Legacy business models block EV adoption
Research spotlights the plight of the automotive industry to come up with workable ways to make and sell electric vehicles.
Electric vehicle adoption is on the increase but legacy business models, built around the supply of ICEV (Internal Combustion Engine Vehicles), are stifling adoption and there’s too much at stake to bring in the bulldozers.
After interviewing experts at 201 institutions across 17 cities in Denmark, Finland, Iceland, Norway and Sweden, a cohort of European university researchers concluded that the current business model of assembly lines, dealerships, after-sales provision, maintenance revenues and refuelling stations will not support the sale of electric vehicles, nor be supported by it.
The issue is compounded by a lack of urgency, worldwide, from governments to adopt policies that accelerate climate goals. Regulation in the majority of countries supports current ICEV provision.
EV adoption facing an uphill battle
Globally, EV registrations increased 41% in 2020, despite the pandemic, to over 10 million vehicles. Existing policies, the world over, suggest a healthy growth by 2030 to 145 million. But, states the International Energy Agency in its Global EV Outlook Report, that could increase to 230 million if the speed of change gathers pace.
However, a research paper entitled: The market case for electric mobility: Investigating electric vehicle business models for mass adoption (jointly researched by Aarhus University, Denmark, University of Sussex and University of Oxford, UK) concluded that EVs face an uphill battle from unprofitable production lines and unaffordable consumers prices.
But too many entities have a stake in the current way of making and selling cars and too much has been invested in it to throw it away.
The enemy of the after-sales market
Automotive OEMs continue to bring new battery electric (BEV) and hybrid (PHEV) models to market and force them on dealerships that really don’t want them. Margins are too narrow and there are no after-market or maintenance revenues to be had, which are important sources of income. EVs require 80-90% less maintenance than ICE vehicles. In some dealerships, after-sales and maintenance account for 50% of all revenues, which is a stark disincentive to sell EVs.
One participant in the research had this to say: “If I had a dealership, I would tell my guys ‘hey guys, sell gasoline cars, the margin is there and we’ll get everything’. You would be stupid [to say]: ‘hey guys, focus on the electric cars, we’ll get nothing when we sell it or we’ll get small thing when we sell it, but nothing after that, let’s go for that guys’. The model is not there, so it’s not like a conspiracy.”
Another participant explained it this way: “they say [you] save at least 80% on maintenance on electric vehicles. Because there’s nothing wrong with them. There’s no oil change, no oil filter, no tail pipe. So that’s a huge challenge in the industry to come. How are we going to make money when we have mainly EVs?”
Fossil Fuel Favouritism
Government policy directly affects retail car markets and EV adoption. Norway is recognised as the global leader on successful monetary and non-monetary policies for EV adoption. Conversely, Denmark’s policy makers have made it impossible for EVs to prosper. Multiple policy changes (including a reversal of EV exemption from purchase tax in 2015) has stalled EV sales.
An effective EV business model, which must become quickly viable, needs to involve the whole of the supply chain, from manufacturing through sales and marketing, with after-sales strategies that optimise their deployment.
The need for more suitable and efficient assembly lines
Business models for EV adoption must fit within, or at least not entirely disrupt, the automotive industry’s structure. A lack of profitability comes from unsuitable assembly lines, which can be attributed to a lack of investment in EV technology. This strategy makes the production of EVs inefficient and unsuitable for their specific manufacturing characteristics - such as fewer movable parts.
An ideal business models based around leasing
One avenue for consumers to access EVs more affordably could be via a flexible leasing model. The dealerships of the future could be customised to offer this. Drivers may want different vehicles for different uses; an EV during the week, an SUV at weekends or in the winter and a soft top for the summer. The main vehicle (the EV) may be leased, for a fixed monthly cost, as part of a flexible package that enables access to and use of these other vehicles when required.
The EV dealership of the future
In the future, there may be fewer dealerships selling one or two brands but rather they will operate as consultation hubs for mobility and vehicle collection and drop off. As customers move from car ‘buying’ to ‘using’, the dealer’s job will be to help them select the right vehicle (or package) from fleets of new and used products. Dealerships can offer advice as to the suitability of particular vehicles, such as running costs and insurance. They know their local markets, so have a valuable but different role to play.
The automotive industry has to innovate and go beyond the business of selling cars. We’re seeing that with the increased demand from consumers for mobility options. As far as EVs are concerned, it’s as if the industry has convinced itself the demand isn’t there when actually, it could be the industry’s own unwillingness to change that’s the primary barrier.
Images courtesy of Shutterstock