To Survive in The EV Race, Cash-Strapped Car makers Need Dealers

Ford stated last month that it would make a distinct brand for its own electric vehicle (EV) business. The announcement sparked speculation among industry insiders that Ford was intended to circumvent dealers and sell straight to customers, a strategy popular on Wall Street. Jim Farley, Ford’s CEO, dismissed the possibility but signaled those big changes to the automaker’s dealer network were on the way. Whatever Ford’s motivation, it’s critical to comprehend why incumbent automakers can’t afford to skip dealers if they want to stay in the EV competition.

It’s nothing unusual for Wall Street to encourage direct sales to consumers. Gary Lapidus, a well-known Goldman Sachs analyst, popularized the idea in January 2000 with a widely publicized study named “Gentlemen, Start Your Search Engines.” “The direct interaction with consumers will fuel significant new revenue streams,” he wrote, predicting that direct sales were going to soon be available through the Internet. But, after finding it couldn’t finance it, GM scrapped a proposal for direct sales just a couple of months later. After losing market share in each country where the stores operated, Ford sold their automaker-owned stores, dubbed the “Ford Auto Collection,” in 2001.

In 2006, GM abandoned yet another failed attempt to sell a Brazilian automobile, the Celta, directly to customers via the internet. Almost all automaker-owned storefronts have been sold to various dealers in every market across the world, including countries without dealer franchise rules. Despite previous failures, several investors are promoting direct sales as a viable option for automakers.

So, what makes this time different? TESLA. Wall Street is in awe of the EV maker’s speculation-fueled stock price, and many investors are pressuring automakers to copy everything the firm does, including selling straight to consumers.

TESLA’s market capitalization exceeds that of all global automakers combined. GM, Ford, and other companies are valued at 4–5 times net earnings, whereas TESLA is valued at 22 times sales since it is a “tech firm” (GM as well as others trade at under 1 times sales). These huge price disparities are crucial because they result in cash flow limitations for the incumbent carmakers.

Automakers have actually lost billions of dollars and will continue to lose billions as they transition from successful gas-powered automobiles to money-losing electric ones. They must invest in EV assembly, batteries, and emerging technologies to prevail in the EV race – cash-heavy expenditures with a short shelf-life. These investments will end up harming automakers’ revenues and, as a result, depress their stock values, limiting cash flow. Automakers will also require billions of dollars to create their retail networks if they want to sell directly to customers.

Automakers receive huge monetary rewards from dealers. To begin with, dealers own, construct, and staff sales facilities that cannot be replaced by online-only sales. Purchasing a vehicle is the second-highest purchase most people will ever make, after purchasing a home. They want to compare vehicles; they want to test drive them, discover if their family will fit in them, and get help with finance and swaps. When every automaker produces an electric vehicle, in-person experiences are going to become crucial in differentiating automobiles from one another.

Posted on

Leave a Reply

Your email address will not be published. Required fields are marked *