As auto dealers across the country know all too well, the New Age of Electric Vehicles (EVs) is upon us. The breathless hype around this issue would have us all believing that we will make a smooth and seamless transition from over a century of internal combustion engine (ICE)-powered vehicles to those powered by electricity alone – by the end of the current decade! This is the essence of the electric vehicles hype fallacy.
In major global markets, government policies have been made that incentivize the production and sales of EVs. Meanwhile, vehicle manufacturers worldwide have gone all-in on EV development and production, committing untold billions of dollars, euros, and yuan to this effort. More and more new EVs are rolling off the production lines and into dealers’ showrooms. But what happens now?
- What is the state of our charging infrastructure?
- How will we deal with range anxiety?
- Do we have enough materials and production facilities to make all of the EV batteries that will be needed?
- Will EVs reduce total emissions and slow down climate change?
- Can EVs become affordable for the mass market buyers who must embrace them?
- Is the market ready for EVs?
- Are today’s consumers ready to purchase all of these EVs? Will they be excited about the EVs of the near future, which will likely include not just passenger automobiles but also motorcycles, recreational vehicles, off-road vehicles, and others?
- Can government policy and incentives drive the sales of EVs?
EVs definitely represent the future of the auto business, but everyone involved in this grand transition should approach it with eyes wide open and a full awareness of all the issues around it. EVs will not sell themselves, but the dealers who are prepared to educate themselves and embrace this massive change in the industry will greatly outperform those who choose to ignore it.
Infrastructure Challenges
For dealers, the most personal definition of an infrastructure challenge is the vehicle manufacturers’ requirements for the charging facilities that must be built at their dealerships. According to Ken Garff Automotive Group CEO Brett Hopkins on Dealer News Today, many dealers are uncertain about committing to the expenses for items like EV fast chargers, which can cost $1.5 million per store! In view of the unknown time frame in which this move will pay off some dealers are choosing to sell their rooftops now instead.
Listen to Brett on the Dealer News Today Podcast:
Then there is the sorry state of the nation’s EV charging infrastructure, which, outside of urban areas that have heavy electric vehicle traffic, is both spotty and not properly maintained. In 2018, Goldman Sachs estimated the cost for a nationwide network of charging stations, along with the power grid upgrades to support them, at 6 trillion dollars! Even if that much money were to be committed, it would take many, many years to build out such a network. A recent Automotive News article noted that EV public charging satisfaction has dropped to its lowest level on record.
Range Anxiety
EV owners will need to become acquainted with an entirely different way of “fueling” their electric vehicles. Instead of using one of the many gas stations located conveniently throughout the land, EV owners typically choose to charge at home – if they have a home, that is. For the large proportion of car owners who live in apartments and condos, home charging is not usually an option. This means that for these EV owners, as well as homeowners who wish to take long trips in their EVs, the public charging network will be their primary charging option.
Unfortunately, as noted, the public system is plagued by unreliability, incompatible software systems, and a general lack of locations. The news that several mainstream EV manufacturers have recently arranged to charge their EVs at Tesla’s Supercharger network proves that the public system is inadequate for both current and near-future needs.
Range anxiety can also be caused by conditions that occur during an EV’s normal operation, such as extreme heat and extreme cold. These conditions may cause significant reductions in the effective range of EVs, requiring owners to charge more often.
Battery Production and Recycling
If the world is going to rapidly convert from ICE vehicles to EVs, we are going to need a lot of batteries! Instead of using commonly available and inexpensive steel like ICE vehicles do, EVs rely on an exotic combination of expensive metals and minerals for their components. EV motors require large amounts of copper, while their batteries need lithium, cobalt, and nickel to function. The amount of these materials that it will take to convert the world’s vehicle fleet to EVs is truly staggering and will require a new, robust supply chain that is not controlled by hostile nations. Mining of these key EV elements will have to be greatly increased, with new processes developed to achieve economies of scale and avoid environmental disasters.
A strong battery recycling industry will also need to be developed. This should reduce the demand for freshly mined materials while it minimizes the amount of toxic substances that get dumped into landfills. This recycling industry will require a certain scale to achieve efficiency, which won’t occur until large numbers of EVs reach the ends of their life cycles. That could take a while.
