15 Apr 19

Why you might like EVs, but your dealer won’t

2019 will see the arrival of many new all-electric models on the market, but the e-wave will really build up in 2020, when highly-anticipated affordable models become available, including the VW I.D. Neo, the electric Opel/Vauxhall Corsa, the entry-level Tesla Model 3, the Mini E, the electric Volvo XC40 and the Mercedes EQA.

That's good news for those who have been waiting to flip the switch out of budgetary reasons - not least major fleets in Europe. But they might be faced with dealers who had rather see them continue buying regular ICE (internal combustion engine) cars. Here's why.

1. Less margin

Electric vehicles are more expensive to make – at least today – than ICE-powered vehicles. AlixPartners calculated that there is a production cost disadvantage of €7,800 for battery-electric vehicles. Their lithium ion battery accounts for 40% of their value on average. Still, OEMs need to sell them en masse to reach the EU imposed emission targets. Failing to do so will cost them billions in fines.

That means that these EVs need to be marketed at as low a price as possible. Sales margins are therefore smaller on all levels: OEM, importer and dealer. “What everyone needs to realize is that clean mobility is like organic food – it’s more expensive,” said Carlos Tavares, chief executive of PSA. BMW issued a profit warning on September 25, 2018 partly as a result of the high electrification costs.

According to Reuters, early signs suggest electric-car prices may fall sooner and faster than production costs, as carmakers adjust for stalled emissions progress and weak consumer appetite.

VW says it will offer a full-electric C-segment hatchback (dubbed I.D. Neo) at the price of a comparable Golf TDI next year. According to AlixPartners, that means taking a loss – VW prefers to lose money at the beginning and get the sales momentum going rather than paying billions in fines in 2021, the consultancy reckons.

With margins under pressure, it remains to be seen to which extent dealers are willing to push EVs over the next years.

2. Intensive sales process

The sales process is also likely to be more labour intensive as the prospective buyer is mostly unfamiliar with the product. Electric vehicles are virgin territory for most consumers, who are likely to ask a lot more information before they are convinced and willing to sign an order form.

Also, an EV comes with its own ecosystem – yet another sales pitch the sales person needs to perform. He will have to guide the customer towards charging solutions at home and payment solutions for public charging. Some brands offer a comprehensive service package, which sometimes includes renting an ICE vehicle for longer distances - again, something the salesperson has to explain.

In short, it will take them more effort on average to sell an EV than a good old ICE car, which might just stand in the way of the sales person pushing for the former rather than the latter.

All the more reason to turn to online vehicle sales, arguably. Tesla, Lynk&Co, Byton, and Polestar have a clear, if not exclusive digital sales approach. PSA (Peugeot, Citroën, DS Automobiles, Opel) also offers online car sales on some markets, while others, including Volvo and BMW, are preparing to do the same.

3. Less maintenance

At the after-sales side EVs are more bad news for carmakers and their retail network. Battery-electric cars will visit the workshop less frequently than ICE cars. Their ‘engine’ is made up of less moving parts and does without lubrication (oil, filters), ignition (spark plugs, coil), a fuel system (common rail, injectors, fuel pump, high-pressure pump), valvetrain (valves, camshafts, timing belt or chain), air management (air filter, turbocharger or supercharger, air flow meter) and water cooling (radiator, water pump, thermostat) - plus all the sensors and actuators that come with these systems.

Moreover, there is no exhaust system, no particulate filter that can cause problems, no EGR (exhaust gas recirculation) – which is often prone to failure on modern diesels that are frequently used for short distances. Battery-electric vehicles have no gearbox either – yet again an organ that suffers wear and tear and can inflate the SMR (service, maintenance and repair) bill on an ICE car.

In short, there is less money to be made on replacement parts and no money at all in engine oil – an element that traditionally yields the most profit for dealers. Moreover, their brake pads and discs are used less intensively as EVs brake regeneratively: the electric motor acts like a dynamo and recuperates kinetic rotational energy at the wheels which is otherwise lost.

So, what does a technician do when an EV comes in for maintenance? Basically, it’s the battery that deserves special attention. "It’s about the general condition of the battery, the poles, cable connections, connectors, chargers. The intervals depend on the wear," Hans-Georg Marmit, car expert at KÜS (the German vehicle inspection organisation), told FirmenAuto.

Still, EV-pioneer Tesla says most of the interventions can be done over the air, without the intervention of a skilled technician. It has learned that 90% of the technical cases can been solved remotely through online vehicle diagnostics and an over-the-air fix. Tesla sees no need for regular service intervalls anymore.

Bottom line: car makers and their retail network will have to reinvent themselves to continue making money off cars in the future - or, to put it plainly, to survive.

Authored by: Dieter Quartier