The automotive industry is experiencing a shift toward electric vehicles (EVs), led by substantial investments from major manufacturers and startup companies alike. However, recent trends indicate a slowdown in EV adoption, posing challenges for manufacturers and broader implications for the automotive service sector, especially independent tire and service centers.
Expect Traditional Combustion Vehicles to Remain Prominent
Despite initial enthusiasm for EVs, recent data indicates a deceleration in adoption rates. Factors such as limited range, charging infrastructure issues, and the overall higher cost of EVs compared to internal combustion engine (ICE) vehicles contribute to the challenges. Market leaders like Elon Musk’s Tesla and General Motors have announced delays in production expansion plans, reflecting the industry’s cautious stance in response to EV demand uncertainties, while Ford Motor Co. company announced plans to delay one new EV battery plant, shrink the size of another, and postpone $12 billion worth of future electric vehicle spending.
This cost disparity, combined with infrastructure concerns, contributes to the hesitancy among consumers to embrace electric vehicles. The cost of EVs remains a significant hurdle for widespread adoption, even with rebates. According to Cox Automotive data, the average cost of a new EV is $55,488 compared to $48,528 for ICE vehicles as of May 2023.
Traditional combustion vehicles are therefore expected to remain prominent for dealers in the foreseeable future. So much so, that Dealerships are expressing concerns about the shift to EVs. Nearly 4,500 dealers penned a letter to President Joe Biden, deeming electrification mandates “unrealistic based on current and forecasted customer demand.” Dealers are grappling with an oversupply of electric vehicles on their lots, highlighting the gap between market expectations and consumer readiness for EV adoption.
We are seeing investments being made, including from some of Warren Buffett’s companies, in businesses closely tied to the internal combustion engine. Some private equity investors I have spoken to are also seeing EV adoption slowing down and are looking for investments in adjacent industries while the transition into more EV and hybrids continues, if at a slower pace.
Take solenoids, for example. Solenoids are a big part of the internal combustion engine, but with the proper outlook and strategic planning, one can take advantage of the existing runway while beginning to adapt and understand that solenoids will also be a big part of hybrid and EV platforms (think transmission and cooling systems).
Implications for Independent Tire and Service Centers
As the automotive landscape evolves, independent tire and service centers must continue to adapt to changing technologies. Rather than viewing this shift as a threat, service centers should see it as an opportunity to expand their expertise and services into all types of vehicles.
Contrary to initial expectations of a complete shift to EVs, the future will likely involve a combination of EVs, hybrids, and internal combustion engines. This non-linear evolution suggests that independent tire and service centers should prepare for a diverse range of vehicles requiring their expertise.
There are significant opportunities for tire and service centers to thrive in this evolving automotive landscape. Dealers should continue to focus on their bread and butter such as tires, brakes, alignments, but they can capitalize on these upcoming opportunities by investing in training and acquiring the expertise needed to handle the unique demands of EVs and hybrids. The investment doesn’t have to be massive at this time, rather, dealers should focus on a methodical approach to prepare for the wide range of vehicles they will be seeing in their shops. Leveraging industry resources such as the TIA is a great place to begin.
The TIA (Tire Industry Association) has established the Electric Vehicle Advisory Council to help educate tire and auto dealers on services EV’s, safety protocols and best practices, while Fleet and facility managers can enroll in the Federal Energy Management Program’s fleet management training courses to help train and educate technicians in electric fleet applications.
It is crucial to anticipate and initiate the training and processes required for the evolution of vehicle technology. This proactive approach will position dealerships to seamlessly transition between traditional and emerging technologies, ensuring sustained success in the ever-changing automotive market.
Change and disruption can be intimidating but embracing them could lead to enormous success for forward-thinking tire and service centers.
Giorgio Andonian is a Managing Director in FOCUS Investment Banking’s Auto Aftermarket Group. With a lifetime spent in is family’s automotive business, he now advises and assists privately held middle market auto aftermarket companies with mergers and acquisitions. Contact Giorgio at [email protected].