Will Car Dealerships Survive the Coming Tide of Electric Vehicles?

If projections for EV adoption are accurate, then clearly car dealerships won’t be able to remain who they are for much longer, writes Aria Systems CIO/co-founder Brendan O’Brien.

By Brendan O’Brien

The speed of disruption in the automotive industry is accelerating. In less than a decade, new on-demand services and connected cars have altered business models that had endured virtually unchanged for more than 100 years. But it’s at the dealership that one of the most profound disruptions may well take place, driven, in part, by electric vehicles (EVs). Here’s a look at how EVs may upend dealership networks and change the way we buy cars in the future.

It may be hard to believe that we are barreling full speed toward an electric car future. After all, according to industry tracking figures, the 695,000 EVs sold worldwide in 2016 didn’t even register as a blip against total vehicle sales of 84 million.

Dealer lots today are brimming with gas guzzling crossovers, SUVs, and pickups. There’s no way batteries can power those bigger vehicles anytime soon, right? Wrong. All-electric semi trucks made by Tesla may be hitting the highway as early as 2019. Walmart has already placed an order for the rigs, which will have a range of 500 miles on a single charge.

EVs are coming, in droves, and in all shapes and sizes. Sales are up 86 percent from last year in the U.S. alone. In just the past year, OPEC ramped up its long term forecast for EV adoption by five fold. Tesla, Toyota, GM, and Nissan have been early pace setters. But now most carmakers are placing their bets on an electric future.

For example, as soon as 2019, Volvo will stop selling cars with internal combustion engines. All new models will be electric or hybrid. Kia, BMW, Mercedes also have electrics either already on the road or in the works. Norway, France, the UK and China have aggressive plans to displace internal combustion cars entirely with electrics.

Indeed, in little more than two decades, EVs will make up more than half of new car sales worldwide and account for a third of all light-duty vehicles on roadways. That’s according to a recent study by Bloomberg New Energy Finance (BNEF). The reason behind the soaring estimates? Plummeting battery costs coupled with higher performance.

The BNEF report projects that battery technology that cost $1000 in 2010 will fall to just $73 by 2040, making EVs cheaper to buy than traditional cars. Right now EVs are already cheaper at the pump — or in this case the outlet — than gas vehicles saving car owners $300-$1200 a year on average.

Dealerships taking blows on all sides

From today’s vantage point, car dealers appear to be thriving. Sales are up across all makes and models. But just how prepared are dealerships for the coming wave of EVs? And more to the point, might the rise of electric cars spell the end of car dealerships as we know them? Here’s a look at multiple body blows dealerships face as electrics gain traction.

• Declining service revenues. Car dealers today make the biggest chunk of income—44 percent, according to Forbes—from parts and service. When it comes to EVs, that’s a real problem, because they require very little in the way of traditional auto maintenance. Their electric motors and single-speed drive trains eliminate the need for oil changes, transmission fluid and radiator coolant checks, drive belt and air filter replacements and many other income-generating services dealerships now take for granted. As the shift to electrics picks up speed, dealerships will be under increasing pressure to make up those lost maintenance revenues.
• Demand for dual expertise. Electric vehicles will most certainly grow in number in the coming years. But they won’t completely displace combustion-engine cars for many decades, if then. So for the foreseeable future, auto dealers will need to be adept at selling and servicing both types of vehicles. The challenge with EVs is that while they’re relatively simple from a mechanical standpoint, electronically they’re incredibly complex. Their battery systems rely heavily on software, smart sensors and onboard computers to keep things running smoothly. Fixing problems when things go wrong requires specialized technical chops. Might dealerships need to support two parallel service departments?
• Direct selling. Tesla has taken the connected car concept to a whole new level. Because its cars have such simplified drive trains, new features can be added to an existing car through a software download sent over the air (OTA). No need to come in to a dealership. Indeed, with Tesla, there are no dealers at all. Its cars are sold directly. As other automakers roll out electric vehicles of their own along with OTA advancements that give them direct line of sight to car owners, will the need for traditional car dealerships become obsolete?

The end of the road for car dealers?

In isolation, perhaps no one of these body blows stands to alter the landscape for car dealers. But fending off all three at once? That’s a formidable prospect. Especially when you consider that traditional dealerships and their associated OEMs still lack critical infrastructure to compete in the brave new world of electric vehicles. And the clock is ticking.

If projections for EV adoption are accurate, then clearly car dealerships won’t be able to remain who they are for much longer. As they scramble to make up losses from traditional revenue streams, look for car dealers to begin testing out new purchasing and ownership arrangements in the months and years ahead. Many, like Audi and Subaru, are already updating their backend systems to accommodate new per-usage pricing and other self-service options.

When considered alongside other disruptions roiling the auto industry—car sharing, on demand, connected vehicles, self-driving cars—electric vehicles just may be the domino that accelerates the upending of traditional dealership networks.