The future of the automotive industry has never been clearer. But as always, depending on who’s looking, it’s good or bad news.
A few years ago, some students of mine who owned a family business with several car dealerships asked me what they should do with them, considering the trends I was pointing out in my classes and articles. I told them that, from my point of view, car dealerships were going to be a very bad business, and that although there are always possibilities to obtain interesting returns in declining sectors, we were undoubtedly dealing with a sector in decline.
Years later, I have no regrets about my recommendation. Six months ago, Ford started talking about restructuring its dealer network to encourage sales of electric vehicles. It is not the only thing it has restructured: it has separated its electric vehicle division, Ford Model e, and the profits earned by the old-fashioned (sorry, petrol and diesel) vehicle division, called Ford Blue, are dedicated to financing the former. And Renault has done exactly the same.
Five days ago, Stellantis, the conglomerate responsible for brands such as Peugeot, Alfa Romeo, Chrysler, Jeep, Citroen, Fiat, Dodge, Lancia, Opel, Maserati and several others announced a similar move. And while they don’t say they’re eager to get rid of the dealer distribution model, this points to important changes in the model going forward.
In China, electric vehicles are not the future… they are the present. And the Chinese manufacturers are starting to jump into markets like the US and Europe.
What is behind the changes the major traditional automotive brands are announcing? First of all, recognition that the transition to EVs has already begun, that the days of hybrids with their highly contaminating engines are numbered, and that in a very few years, partly due to the restrictions of the European Union and partly to profitability considerations, most people will be buying EVs, despite the lies still being spread about them.
By now, all those who said “oh my God, there won’t be enough electricity for everyone”, or “what will we do when the batteries break down”, “how will we recycle them”, or “there will be long queues of hours and hours for recharging”, have been silenced: not only is there plenty of electricity, but batteries do not break down and do not have to be replaced except in very isolated cases, they are recycled and used to make new batteries, and even in Spain, where there are still few charging stations (logical when it is one of the European countries lagging behind in sales of electric vehicles) you can easily recharge in fifteen or twenty minutes on any trip: when markets develop, supply follows demand, period. The vast majority of the theoretical resistance to electric vehicles was uninformed nonsense with no basis or foundation.
Then there are those who complain about the price. Have they done the math? Have they seen how much EV owners save on gas, service and spare parts? Maybe they should, ideally before they buy their next car. The traditional carmakers have done their math, and as you can see from their advertising, they are falling over themselves to sell you an EV.
The reason is simple: they’ve seen how much money Tesla is making: the company owned by Elon Musk is estimated to earn around $15,000 for every car it sells, and the margin is bigger on the more expensive models. How does he do it? Through economies of scale (many), and of course, through a direct sales model, without dealers taking their cut. The fact is that EVs are so reliable and so simple to maintain that by setting up a service center from which it can cover a very large territory, Tesla can service vehicles at the owner’s home.
For traditional manufacturers, Tesla’s story is a kind of epiphany: overnight, they have realized that they can make more money selling EVs than with their combustion equivalents. They’re not ready yet to move to selling entirely online like Tesla… but it won’t be for lack of wanting. They will restructure their relationships, eliminate price negotiation to provide a better customer experience, and try, for a while, to compensate dealers for services they will no longer provide (or convince customers that they do need annual check-ups, something completely unnecessary in an electric vehicle), but the future couldn’t be clearer, for those who want to see it.
All this, of course, assuming they know how to make competitive electric vehicles, which leads us to another of those absurd prophecies that never came true: “when the traditional car companies start making electric vehicles, Tesla will be wiped out”. More than a decade has passed, and Tesla still maintains a substantial lead across the board.
The future of the car industry was decided a long time ago: the days of polluting, noisy, inefficient vehicles running on inferior, outdated technology are over. The future of the car industry is electric, simply because it is a far superior technology to the internal combustion engine. Do the math.
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This post was previously published on Enrique Dans’ blog.
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The post The Future of the Car Industry Was Decided a Long Time Ago appeared first on The Good Men Project.