With electric poised to become a more dominant energy source for vehicles, dealers will need to take a more proactive approach to define their role.
As every dealer knows, COVID-19 has caused some serious mayhem among the automotive world, and what we all thought of as a bulletproof industry was suddenly exposed.
We’ve seen all the traditional OEMs take big hits in sales and supply, recording significant production declines and quarterly losses. However, it’s the new startup OEMs that have been interesting to watch, as they are almost all striving to offer futuristic electric vehicles of some description.
Let’s take a look at a few:
Tesla appears to have gone from strength to strength, their shares recently passed $1,000 to become the most valuable manufacturer on the planet, even surpassing perennially profitable Toyota. With their Shanghai plant now making good volume, Model Y online, the energy business with more orders than supply and strong Chinese demand, they remain in a great position.
It’s the same for Nikola, the heavy-duty pickup truck OEM whose shares have soared after their recent IPO, despite nothing more than a couple of prototype semis and some slick drawings of a pickup truck. Their raison d’être is hydrogen fuel cell-powered semis, all fuelled at localized green H2 plants using cheap power to make the fuel by electrolysis.
According to U.S. magazine The Spin, this allows them to make lighter semis for long range trucking. It all starts to unravel when you compare the numbers in their investor prospectus — the truck consumes almost four times more kWh than the also unreleased Tesla Semi, and they’re reliant on dropping hydrogen prices by 60-80 per cent by building a totally new network of hydrogen stations to achieve a total cost of ownership (TCO) reduction of just two per cent versus a diesel truck.
There’s a whole lot more waiting in the wings; Rivian, the Amazon and Ford backed EV pickup and van startup appears solid, as does Lucid, which is about to launch its Air luxury EV sedan capable of reaching a more-than 400 mile (approximately 643 kilometre) range and backed by the Saudi sovereign wealth fund.
The U.K.-based van and bus company Arrival also appear to be doing well with an influx of cash from UPS and Hyundai. There’s a bunch of others with unknown financial status, but impressive prototypes, like Volta trucks (also in the U.K.), Canoo out of Silicon Valley, Altis and Lordstown pickup trucks, and Fisker — which managed to go bankrupt in the good times and is now back with a RAV4/CRV-priced SUV called Ocean. That’s due to be launched later next year.
It hasn’t been so good for Karma, the Chinese-owned remnants of Fisker’s first company. It’s been reported by Jalopnik that they’ve laid off almost all their employees, senior management cleared out months ago, and their financiers have walked away. So too for Byton, who came up with the massive 44-inch screen for the vehicle interior, in a nice looking premium SUV. By all accounts, the car was very good, with engineering done in Germany and start of production literally only a few weeks away.
So what does this all mean?
Point 1: Making cars is a tough gig. Capex is high, margins are narrow, and breaking through is extraordinarily difficult for a startup OEM. Only Tesla has successfully become a volume manufacturer from the ground up.
Point 2: There’s no end of ambitious startups who want to become an OEM. Some are vaporware, some have great ideas but no concept of what it takes to become a volume manufacturer, although there might be one or two that actually succeed.
Point 3: It seems as if there’s still a strong appetite out there for new mobility electric OEM startup investment.
Unfortunately, it’s far from roses in traditional OEM territory despite a long history of profitability and dividends. Take a look at the stock price trends of almost all versus Tesla and you’ll see what I mean. And there’s several large incumbents who are looking decidedly shaky right now.
What does this mean for dealers? A few things:
First, while all these companies (except Tesla) remain unproven, all appear to want little to do with franchise dealers. Tesla has largely proven that a corporate model can work. Has it had problems? You bet, and I can personally attest to that. But by and large, it has proven to be more than functional.
Even traditional OEMs, who are trying to “think like startups,” are looking to change their relationship model for dealers from franchise to agency. Toyota New Zealand, Honda Australia, and Volkswagen’s upcoming electric ID group have moved or are moving this way. Dealers must have a hard look inward and figure out why this is the case before disruption comes knocking.
Second, the growth and popularization of EVs is changing the landscape for traditional OEMs as well. Almost all OEMs have an EV in the works. Some are still thinking hastily through compliance cars, while others are focusing on ground up products, like Volkswagen’s aforementioned ID series. There’s going to be some really great mainstream EV products out within the next year or two, with volume supply, and if your OEM is not thinking like that — it’s time to ask why.
Third, cities, governments, and energy companies are moving in the EV direction across the globe. Constituents are voting for environmental awareness measures, after a COVID-19-induced smog-free spring, and the popularization of climate awareness from Greta Thunberg and the like. Not only that, governments are taking the initiative by directing significant recovery spending towards EV infrastructure, supported by renewable energy that gets cheaper and more stable by the day.
Fourth, it’s about doing the right thing. OEMs make vehicles and dealers sell vehicles that contribute heavily to polluted air and climate change. Much of Canada has access to very low carbon electricity grids — I personally dropped my personal vehicle carbon emissions footprint by 97 per cent and toxic smog forming emissions by close to 100 per cent by going EV.
The net effect is that automotive is being drastically changed by small challenger OEMs, and COVID-19 has accelerated this trend. Ten years ago Tesla was a small startup selling an electric kit car. Today they are the world’s most valuable OEM, and a bunch more have similar aspirations.
Even if all those new OEMs don’t succeed, it is quickly becoming apparent that electric will become the dominant energy source for vehicles across the board. Dealers therefore need to take a proactive approach towards welcoming them rather than being dragged in when their OEM releases a new car, because the long term implications are dramatic.
