The EV price wars may harm automakers’ crucial customer base.
The EV price wars may harm automakers' crucial customer base.
Electric Trucks and the Price War: Challenges for Fleet Customers
Electric trucks have long been seen as a crucial component in the broader adoption of electric vehicles (EVs). As automakers continue to invest billions of dollars to electrify their product lineups, a significant focus has been on fleet customers who serve as the tip of the spear for the EV market. However, the ongoing price war in the EV industry has the potential to create challenges for these fleet customers.
The Importance of Fleet Customers
Last year, automakers began securing large electric vehicle orders from commercial customers such as Amazon, FedEx, and Walmart. These companies realized the potential cost savings in adopting electric trucks and vans, thanks to advancements in EV technology that allowed for larger batteries and longer ranges. The predictability of mileage and use cases, as well as the ability to charge in batches and at scheduled times, made EVs an attractive option for moving goods and services.
Automakers understand the significance of fleet customers and have been investing in electrifying their lineups not only for the average car buyer but also to cater to the unique needs of these commercial clients. Whether it’s a local delivery shop, a car rental firm, or a contracting company, EVs offer practical benefits. However, transitioning to electric vehicles comes with substantial upfront costs, logistical challenges related to charging infrastructure, and fleet management complexities that differ from those associated with gas-powered vehicles.
Fleet owners are primarily motivated by financial considerations, such as compliance requirements and tax breaks. If they decide to make the switch to EVs and invest in them, they expect to see a return on their investment. This is where the price war becomes problematic.
The Price War Dilemma
The ongoing price war in the EV industry has the potential to disrupt the plans of fleet customers. When the value of electric trucks suddenly drops due to price cuts, it can lead fleet owners to reconsider replacing more of their internal combustion engine trucks with EVs or seek alternative options. This is particularly important for fleet owners who closely monitor their numbers, budgets, and profitability.
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Robby DeGraff, an analyst at AutoPacific, highlighted this challenge by stating, “You buy 10 F-150 Lightnings at $65,000 and then you wake up the next morning and they’re $55,000, you’re probably going to think twice about replacing more [internal combustion engine] trucks with an EV — or look elsewhere. You’re watching your numbers, you’re watching your budget, you’re watching the profit you’re making.”
The Problem at Hand
Automakers have relied on fleet customers to drive the adoption of electric vehicles since the beginning of their electrification initiatives. Companies like Rivian, Ford, and GM have introduced electric models specifically targeting major commercial customers. Approximately 20% of the fleet business in the auto industry comes from light-duty pickup trucks such as the F-150 Lightning or the Silverado EV. Another 38% is contributed by heavy-duty pickup trucks, according to J.D. Power.
However, automakers cannot afford to disregard the importance of these fleet buyers when it comes to EV price changes. Fleet buyers are sensitive to fluctuations in resale values, and any uncertainty in vehicle values can quickly throw off the delicate profit margin equation of fleet operations.
The Dilemma for Dealers
The uncertainty surrounding the pricing and volume of electric trucks leaves dealers in a challenging position. Smaller fleet customers are also crucial for dealers, and selling electric trucks to these customers becomes a significant gamble. Additionally, dealers face the risk of holding expensive electric trucks with high content on their lots if their manufacturers fail to deliver on time due to the competitive landscape.
This situation becomes even more precarious when dealing with larger fleet orders. The potential risk of holding multiple orders for electric trucks, hoping for quicker delivery, adds further uncertainty to the equation. Dealers are left with expensive trucks sitting on their lots, which can cause financial strain if their manufacturers are unable to meet market demand.
In conclusion, while electric trucks hold immense potential for the broader adoption of EVs, the ongoing price war in the industry poses challenges for fleet customers. The drop in the value of electric trucks due to price cuts can lead fleet owners to reassess their plans, impacting the adoption of EVs within their operations. Additionally, dealers face uncertainties when managing individual and fleet orders for electric trucks, impacting their financial stability. To ensure a successful transition to electric trucks, automakers must carefully navigate the price war while prioritizing customer needs, particularly those of fleet buyers.
