EV sales slowing, leaving an EV pile up on car lots. Here's why..
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https://www.axios.com/2023/11/28/car-dealers-electric-evs-biden
Car dealers tell Biden: Customers aren’t ready for electric cars
Nearly 4,000 U.S. car dealers are asking President Biden to tap the brakes on proposed emissions regulations designed to ensure that two-thirds of new passenger cars are all-electric by 2032.
- Consumers just aren’t interested, they say, and electric vehicles (EVs) are stacking up on their lots.
Why it matters: Neighborhood car dealers claim to be the best barometer of consumer sentiment — and a group calling themselves “EV Voice of the Consumer” is sounding the alarm about a widening mismatch between EV supply and customer demand.
Driving the news: A total of 3,882 franchised car dealers from 50 states sent a letter to Biden Tuesday urging the administration to slow down its EV mandates.
- “Last year, there was a lot of hope and hype about EVs,” they wrote, describing demand from early adopters.
- “But that enthusiasm has stalled. Today, the supply of unsold BEVs (battery electric vehicles) is surging, as they are not selling nearly as fast as they are arriving at our dealerships — even with deep price cuts, manufacturer incentives, and generous government incentives.”
- “With each passing day, it becomes more apparent that this attempted electric vehicle mandate is unrealistic based on current and forecasted customer demand. Already, electric vehicles are stacking up on our lots which is our best indicator of customer demand in the marketplace.”
Zoom in: Ford’s once-hot F-150 Lightning electric pickup is one example.
- Mickey Anderson, whose Baxter Auto Group has 20 dealerships in Nebraska, Missouri and Colorado, said when the Lightning was first announced, he had nearly 200 refundable orders from early “hand raisers.”
- The list dwindled over time, resulting in 25 Lightning sales — out of a total of 1,000 F-series trucks he sold last year.
- He’s currently got 12 Lightnings in stock — about a six-months’ supply — and he’s trying to unload them with up to $14,000 in Ford incentives and dealer discounts, in addition to a $7,500 federal tax credit.
- “While the technology is absolutely brilliant, and I would argue world class, it doesn’t change the daily challenges that the American consumer has with an all-EV product today,” said Anderson, who tells Axios he is a big believer in EVs.
What they’re saying: Customers cite a variety of reasons for avoiding EVs, Anderson and other dealers told Axios.
- They’re too expensive, buyers have no place to charge at home, and public charging is too time-consuming, for example.
- Dealers say some customers have even traded in their EVs, complaining their driving range was affected by towing a trailer or extreme temperatures. Tires on an EV wear out much faster, too, customers complain.
"It’s a hard sell on an EV right now in our market," said Mary Rice, who owns a Toyota dealership in Greensboro, North Carolina.
- In Toyota’s Southeast region, newly redesigned Prius hybrids are flying out of the door, while fully electric BZ4X SUVs are gathering dust, she said.
- “If people were dying to have EVs, it’d be great because I could sell them,” she said. “Instead, I’m going be at the end of the year with this car no one wants. There’s no amount of money that makes sense for an EV here.”
Between the lines: Car dealers have enjoyed extraordinarily strong profits since the COVID-19 pandemic, when supply chain disruptions led to vehicle shortages and higher-than-normal prices.
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Now, with a wider variety of electric cars arriving and demand stalling, a price war has broken out — which has many automakers reassessing their EV investments.
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Dealers stand to get pinched, too. Some Ford dealers, for instance, have objected to the company’s demands that they invest in costly EV charging and training to prepare for the transition.
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Ford told Automotive News last week that it is easing some of its dealer requirements “as we continue to adapt our overall EV strategy to the market and listen to dealer feedback.”
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Another potential threat to dealers might be less service revenue if EVs, which have fewer moving parts, need less repair work.
Catch up quick: The government is spending billions of dollars to speed up the nation’s transition to electric vehicles.
- That includes consumer tax credits, manufacturing incentives and $7.5 billion for new fast chargers.
- Plus, the Biden administration is now proposing much tougher new-vehicle emissions targets that would likely mean more EVs.
- The Environmental Protection Agency can’t mandate that carmakers sell a certain percentage of electric vehicles — but the agency’s proposed limits on tailpipe emissions for 2027 to 2032 are so strict that the only way carmakers can comply is to replace their fleets with mostly EVs.
**The other side: “**More Americans are buying EVs every day—with EV sales rising faster than traditional gas-powered cars—as the president’s Inflation Reduction Act makes EVs more affordable and helps Americans save money when driving,” a White House spokesperson told Axios.
Where it stands: EVs currently make up about 7.5% of new cars sold in the U.S., according to Cox Automotive (California accounts for the largest slice of the market).
- Yes, but: EVs still represent barely 1% of all vehicles in operation in the U.S., according to S&P Global Mobility. Even in California, only 3.5% of the cars on the road are electric.
Reality check: Even with lower prices and government incentives, EVs remain prohibitively expensive for many.
The bottom line: Well-intentioned government policies shouldn’t leave ordinary Americans behind, says Anderson.
- “We’ve been far too focused on the Tesla buyer, the well-heeled one-to-two percenters,” he said.
- “We’re forgetting about the people where a car is not a luxury — it’s a necessity.”
Note: Cox Automotive’s parent company, Cox Enterprises, also owns Axios.
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You’d think the car dealers might complain about how BEVs would hurt the 50% of their profits that the service and parts part of the business brings in.
Wonder why they didn’t?
