Growth in EV demand and supply won’t just change how people shop for vehicles, but the way they consume transportation. Dealers can adapt or die
When was the last time you shopped for a car? Odds are it wasn’t a pleasant experience. A survey by Edmunds found that more than 50% of people would rather clean the toilet than go car shopping, and for most people, taking the car in for servicing can be a time-consuming and expensive hassle.
Most disruptive technologies have a very significant impact on the retail environment — and electric vehicles will be no exception. In fact, EVs, especially combined with autonomous, connected and shared-technology trends, have the potential to really change the face of how people shop for a vehicle. Or, more accurately, how they consume transportation.
Let’s take a look at how dealers will be impacted by EVs. Any dealer will tell you that service is the profit backbone of their operation, and it is a business model that is heavily reliant on owners coming in regularly for oil changes and maintenance of internal combustion engines, which are complex and wear-prone. However, electric vehicles require much less maintenance than ICE vehicles, with some OEMs suggesting EVs require 50% less than an equivalent ICE vehicle.
ICE vehicle maintenance is a regularly scheduled event — oil changes are twice a year, or every 10,000 kilometres — and consumers develop habits as a result. (“In spring and fall I get the oil changed.”) No oil changes mean that there is no longer a regular need to visit a dealership and thus the consumer habit, together with its recurring revenue stream, gets broken. For dealers, this raises a second red flag as this recurring visit model often drives a lot of other business — brakes, coolant flush and so on —which provides up-sell revenue.
Less wear means fewer repairs
Regenerative braking in EVs allows for greatly reduced brake wear. It is quite common for EVs to go four times as long between pad and rotor changes as much of the kinetic energy, which was previously wasted as heat, is now reclaimed energy for the battery. This directly translates into reduced brake wear and therefore less money in a dealer’s pocket.
Electric vehicles also have far fewer parts in their drivetrain than a conventional IC engine and gearbox drivetrain. The lack of complexity and reduced wear mean that much fewer replacements will be needed. Indeed, the simple design of electric motors has led Tesla to forecast a one-million-mile life expectancy for its motors.
All of this means reduced profit for the dealer. A study of combined data from KPMG and Vision Mobility showed that U.S. dealers will go from average profit of US$1.3 million today to a loss of US$1.6 million by 2040 — a completely unsustainable business proposition.
However, it is the confluence of connected and shared technologies, together with electric, that are really making things interesting. These technologies have allowed for people to pick up a shared car whenever they want through the app on their phone, a great ownership alternative for city dwellers. Using an electric vehicle in such a shared environment means very low energy and maintenance costs, which means profit for an operator and low-cost convenience for the user.
Recently I spoke to Mark Thomas, vice-president of marketing and alliances at Ridecell, a SaaS platform provider for car-sharing operators. Importantly, they are the platform provider for GIG car share’s fleet of Chevrolet Bolts in Sacramento, Calif., the largest shared fleet of EVs in North America.
“Combined with changing urban demographics and attitudes, we’ve seen car sharing experience strong growth in urban areas as an ownership alternative,” says Thomas. “For an operator, the significant reduction in EV operational costs is a huge bonus, which can also be passed onto the consumer.”
His comment got me thinking: What if dealers operated a shared electric vehicle fleet? It seems to make sense. Dealers could retain customers who no longer want to own, they can offer vehicles that are pay-by-the-minute instead of a long-term commitment, and it avoids the consumer friction points of the brutal sales process and time-consuming maintenance. In addition, a fleet can be operated cost-effectively and efficiently through EV vehicles, and usage rates maximized through the shared platform.
Potentially, it seems like a great opportunity — no-hassle, cost-effective car usage that is quiet and environmentally friendly. Sure, there’s lots of pieces that a dealer would need to put together, but in principle, the promise is there. I, for one, would be very happy to see the back of the traditional dealership sales and service experience.
So, how does autonomous fit into this automotive picture? That’s the next step and the subject of our next column.
James Carter is Principal Consultant of Vision Mobility, a Toronto-based consultancy that provides services to OEMs, Tier 1s, dealers, startups, industry organizations and companies on strategies to succeed in a New Mobility environment. Prior to that, James worked for Toyota for 19 years in Australia, Asia and North America.