What The Emerging EV Market Means for Your Auto Dealership’s Value

The transition to electric vehicles (EVs) has begun. While we’re only just at the beginning of this new era, with EVs still accounting for less than 2% of total US vehicle sales, the momentum toward an electric vehicle future is increasing.

OEMs worldwide are announcing major EV development and production plans, with more and more new EVs slated to roll out of their factories this decade and beyond. Many are backing their EV bets with additional factories to manufacture their own batteries. Some have even announced that they will only produce EVs in the relatively near future. Billions and billions of dollars are being spent in pursuit of this transition.

What does it mean for you, the franchised automobile dealer? How will it affect your dealership business?

While there are still many unknowns about this transition, there are several issues that you will need to be aware of and address as we move toward that EV future.

There will be initial costs for dealers to bear

Dealerships are the consumer-facing piece of the EV production and sales chain. They’ll have significant financial responsibilities in preparing for this role, as EVs entail a new driving and ownership experience for consumers. 

Manufacturer EV Certification Costs

Several OEMs are requiring their dealers to fund the transition to the EV market.

For example, Ford has asked dealers for $35,000 per store to achieve its “next generation” EV certification and be allowed to sell its new EVs. This includes EV service equipment as well as 240V charging capabilities onsite. 

GM has asked Cadillac dealers to spend $200,000-$500,000 on facility upgrades (including tools, chargers, and training) to sell their upcoming lineup of EVs. Since Cadillac is one of the brands that will be going completely electric in the near future, current dealers who didn’t want to commit were offered cash buyouts to give up their franchises — and more than one-third of the dealers took the buyout.

Staff Training Costs

Selling EVs to consumers in your showroom will require a back-to-basics approach, including extensive training for your entire staff. 

Why? EVs are different and in many ways better, so consumers will need to be educated about the differences and benefits of EVs. The vast majority have likely never been in an EV, so a thorough test drive will be necessary to put them at ease. Most customers will appreciate the quiet and smooth operation of an EV, as well as its instant and plentiful acceleration capabilities. 

The concept and logistics of charging an EV at home (and installing a charger) will also need to be presented to EV buyers who own their own homes. Buyers who live in apartments and condominiums will require some education on the availability of local charging networks and how to access them. 

In addition, training your staff to help buyers understand and access federal tax credits and state-offered rebates can be a strong tactic for securing sales to new EV buyers.

Financial Impact On Your Service Department

It’s been well-documented that EVs are much simpler in design than ICE vehicles and require much less service.  

They use a completely different type of propulsion system, compared to the internal combustion engine (ICE) vehicles that the public has become used to over the past century. EVs don’t use oil, so there will be no oil changes. They don’t have exhaust systems and don’t require tune-ups. Most EVs do not even have transmissions. In the long run, this will significantly affect the income generated by your service department.

Keeping in mind that the first few years of the transition to EVs will be slow and hard-fought between brands, here are some factors to consider.

How EVs Will Be Handled in Your Service Bays

Because EVs use simpler construction, with fewer parts to deteriorate or malfunction, your service department will likely experience a decline in parts revenue. Since EVs require much less regular maintenance, service department revenue will see significant reductions as well.

Over-the-air software updates will be done to customers’ EVs at their homes via the internet while they sleep, eliminating the need for them to come to your dealership for such procedures.

But there’s a silver lining to the EV service situation. EVs, with their heavier weight and high-torque motors, will wear out their tires much more quickly than equivalent ICE vehicles. This means that a focus on EV tire sales could earn you additional service income. You might even consider converting part of your service department into a tire sales area.

In addition, electric vehicles will not be immune to accidents, so if you have a body shop that’s certified to work on EVs, you will have a competitive advantage. If you do not have a body shop, you can sell EV parts to other shops.

Stocking Vehicles vs. Ordering Vehicles

EVs tend to be more expensive than comparable ICE vehicles, due to the high cost of their batteries. This will remain true for most of the rest of this decade, after which battery prices are expected to drop and price parity is achieved. 

Until then, it will be more expensive to floor plan EVs compared to ICE vehicles. In addition, slower-selling EVs may sit on your lot for a longer period before they are sold, creating added costs for your dealership.

Some manufacturers, including GM and Volvo, are trying to help in this regard. They are planning to stock EVs at regional hubs, which dealers could pull sold units from, receiving them within days. 

While this could reduce EV inventory and dealers’ floor-planning costs, it might also create a “race to the bottom,” with customers pitting competing dealers against each other in pursuit of the lowest price on the same units. Time will tell whether this is a good idea, and manufacturers may adjust the model if it doesn’t prove to be successful.

How Well Will EVs Sell for Your Dealership?

For most dealers, this is largely a matter of where your dealership is located. If you’re in an area that is EV-friendly, in terms of state regulations, climate. and charging infrastructure, your chances of success are good. 

As of June 2021, the US Department of Energy reported that California is the top EV market, with 425,300 EVs, or 42% of the United States’ registered electric vehicles, located there. The next three most populous EV states are Florida (58,160), Texas (52,190), and Washington (50,250). These four states contain over half (585,900) of the 1,019,260 EVs registered in the US as of that date.

The numbers drop off quickly for the remaining states, with 433,360 registered EVs spread among the remaining 46 states — an average of only 9,420 per state, with some states coming in at under 1,000 EVs each (AK, MT, MS, WV) and some having less than 500 (ND, SD, WY).

Location, location, location.

As more and more EVs roll off the production lines, and as the availability of charging stations increases, the number of consumers showing an interest in these vehicles will increase. Some will want to drive an EV to help the environment, some will be after the latest automotive technology, and others will simply be happy to save the cost of purchasing expensive gasoline. 

If you are not selling them the EVs they want, other dealers will.

Whatever customers’ reasons may be for buying EVs, you should have a plan in place to prepare your dealership and your staff (both sales and service) for a partial or full transition to this emerging market. Depending on the brand(s) you sell, this plan may become urgent in the coming years, or you may need it now. 

In either case, the earlier you sit down with your team to come up with a 5-to-10 year plan, the better prepared you’ll be when you need to implement it.

When a buyer comes along, the dealership that understands EVs, knows how to profit from them, and can keep their owners satisfied, will be valued much higher than the dealership that refuses to adapt.

At the Dave Cantin Group, our teams are ready for this transition. 

Our team at DCG Acquisitions is prepared to help any dealership owner who’s looking to increase or liquidate their portfolio as the market transitions towards EVs.

At DCG Capital, our team is ready to guide any dealership in finding competitive financing to help with the costs of modernizing your dealership and training your staff for the EV future.

Contact us to discuss your plans in transitioning to the future of the automotive market. We’re here with resources for dealership sales, acquisitions, and growth — to help expand and secure your legacy.