations of between 30% and 50%, SDV features and services are the powertrains of future profits that are mostly controlled by vehicle manufacturers.


The end game: making mobility more affordable for billions. Vehicle prices have been growing faster than consumer prices and disposable income, making cars even harder to afford in mature markets out of reach for billions in emerging markets – but vehicles-as-a-service can be a catalyst for making mobility more affordable.


EVs are charging to the front of the automotive pack


Buckle up because it’s going to be an electrifying ride. The roar of petrol engines is fading as the purr of electric motors rises. While internal combustion engine vehicles (ICEVs) sputtered to a 4% decline in global sales in 2022, EVs surged into the fast lane, doubling their market share to reach a dazzling 10%. This stark contrast paints a vivid picture of the inevitable shift towards electric mobility.


Despite lacklustre EV sales in mature markets in 2023, the tide is undoubtedly turning as an EV tsunami made in China is crashing pipe dreams in our ICEV-dominated world. Rising fuel prices, stricter regulations and the sweet allure of sustainable driving are fuelling this electric revolution. In Europe, ICEVs tumbled by a staggering 19%, while EVs claimed nearly 20% of the market. China, the world’s largest car market, witnessed a quarter of its new cars being electric, and even the US, traditionally an ICEV stronghold, saw EV sales shoot past 5%.


With falling battery costs, growing charging infrastructure and generous government incentives, EVs are no longer niche luxury toys. They’re practical, affordable and, crucially, cleaner. As the IEA predicts, by 2030, EVs could command a 30% market share, and some visionaries even forecast a complete electric takeover by 2050. The future is electrifying, and the ICEV era is approaching its sunset. 


A bar graph of vehicle sales and DV features: typical gross margins


While ICEVs cruise along with comfortable initial gross margins, typically between 8% and 15%, EVs still splutter around the 3% to 10% mark. But this race is far from over. The initial EV margins are poised to surge, but it will take time for battery costs to plummet and charging infrastructure to become a seamless part of the landscape.


In the short term, electrification will inevitably dent vehicle manufacturers’ profit margins as the investment required to retool and redevelop manufacturing plants and R&D efforts drag on revenues. 


In turn, this will trigger the strategic pursuit of numerous new profit pools. In-vehicle payments are more than just a convenience feature; they are a fundamental building block for future profits from new revenue streams like SDV features, pay-as-you-go ownership services and better trip-related services and experiences. By enabling seamless transactions, generating recurring revenue streams and offering additional data-driven insights, in-vehicle payments are a key driver for shaping the future of the automotive industry.


How great is in-vehicle payment’s potential to drive revenue? Check back for the next part of the series to learn more.


No video selected

Select a video type in the sidebar.