Thoughts for dealers on EV profits

First published in GoAutoNews on 21st January 2025 

As 2025 kicks off, we are seeing more and more dealers opening new facilities for Electric Vehicle (EV) brands. 

This makes total sense. The National Vehicle Efficiency Standard (NVES) has kicked off as of this month. That is making selling EVs a necessity for OEMs in a balanced portfolio designed to reduce the carbon tax they would inevitably have to pay on their ICE imports.  

For the EV-only brands it is a great business model as they can sell their carbon credits into the market. 

So for the importers, it all makes sense to keep costs down and remain competitive on pricing in certain segments. 

But, our main focus is dealers and as we have said before in presentations and training sessions, EVs for dealers are a totally different business model to ICEs and produce a much smaller pool of gross per transaction. Clearly dealers cannot run a traditional model and still make money. 

Dealers will sell EVs and will support new entrants to the market, as they always have, that’s essential, but understanding the financial dynamics of running an EV dealership is essential upfront. 

The things we do know are as follows: 

1. An ICE dealer’s available pool of gross is $9000 per customer. An EV customer pool of gross is about $5000 (assuming they are trading an ICE not an EV). 
2. Customer retention will be lower, and cost of reacquisition will be higher for EV customers because we don’t have the dependency of service to keep the customer connected to the dealership. Good or bad, dealers sell 30 to 50 per cent of their cars each month to customers in their service driveway. Customers are lazy and/or loyal and as long as you are easy to do business with you reacquire the same brand customer. EVs are trying to create this for their sector but have a more “new fridge” acquisition profile, without a built-in service retention model.  
3. In most 2 per cent net profit on sales (NPS) dealerships the backbone (parts and service) makes 100 per cent of the dealership’s profit. F&I and Used cars make 1 per cent but this is given back in full by losses in the new car department.  

Since the current model loses 1 per cent NPS in new cars, it therefore relies on a profitable used car business where overtrading is limited in a transparent ICE market. The Used EV market is still fairly opaque so overtrading to move new EV metal will be more prevalent until the market matures. 

Alternatively, customers will not have their EV trade-in’s purchased which will be a bottle neck to the ability to consummate new EV deals unless a guaranteed residual scenario exists with the OEM/Financier. 

Therefore profitability from used cars will become less certain as EV trades return, Finance may be more difficult if guaranteed buybacks are required, therefore placing more pressure on fixed operations to cover new car losses and generate a profit. 

The current dealer ICE profit model is not ideal, but we accept this profit model, because overall we make money. The problem with EVs is they don’t feed the monster. You cannot make the 2 per cent NPS so, to avoid losing money, you have to reduce the costs of new car operations significantly. 

So, for dealers, EVs just needed to be treated as a whole different business model. They look like cars but financially operate like fridges. 

Please do the following: 

1. Create separate P&Ls for EVs in each department. I genuinely think dealers should have the following departments: 
   • Sales EV (new and used) 
   • Sales ICE (new and used) 
   • F&I (able to split contracts by power train) 
   • Service EV 
   • Service ICE 
   • Parts EV 
   • Parts ICE 

    Now you can measure each business to the bottom line. 

2. Become a customer destination for reacquisition. No service will cost you 50 per cent of your volume. Think about this. Harvey Norman offer customers a range of brands/choice and proactively manages them via CRM.  EV profit success will all be about significantly reducing the cost per unit. We lose money in new cars because we gross $2000 and it costs us $3500 to sell/deliver a car. To sell EV’s we just have to do it much cheaper – cheap enough to make a profit from actually selling the product. Our costs are stock, people, property. Just applying maths to make $1000 profit per EV sold, we need to reduce our costs per unit to $1000 or a 70 per cent reduction in cost per unit.  

   This means 70 per cent less stock, 70 less people costs and 70 less real estate. 

   This means order-to-delivery, limited display, no price negotiation, no management, fewer salespeople. The product must sell itself, customers roam freely, ask for some product knowledge, make a choice and the order-taker does just that. 

   To make it work the “dealership” needs to be a customer-buying destination with a wide range of choice and brands, competitive pricing and easy to transact (order, deposit, finance, delivery). 

   You can see from above that it is not the car business as we know it. We have taken away the magic ingredient of service in any meaningful capacity. We either have to replace its value (reliable gross and reacquisition) with some other income stream or cut the cloth accordingly. 

3. Recalibrate your KPIs. Sell 40 units per EV consultant, small showrooms, no inventory, warehouse delivery. 

 My best estimates are: 

• 40 units per sales consultant per month 

• 100% order to delivery (no inventory) 

• Minimum 50 per cent brand coverage of EVs per rooftop (customer led selling, not customer pushed selling) 

• 50 sq mtr per brand floor space (6-unit display) 

• 70 per cent finance penetration (all incentives geared to repayments) 

• Technology to replace people in stock ordering, finance delivery, aftermarket. 

• The dealer’s obligation is to drive the head flow, create a full choice scenario for the customer and make the transacting process seamless via technology. 

This inverts the current relationship where the dealer is brand dependant to drive traffic, breaking this nexus and building a customer centric destination is the only way to reduce costs sufficiently. 

Start by measuring the impact of EVs on your business, remember in the dealership world hybrids are ICE not EVs because the petrol engine that creates the electricity still maintains the profit model. 

In 2025 this all starts to get very real because of NVES, the customers still seem resistant to EVs for a myriad of reasons, but the importers now have some real dollar considerations in play and the customer only gets to drive what they are given.