Legacy Carmakers Struggle to Keep Up with Tesla in the EV Market
In a surprising turn of events, legacy carmakers have failed to overtake Tesla and dominate the electric vehicle (EV) market. Analysts underestimated their reluctance to compete in a field they didn’t fully understand. The automotive industry, known for its conservatism, was content with sticking to its century-old practices. By the time they realized the potential of EVs and the money to be made, it was too late to catch up.
The adoption of EVs has accelerated in the post-pandemic years, reaching a tipping point where replacing gas-powered vehicles with EVs has become inevitable. Governments have offered incentives, and with the implementation of the Inflation Reduction Act, the market has been flooded with electric vehicles. Companies like Volkswagen, GM, Ford, and Stellantis have invested billions in Li-ion battery plants and EV production facilities, albeit with less success than anticipated.
Despite their efforts, legacy carmakers have had to admit that surpassing Tesla is not feasible. While Tesla’s profit margins have decreased in 2023, they still remain significant, unlike other carmakers who continue to face billions in losses. This unsustainable situation calls for change, but it remains uncertain what exactly carmakers are willing to change and if it aligns with what they should change.
Ford, for example, has encountered difficulties selling its electric vehicles, despite their quality. Thousands of Mustang Mach-E and F-150 Lightning EVs are sitting unsold at dealer lots, making it illogical to increase production. Ford has been forced to reduce output, cutting the production of the F-150 Lightning in half for 2024. The Mustang Mach-E faces an even more challenging situation as its design is outdated and its performance falls short compared to newer EVs on the market.
GM has taken a more cautious approach, carefully managing its EV production to avoid significant losses. The Bolt EV/Bolt EUV models have been produced in substantial numbers, likely due to a favorable battery discount from LGES. This explains their relatively low price and increased production compared to the Ultium EVs.
While legacy carmakers buy time, they have begun spreading the narrative that there is a slowdown in EV sales and that customers are not interested in them. However, this couldn’t be further from the truth. EV sales are driving the growth in the automotive industry, with combustion car sales declining since their peak in 2019, as reported by recent BloomberNEF intelligence. Interestingly, carmakers’ dealerships have been the most vocal opponents of electrification, despite the clear demand from customers.
FRANCHISED DEALERS REFUSE TO PROMOTE ELECTRIC VEHICLES
In a shocking turn of events, franchised dealers have shown even less enthusiasm than carmakers when it comes to promoting the sales of electric vehicles (EVs). Their reasoning? EVs require minimal maintenance, and that simply doesn’t generate enough profit for dealers to sustain their businesses. With no need for oil changes and fewer parts to break and replace, it’s clear that electric cars are just bad for business. And if that wasn’t enough, carmakers have also pressured dealers to make substantial investments in tooling and charging stations.
DEALERS DON’T WANT TO SELL EVS
It’s no secret that dealers have been reluctant to sell EVs. The truth is, they don’t see any financial gain in servicing these vehicles. The only time electric vehicles seemed appealing to dealers was during the 2021-2022 supply-chain bottlenecks, when they were in high demand. Back then, dealers took advantage of the situation by imposing exorbitant “market adjustment” fees, sometimes even surpassing the manufacturer’s suggested retail price. However, this short-lived opportunity quickly faded, leaving dealers with no interest in EVs whatsoever.
DISCOURAGING THE SALE OF EVS
Numerous reports have surfaced, revealing that dealership personnel have actively discouraged customers from purchasing electric vehicles. Despite having a surplus of unsold EVs on their lots, it appears that dealers simply don’t want to sell them. Testimonials from our readers shed light on this issue. Madman1972 writes, “The dealerships are intentionally trying to make buying electric vehicles difficult and expensive. They try to discourage and intimidate you into buying something else. They know they won’t make as much money servicing EVs due to the lack of oil changes and brake jobs. The manufacturers should follow Tesla’s lead and find a way to sell directly to customers.”
Ava Howling Wolf shares a similar experience when attempting to buy a Mustang Mach-E. “The dealership was filled with Mustang Mach-E EVs of all models,” she recalls. “However, the dealer was evasive about discounts and artificially inflated the price. They also added $2,600 worth of unnecessary dealer-installed add-ons. It’s no wonder Ford is struggling to sell these cars. I genuinely liked the Mustang Mach-E, but I felt cheated before even making the purchase. Ford needs to rethink their approach to selling EVs, perhaps by establishing new dealerships exclusively for electric vehicles.”
THE OBSOLETE DEALER SALES MODEL
It’s becoming increasingly evident that the dealer sales model is outdated and ineffective, especially when it comes to selling EVs. Dealers have proven to be more of a hindrance than a help for carmakers in their efforts to promote electrification. In fact, dealer organizations such as NADA have openly protested against federal policies that support the growth of EVs. Despite federal and state targets aiming for a two-thirds EV share or more of the US market by 2035, these dealer organizations are urging the White House to slow down the electric revolution.
TESLA’S REVOLUTIONARY DIRECT SALES MODEL: A GAME-CHANGER FOR THE AUTO INDUSTRY
In a groundbreaking move that has left legacy carmakers scrambling to catch up, Tesla has revolutionized the way cars are sold. By controlling every aspect of the sales process, from sourcing materials to reaching customers, Tesla has achieved what no other carmaker has been able to. With an astonishing annual sales figure of nearly two million electric vehicles (EVs), all without relying on traditional dealerships, Tesla has proven that there is a better way.
For traditional carmakers, however, breaking free from the shackles of their dealer networks is no easy task. While some have made valiant efforts to emulate Tesla’s success, the road ahead is paved with challenges. Mercedes-Benz, for instance, is currently testing an “agency sales model” in Europe, but replicating this in the United States presents its own set of obstacles. Likewise, Ford has launched a digital purchase platform in an attempt to mirror Tesla’s business model, but its ultimate success remains uncertain.
Time is of the essence for these carmakers, as the pressure to adapt grows stronger by the day. The traditional dealership model, once seen as a cornerstone of the industry, now feels like an anchor weighing down the industry’s progress. It’s clear that a paradigm shift is necessary, and carmakers must find a way to navigate these uncharted waters if they want to stay afloat in the ever-evolving automotive landscape.
