A new study suggests that EV-buyers could be put off by expensive add-ons, but automakers may struggle to survive without them.
There is a simple reason EVs aren’t as profitable for automakers as gas-powered vehicles. According to a Ford executive, EVs will not be profitable before 2026. GM stated that it will not make money on them before 2025. Tesla did not make a full-year of profit until it was over a decade old.
Automakers claim they are fully committed to electric vehicles, but they will have to find other ways. This could lead to customers being sold on all kinds of after-sales services, such as subscriptions or additional features.
Automakers are moving towards more paid-for features. However, consumers have not always responded well. For example, BMW received backlash for its heated seats subscription. Mercedes offers an “acceleration boost” add-on for electric vehicles. Polestar, an EV player, offers a horsepower upgrade for $1,195.
Alex Oyler, North America director for SBD Automotive stated that EVs are not so profitable for automakers. “The bigger gain is in… generating revenue with that customer month-over-month,” he said.
Subscriptions and other offerings are just a few reasons automakers are so interested in leasing their EVs. They could use that opportunity to sell more functionality, which is possible by offering over-the-air updates and lower monthly payments to get customers locked in to an EV lease.
While consumers might need to warm up to the idea, the industry might not have much of a choice, according to Deloitte’s recent report on the future of automobile mobility up to 2035. According to the consultancy, 50-60% of future profits could be at stake if businesses continue to operate as normal.
As automakers try to navigate changing consumer behavior, industry headwinds and increasingly competitive markets, there are major changes ahead.
The report stated that “To be blunt, inaction by industry actors could prove fatal,” especially in an industry moving in so many directions. Vehicle feature subscriptions and other changes “are expected unlock a variety new revenue streams.”
Also, a profitability crisis could lead to changes in car-buying habits
Until now, only EV startups have removed the dealer from their sales process and instead use direct-to consumers models. Traditional automakers are also considering this idea due to supply-constrained profitability gains, and “a long term trend toward tightening margins in vehicle sales,” according the Deloitte report. This is largely due to the EV transformation.
The report states that “this looming threat adds to pressure on the traditional dealer model, and threatens the bottom line.” To build relationships with customers, automakers are creating direct sales channels.
Some are even teasing this idea. Jim Farley Ford CEO, for instance, mentioned changes in the company’s go-to market strategy for EVs. This includes more online sales. He also cited Tesla’s model to help them get more profit from each EV.