The Future of Electric Vehicles Part 1: Car Dealers Hold the Key

California’s Zero Emission Vehicle (ZEV) Program requires automakers to sell increasing numbers of advanced clean vehicle technologies, including battery electric, plug-in hybrid and fuel cell electric vehicles.  To bolster the rapid expansion in sales of these innovative new vehicles, the state offers rebates to buyers.

But the policy focus on manufacturers and consumers is only half the battle, new research shows. Still missing are policies directed at fully independent car dealers, who may hold the key to increased electric vehicle sales.

A recently released ITS-Davis study suggests many dealers are less than enthusiastic about plug-in vehicles, despite evidence that plug-ins can be just as profitable for dealers as conventional gas-powered cars. The study also found that buyers of plug-in electric vehicles (PEVs) were far less satisfied with the dealers they bought (or leased) from than buyers of conventional gasoline and gasoline-hybrid vehicles.

These findings are troubling. Innovative new products, especially those in which customers interact with a product in a different way, or that involve new or very different supporting infrastructure, often call for novel approaches to market and sell them. Such new products demand a focus on trial and error to better understand which customers will value the product, how they will use it, and how to reach them most effectively. Retail strategy plays a key role in these efforts and could make or break the success of California’s efforts.

Radical innovation often isn’t the strong suit of large firms in mature markets, however. For these companies, innovative efforts have long been focused on reducing production costs and on gradual improvements in product performance, not the great leaps envisioned by entrepreneurs like Elon Musk, CEO of Tesla Motors, Inc. Typically, incumbent companies direct the energies of sales staff toward reaching a larger share of core customers by competing on well-established performance attributes. For leading firms, redirecting resources to tackle something new and ill-defined, especially where profits are uncertain and inconsequential compared to conventional product lines, is just not a compelling business proposition.

We’ve long known that for radically new technologies, good experiences by early customers promote adoption while bad experiences delay it. In the case of advanced vehicles, retailers are central to ensuring that buyers, especially ones switching to a new ways of doing things, have the information and support they need to unlock the full benefits of making the jump.

Although halfhearted dealer attitudes can hinder early adoption of PEVs, the ITS-Davis study also showcased a small but influential minority of dealers who have introduced new approaches to better meet the needs of plug-in customers. Examples include marketing carpool-lane stickers, enrolling buyers in charging networks, and preparing incentive paperwork for customers. Some dealers assign seasoned salespeople as plug-in experts, many of whom drive plug-ins themselves—to learn the ins and outs of the technology and relate the car’s benefits to potential buyers.

But such dealers are few and far between, and profits on PEVs – as for many new vehicles – are not compelling enough to drive other dealers to copy them. Automakers no doubt wish to ensure that their billion dollar investments in new technologies deliver. Yet they need to reach more dealers to achieve the scale needed to drive down the initial high cost of these cleaner alternatives. So how should automakers spread these and other lessons to less motivated dealers?

Automakers have proved they can design and engineer award-winning plug-in vehicles. But they could do much more to support dealers selling PEVs. First, manufacturers could introduce PEVs as premium models targeted at luxury buyers, at least initially. The prestige marketing performed by automakers for luxury vehicles may better attract early buyers. Also, the smaller number of dealers serving these customers, and higher level of customer support they deliver, would better ensure that dealers are equipped to attend to the distinct needs of PEV customers. BMW, for example, has introduced a new sub-brand expressly for this purpose. The move raises the profile of these new technologies, casts a halo of technology leadership across its product line, and leads mass-market customers to aspire to have the technology for themselves.

To close the yawning gap in product knowledge that so alienates PEV customers, automakers could enlist trusted vendors to develop tools that would furnish both customers and dealers with one-stop, online access to localized, customer-specific information on PEV incentives and benefits. Tesla’s website, for example, which is available online and at factory stores, allows customers and salespeople alike to intuitively learn what the car can do in real-world driving conditions. It can also help them locate charging stations along popularly traveled routes, or find out how public incentives and avoided trips to the gas station save money and reduce monthly household bills.

Government could also better aid dealers as well by bringing sales transactions and information sharing into the 21^st Century. Currently, customers must wait weeks or even months to receive the state’s PEV rebate. Pulling these and other benefits to the point of purchase, as was done with the decals that permit single-occupant access to carpool lanes, would enable dealers to market them confidently without fear of unwanted liability. Furthermore, government could pool incentive information into a single central database that could be tapped by online apps for PEV retailers.

Government could also facilitate electronic document processing to encourage online sales. These steps would enable dealers to substitute activities that add less value to the plug-in car-buying experience—such as painful in-person price negotiations, excessive paperwork and time wasted at the showroom—for higher value activities such as truly responsive customer Q&A, test drives with a PEV-knowledgeable dealer, and informed, helpful delivery of products and services.

Selling PEVs does involve extra legwork for dealers, at least initially. But for those that adopt effective practices, governments should allocate a modest portion of plug-in vehicle rebates ($300-$500) to dealer salespeople to reward their efforts and motivate additional PEV sales.

As the Tesla experience has shown, new, bold and effective steps by dealers, automakers, and policymakers are needed to reach a wider market. Automakers and government should work together now to tackle the challenges of marketing and selling these advanced vehicles—to reduce oil use, air pollution, and greenhouse gas emissions.

Eric Cahill is an auto industry consultant and Ph.D. candidate in Transportation Technology & Policy at UC Davis. Dan Sperling is the Founding Director of the UC Davis Institute of Transportation Studies.

Note: Part 2 of “The Future of Electric Vehicles” will focus on reforming laws and regulations that govern EV sales.

The ITS-Davis study, “New Car Dealers and Retail Innovation in California’s Plug-in Electric Vehicle Market,” links:

• Working Paper
• Policy Brief