New frontiers: Forces driving change in the EV market

Experts predict 2022 will become a memorable year for manufacturers and dealers as electric vehicles (EV) continue to capture the attention of consumers.

As we all know too well, forecasts, expectations and sales targets in many industries were disrupted by COVID-19. The aftermath continues to play out during the recovery period. Meanwhile, policies and regulatory changes that look to combat climate change continue to influence how auto manufacturers research, develop and produce new products such as EVs.

Common barriers to purchase EVs

While climate change and lower fuel costs remain a key factor in a consumer’s choice to purchase an EV, lifespan, reliability and distance are common barriers to purchase, according to the Deloitte 2022 Global Automotive Consumer Study. Change is always hard — and typical lifelong customers of the traditional internal combustion engine (ICE) vehicle are hesitant to transition to an electric car.

Manufacturers are looking at new ways to engage with lifelong ICE vehicle users and entice new customers with value-added products, such as extended warranties and reduced-rate charging.

In Q2 2021, Pew Research found that only 7% of U.S. adults surveyed owned an EV. The same research found that while two-thirds of the adults surveyed feel that EVs are better than ICE vehicles for the environment, those respondents expressed concerned about reliability, infrastructural limitations and high price points that affect people’s willingness to buy or lease.

However, popularity is expected to increase when the price of an EV matches that of an ICE vehicle, given fuel and maintenance costs may be significantly cheaper in the long run. The question isn’t so much if as when these changes will happen.

Legislation and regulations

New legislation and improved infrastructure are key factors in driving the growth within some markets.

In the U.S., the Biden administration continues to push for the adoption of clean cars with an ambitious target of 50% of EV sale shares in the U.S. by 2030. The White House recently released an EV charging action plan to help quell consumer uncertainty regarding long-distance EV travel. With this optimistic goal, introducing new infrastructure is critical to the success of EVs in the U.S. market over the coming years.

The increasing global adoption of low-emission zones has prompted manufacturers to up the ante on the production of low- or zero-emission vehicles to replace traditional ICE product lines. Evolving customer demands around green travel are a huge factor in the strides made in EV manufacturing. The widespread push for more environmentally sustainable transport is prompting manufacturers to examine whether it’s viable to keep producing ICEs in the same volumes as previous years.

Iconic models turning to EV

In fact, we’re starting to see iconic ICE models, like the Ford Mustang, offered as a full EV option. Some manufacturers have committed to completely phasing out ICE production by 2030, although we expect this will depend greatly on developing a solid infrastructure to support these goals.

A 2020 Deloitte study noted a decline overall in vehicle sales across the board during the initial COVID lockdown period. However, while some major markets reported year-over-year declines of 70% to 95%, EVs only experienced a drop of around 30% in general, with some western European markets actually maintaining sales of EVs even through the first COVID lockdown. This suggests that regional sentiments driving consumer —and corporate — interests are unaffected by the pandemic.

The Carbon Monitor Initiative reported that in the first half of 2020, global CO2 emissions fell by 8.8% after decades of steady increase. So, it’s no surprise the world is looking at the potential of greener alternatives to economic recovery with fresh eyes.

Meanwhile, fierce competition between international market leaders such as Ford Motors, Tesla and General Motors is prompting new innovations and improvements in technology and a drive to push cutting-edge design to create differentiation. We expect this will create a domino effect of lowering the overall cost of purchasing — and therefore, leasing — an EV. Although the pandemic threw a wrench in the works for EV production, the market will continue to grow.

To gain the full picture of the market potential, we need to look at the modest growth of the EV market over the past 10 years compared with fossil-fueled vehicles.

Sales of electric cars accounted for 4.6% of total car sales around the world in 2020, according to the International Energy Agency. In 2021, U.S. sales of EVs jumped 83% while hybrid electric vehicles (HEVs) increased by 76% from the previous year, according to Wards Intelligence.

Testing the EV waters with leasing

Addressing infrastructure gaps and embracing the need for greener transport options, leasing an EV is an ideal option for consumers looking to test the waters without the full commitment of purchasing one.

A huge benefit of EVs on lease is the ability to bypass some of the common customer concerns around buying an EV outright: battery life, steep depreciation and the possibility of a better model released soon after purchase.

The flexibility of a lease results in less commitment for the consumer. Similarly, EVs also lend themselves well to a subscription-based model, where consumers only pay a single monthly fee. And they are empowered to swap and change their vehicle as they wish, which helps alleviate concerns about long-term EV use.

Capitalizing on EV aftersales for lenders

While valid reasons exist for purchasing or leasing an EV based on government-led incentives, lenders can incentivize EV purchases and streamline customer service processes. As a relatively new product, consumers are likely to ask more questions about usage, maintenance and pricing. So, it’s important to prepare for this in advance by automating administrative and verification tasks and implementing more comprehensive self-service portfolio management solutions.

To stand out against competitors, lenders must also look at the complexities of EVs and find ways to capitalize on the unique aftersales requirements that are emerging. The increasing popularity of EVs forecasts fewer aftersales opportunities and revenue for OEMs, according to Deloitte. To effectively manage upsell opportunities and maximize returns in this changing market, dealerships must measure and analyze customer retention.

This will require the right technology. While both manufacturers and lenders navigate the fast-moving EV market and pivot as it continues to evolve, a software platform that enables versatility is key.

Shim Mannan is the global head of services sales enablement at Solifi, a global fintech software partner for auto finance that was formerly known as IDS, White Clarke Group, and William Stucky & Associates.

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