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I wish we would do away with the dealer model completely. Use them as a showroom and a service center…not an enormous parking lot. That would solve a lot of problems with inventory and give the customer a better price…
Why would they? If things go as speculated for the ICE auto industry in that at some point BEV will dominate the principal owners of dealerships will come out winners.
Interestly enough, the initial reason local car dealerships came into being was to educate potential customers about the mysteries of horseless carriages. Before 1900 people got around using horse-drawn carriages & trollies or on foot.
Not many people knew anything about gasoline engines, fueling procedures, tires, driving skills, etc. In order for he manufacturers to sell their new-fangled machines, they had to educate the public. So the car manufacturers encouraged local businesses to set up dealerships to educate the public, sell and maintain their new-fangled horseless carriages.
The whole US car dealership thing grew like crazy until it peaked in 1927 with 53,000 dealers. That number gradually decreased to what we have today, somewhere between 20,000 to 30,000 depending on who you talk to.
The National Automobile Dealers Association has 16,000 members and has become a formidable political force themselves. That’s why you can’t buy a Tesla in many states. (see below)
If that’s the case, they stand to lose a huge slice 50% of their current source of profit, their parts and service business. They won’t be able to undercut competition for new BEVs and used BEVs wont be dominated by a franchise. The backdoor business will dry up to less than 25% of the current ICE-car business. Case in point: I bought a BEV in Feb 2022 and the first scheduled service is this coming Feb where they’ll replace the windshield wipers and check the brakes. If was an ICE car I would have been scheduled to see them at least four times in that period of time.
How is that coming out a winner?
Time for us to revisit our Econ 101: An Economy of Scale
If we assume the yet to be proven reliability and preference of BEV over ICE the dealership principles (owners) will, if they are good entrepreneurs, simply adjust their business model.
BEVs still have suspension parts, chassis parts, interior parts, body parts(which seems to be an achilles heel for Tesla) and most of all the yet to be proven long term reliability of the batteries and tires. Software cannot go down the highway on its own. All these will require service to some degree. Not to mention damage due to pot holes and crash damage in most US regions. BEVs may require MUCH MUCH less servicing compared to IC engine components… which brings me to my point.
Dealership principles(owners) will maintain their profits by adjusting their operations. They won’t need as much real estate for service bays so they will have smaller buildings which translates into lower taxes, utilities and maintenance on those buildings. They won’t need to inventory the myriad of service parts.
Now the best part of all… the supporting staff. There will be less need for mechanics especially those that can’t or won’t transition to BEV service. Fewer support staff for office, service parts management, building maintenance etc.
So in the end the dealership owners will come out fine or at worst be the last ones standing but the
non-owner hourly working class people will suffer the most from fewer opportunities and job loss. This will also trickle UP to ICE manufacturer staff. Which is all rather strange as these workers are the ones that union and current political leadership(which is forcing unrealistic time lines for BEV ownership) purport to care about so much. While they collect their dues and donations, I might add.
Sounds like a good approach. My understanding of “economy of scale” in the context of a for-profit enterprise deals with the correlation between profit opportunity and production efficiency.
I agree.
I’d say that the gain (less cost) on building size due to a smaller service and parts area would be relatively small compared to the area required for new and used car inventory and sales area. Maybe a 25% total reduction.
Because dealers use service sell-up specialists and flat-fee pricing for mechanics instead of billing out by the hour, service personnel are among best cost-to-income generators in the business. When they go, they take a lucrative operation with them. The employees that stay behind are not as efficient at bringing in cash.
I can’t go along with your “less is better” conclusion. When all is said and done, the least profitable part of the business will also be a larger part of the business. How can that be a gain in profit for the current ICE new car dealer? It’s obviously a step down in net income for the guy selling cars in the BEV era.
And you haven’t taken into consideration the fact that US new-car dealers continue to lose ground to new upstarts and foreign BEV manufactures who will not use the the likes of NADA members to sell & support their car… ala Tesla. They’ll sell directly to the public.
So… in terms of Economics 101 - Economy of Scale… I’d say it’s a money loser for the existing US new car dealers, they know that and that’s why they are fighting the transition to BEV’s. If your gonna lose money, losing money later is better than losing money sooner.
Maybe not, but software can be updated without a trip in to the dealer’s service department. Not only is that scenario possible in today’s BEV, it’s the norm. Many things that require a mechanical hands-on adjustment in an ice car can be taken care of in today’s BEV with an update done overnight while it’s parked in the garage. It usually only takes 15 or 20 minutes.
My XC40 Recharge has had 17 updates since I bought it in Feb 2022. It hasn’t been touched by the dealer since I’ve owned it. Here’s a list of the updates done and planned so far:
Can it handle the semi trucks on the road ?
You’ll have to contact the AP author of the article or the University of Nebraska and ask them to research that.
The average weight of an ICE car is approx. 4,000 lbs. A BEV averages 5,500 lbs and an empty tractor-trailer rig weighs 35,000 lbs.
BTW: When two vehicles collide, the lightest one will suffer the most damage, and it’s occupants are the ones most likely to be killed or injured.
Lets hope states continue to adjust excise/road tax on BEVs vs ICEVs accordingly, as they do the tractor-trailers. The more it weighs the more you pay. Insurance rates too.
Maybe you pay more, but I dont. My 2022 Volvo BEV costs $295 for six months and my 2017 Hyundai Santa Fe costs $260 per 6 mos. Indentical full coverage for both and the Volvo is worth at least $20K more than the Hyundai. The Volvo weighs 1,000 lbs more than the Hyundai.