By: Brian Gordon, Chief Business Officer
As the automotive industry continues to deal with volatile forces, it’s difficult to pinpoint the role electric vehicles (EVs) will play in the short and long term, other than to say they are here to stay as an important part of the overall product mix. The Mid-Year Update to our 2024 Market Outlook Report, published in partnership with Kaiser Associates, shares the latest on the topics driving the automotive industry including DCG’s retail automotive takeaways. The topic we’re being asked to elaborate on the most is EVs so here’s a more detailed look at our perspective.
Download the full Mid-Year Update here, and contact us if you’d like to talk to one of our industry experts about our insights or their implications on retail mergers and acquisitions.
Reshaping the Consumer Demand Narrative
There’s conventional wisdom that EVs have stalled out somewhat, but that’s not the case. Rather, EVs have simply failed to live up to the unreasonable expectations of the traditional manufacturers, pressure from government and hype by the media.
In any adoption cycle for new technology, innovators and early adopters accept the technology, but they typically represent less than 20% of the total population. It isn’t until much later that the early majority, late majority, and laggards embrace the new technology, leading to broad appeal and widespread acceptance. This is particularly true for a 100-year-old category that at its core, has had the same critical elements the whole time.
While demand for EVs has not met expectations, they have shown significant YOY growth since 2015 including 51%, 83% and 67% over the past three years. EVs have become a critical part of the product mix and will continue to grow. They are not a one-size-fits-all solution and certainly not one that’s going to wipe out 100 years of the core product in a decade (as many predicted).
We’re already seeing signs that manufacturers are listening to consumers and realizing the EV represents a strategic opportunity to target specific consumers, geographies, and competitor market share (no different than any other type of product). Manufacturers are also realizing that the BEV, HEV, PHEV and even FCEV are all partners in the broader electric category and when you look at growth across these segments together, they represent nearly 20% of total sales. This is exactly the number we’d expect to see from a new technology at this stage. For now, ICE vehicles will remain the powerhouse seller for automakers and dealers for the foreseeable future but expect EV demand to continue to keep growing.
The greatest threat to that growth will be price and that’s where things get more interesting. Europe saw an 11% decline in sales this month with some countries seeing as much as 30% with the major culprit being consumer push back on price. Whether or not prices can come down in the US market will be determined by the many factors we cover below.
The Great Manufacturer Reset
2024 has been the year of reckoning for those unrealistic EV volume expectations. Boardrooms across the world have been grappling with how to roll back the aggressive projections and the huge investments that accompanied them. Ford and GM both made major announcements delaying EV production at key plants for years.
The good news is that the industry is figuring this out, making tough choices and beginning the process of rightsizing product projections with consumer demand. This is a critical step in order to manage costs, create profitability for the EV segment and deliver EVs at a price consumers can afford without relying on significant incentives.
Politics & Regulation: The Great Unknown
Federal level consumer protections and direct sale restrictions are unlikely to change any time soon. The election could influence these dynamics, with a Democratic victory signaling ongoing EV rebates and support for EPS emission reduction goals, while a Republican victory might shift the focus away from EVs (but not necessarily from Tesla).
Regardless of the administration, federal-level consumer protections and direct sale restrictions are unlikely to change in the short term. The wheels of government turn slowly, and it takes a great deal of alignment for laws and regulations to change. This story on China-based Windrose’s plans for an assembly plant in the U.S. highlights one of the few ways the election may immediately influence the EV landscape.
The power of the consumer will ultimately be felt by either party and any administration will have to reconcile campaign promises on things like tariffs or rebates with the reality of providing Americans with affordable cars (from whoever can produce them). Keep an eye on less controversial foreign backed manufacturers like Vietnamese based VinFast that is building a franchise dealer network (18 to date) and recently announced a dealer advisory board to assist with dealer growth.
There may be more action in federal courts that influences the EV market than in the House or Senate. The Supreme Court recently overturned 40 years of so-called “Chevron deference” with its ruling in Loper Bright Enterprises v. Raimondo. In short, federal judges can now interpret unclear language in laws and determine what a law means on their own. This could lead to reduced federal funding for alternative energy infrastructure and lower tax credits for electric vehicles.
Without tax credits in place, traditional auto manufacturers may decide to purchase carbon credits from pure-play EV manufacturers like Tesla rather than attempt to diversify into EVs without those tax credits as an incentive.
Price Matters: 6 Key Factors to Watch Ways This May Happen Based Recent Events
With price at the center of the EV growth question, here’s a quick summary of each of the major factors that could impact price:
Manufacturer Cost Structures – Watch how quickly manufacturers can right size their EV business and turn a segment level profit.
Red or Blue – A Republican victory will likely mean higher prices due to a reduction on rebates and tax credits while a Democratic victory would mean continued pricing support.
Regulatory Challenges – Only time will tell how the courts will rule on challenges to regulations around things like emission standards and what the impact may be downstream on consumers.
Foreign EVs – How many and at what cost foreign manufacturers find their way into the States will have the most significant impact on consumer pricing and overall EV sales in the US.
Franchise Dealer Model – Support from a dealer network including wholesale purchasing for cash flow, marketing support and an immediate spike in consumer awareness will all help drive not only sales but keep the cost of sales down.
Partnerships – Traditional manufacturers not only needed to invest big to develop technology, build plants, purchase equipment, acquire labor, etc. but their cost of goods for each car is significantly higher than a pure play electric manufacturer. Similarly, the scale, network and general infrastructure for a major manufacturer dwarfs that of a pure play electric. Look for more deals like the Volkswagen and Rivian’s joint venture to create economies of scale.
Get Expert Guidance for Our Dynamic Industry
As the dynamics across the automotive industry change, DCG can be your trusted advisor for navigating change, evaluating acquisition options, and fostering growth for your business.
The Mid-Year Update to our 2024 Market Outlook Report, created in partnership with Kaiser Associates, is a free resource that you can use to make informed decisions and plan with confidence for the future of your business. If you’d like to take the next step, we’re always here to help.
Contact us for a brief consultation about current market dynamics and what they mean for your business.