Total Emissions Consideration
While it may be true that EVs generate no emissions themselves, we need to look beyond this and ask about how the electricity to power them is generated. While some localities have cleaner generation sources than others, the US Energy Information Administration estimates that in 2022, fossil fuels (mostly natural gas and coal) produced 60.2% of the country’s electricity, with 18.2% coming from nuclear and 21.5% from renewables.
When you consider that the world would have to triple its electricity output if all passenger vehicles became EVs, and that China and India rely mostly on coal for their electricity production, air pollution and climate change could actually worsen when this happens.
Affordability
Most EVs are currently much more expensive than their ICE counterparts. As of the end of 2022, EVs averaged $61,488 compared to an average of $49,507 for ICE cars and trucks. This is largely a function of the expensive materials that go into their batteries. While EVs do cost more to purchase, there is much less maintenance and servicing required throughout their lifespans. Consumers will eventually reach a break-even point, but it could be many years down the road.
On the bright side, manufacturers are predicting price parity soon, with Chevrolet promising to release its Equinox EV with a sticker price of $30,000 before incentives. Stellantis and Tesla are also working on inexpensive EVs for the near future.
Market Readiness
While vehicle manufacturers have committed to EVs and the billions in costs that they will require to produce, the rest of the picture is not so clear. What about the dealers? Are they ready for the EV transition? This is a decision that each dealer principal must make on his or her own. Some questions to ask include:
- Am I in this for the long haul, which includes an EV future?
- Can I make the economic case for the major investments needed for EVs?
- Can my dealership’s marketing strategy convince local customers to buy electric?
- How far out is the payback on my EV commitment?
- Am I ready to retire?
- What is my succession plan? Do I have relatives or managers who can continue the business if I’m not here?
Some geographical areas have already fully embraced EVs, while others barely sell any at all. The ICE to EV transition point will take much longer in most of the middle of the United States, compared to the coastal areas where EV acceptance is good.
Consumer Preferences
Nearly all of the early adopters have purchased their EVs. Now it’s time to sell to the mass market buyers who may not know or care much about electric vehicles. What will it take to sell these buyers an EV?
Your average buyer, who has owned ICE vehicles for a lifetime, will demand that an EV be as easy to own as an ICE vehicle. It must have enough range for most situations. It will need to look like a “normal” vehicle and have a similar form factor, whether it’s a car, truck, or SUV. It will have to drive as well or better than an ICE vehicle. It will need to be able to charge overnight at the customer’s home.
If the customer is not a homeowner or otherwise doesn’t have access to a garage or a place to install a home charger, there must be a choice of fast, convenient, reliable places nearby to charge (including at your store). The regional charging infrastructure must be able to support long EV trips. And the price of an EV must be equal to or less than an ICE vehicle. When all of this comes to pass, the mass market will convert to EVs.
Policy and Government Support
The United States federal government has passed a variety of EV-friendly legislation designed to provide incentives for battery production, EV production, and EV infrastructure expansion. This legislation has already had the desired result, with many manufacturers and battery suppliers announcing plans to build battery plants and EV factories in the US. Growing the nation’s charging infrastructure by 100,000 chargers is a huge job but should ultimately result in a large network of compatible chargers that feature universal credit card payment access.
For consumers, EV tax credits can reduce the transaction prices of the US-made EVs they purchase. Even non-qualifying EVs can use the Treasury Department’s leasing loophole to get the full amount of the tax credit. Buying a used EV may also qualify for the tax credit. Some states offer their own EV incentives that can be stacked on top of the federal incentives.
EVs Are Coming and They’re Here to Stay!
It is important to consider both the benefits and the challenges of EVs when considering how to deal with them. Should you jump right in, wait a while, or plan your succession and exit strategy?
For those answers and more, reach out to us. The Dave Cantin Group (DCG) is a leading M&A advisory company serving North American dealer-driven businesses in sectors including automotive, motorcycles, powersports, heavy trucks, and recreational vehicles across a broad cross-section of services. The experienced team at DCG has personally closed billions in transactions to date. We have an impeccable reputation and a long track record of proven results in the dealer-based industries because we’re committed to service beyond the sale. Our experienced team of experts manages efficient, high-return acquisitions.
Contact DCG to speak directly with one of our skilled M&A specialists and learn how our expertise can help you get the most out of your next transaction.