Trend Watch: Electrical Vehicle Adoption
December 9, 2021
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With so many market experts focusing on the pandemic, it’s been easy to overlook a number of long-term automotive trends which will be taking the industry by storm over the next decade.

“It’s really exciting to be part of an industry that is going to see more change in the next 10 years than it’s seen in the past 100,” said Steve Greenfield, CEO and Founder of Automotive Ventures, at a recent industry conference.

A great example of one major trend is electrical vehicle (EV) adoption. After all, as Greenfield points out, McKinsey predicts that more than half of new passenger vehicle sales will be EVs by 2030. Let’s take a look at this hot trend and what Greenfield had to say about it.

The Growth of Electric Vehicle Adoption

One of the biggest trends in the global automotive industry is the shift to EVs, or electrical vehicles. According to ExplodingTopics.com, searches for “electric vehicles” have increased 272% over the last five years.

The International Energy Agency (IEA) also reports that even in the midst of the COVID-19 pandemic, EV sales continued to grow to 3 million units in 2020, representing over 4% of total sales. This is a growth of 40% year-year-over compared to 2019.

European and Chinese markets are leading the way thanks to new emissions regulations over the course of 2020 and 2021. Reports MckInsey, “These regulations pose major challenges for automakers, since they will face potential penalties of up to several billion euros unless they increase their EV penetration rates significantly.”

In its latest report, McKinsey reported that “Despite an overall slump in car sales worldwide, 2020 was a banner year for electric-vehicle sales, with global sales actually exceeding prepandemic levels by the third quarter of the year.” Not only did Europe and China achieve Q4 sales increases of 60 percent and 80 percent, respectively, over the previous quarter, but also they helped to bring global EV penetration to an all-time high of 6 percent. In the U.S., EV sales increased nearly 200 percent between Q2 2020 and Q2 2021 with an overall penetration rate of 3.6 percent during the pandemic.”

McKinsey also pointed out EV sales are only likely to increase due to:

  • Increased investments from the Biden administration (the President’s goal is that by 2030 half of all new vehicle sales will be zero-emissions vehicles)
  • State-level adoption of credit programs
  • Stricter emissions standards
  • Increasing electrification commitments from major American OEMs
  • Billions of dollars in proposed infrastructure investments including new publish charging infrastructure
  • Consumer tax credits

A key question remains: “While OEMs may build them, are consumers ready to buy them?” After all, the U.S. consumer currently has many valid reservations around EV adoption, especially when it comes to the relative price of EVs versus internal combustion engine (ICE) vehicles, Greenfield said, reporting that consumer EV anxiety centers around four sources:

  1. Range anxiety
  2. Price
  3. Charging infrastructure
  4. Speed of charging

EV Implications on Dealer Profit

Wondering how EVs will impact car dealers? Greenfield offered his ideas:

“From the perspective of the F&I office, the results are mixed. EVs should continue to cost more than their ICE counterparts. OEMs may ask consumers to shop online, which may mean less discounting from MSRP. Both dynamics mean more gross profit on the ‘front end’ of the car deal.”

Here are some additional impacts according to Greenfield:

Positive Impacts

EVs are expected to have a positive impact in the following ways for dealers:

With regard to Finance & Insurance, there will be:

  • More finance profit
  • Increased likelihood of selling GAP (Guaranteed Asset Protection) insurance
  • Higher front-end gross profit

Additionally with the added weight and torque of EVs, tires wear out 40 to 50% faster, which means more frequent tire changes.

Negative Impacts

The negative implications of EVs on dealer profit center on the fact that there are fewer moving parts in EVs compared to ICEs (internal combustion engines), which is likely to result in:


 

  • Less likelihood of selling VSCs (vehicle service contracts)
  • Longer service intervals
  • 40% less parts sales for EVs, as forecasted by McKinsey

Market experts have predicted quite the growth trajectory for EV vehicle adoption in the coming years. Keep checking for more updates from Carzato on these exciting changes for the automotive industry.