Overcoming the Dealer Challenge for EV Sales

More than a year before Tesla delivered its first Roadsters to customers in mid-2008, the then-nascent startup made the decision to forego the traditional franchised dealer model and operate its own retail stores. One of the reasons given at the time was that dealers were reluctant to sell EVs because of the potential to lose revenue on after-sales service and warranty work. Customers continue to complain about salespeople pushing them to buy an internal combustion engine (ICE) vehicle when they came in looking for an EV. Legacy automakers have been trying to find a solution to this problem and may finally be making progress. 

Unlike Tesla, which started from scratch without a retail sales channel, automakers such as Ford and General Motors (GM) can’t just open their own stores. Franchise laws in most states prohibit manufacturers from competing directly with their dealers for customers and in many states have even prohibited Tesla and other startups from direct sales. Instead, legacy automakers are opting for organizational changes to distribution channels to better compete. 

The Cadillac Solution

When Cadillac announced in 2020 that it was targeting being all electric by 2030, the GM luxury brand told dealers that they would have to invest about $250,000 for tools, training, and other support beginning with the 2022 launch of the LYRIQ EV. For those not willing to make the investment, Cadillac offered to buy back their franchises for as much as $500,000. Approximately one-third of the 875 Cadillac dealers opted for the buyout, but they accounted for only about 10% of the brand’s sales. The remaining 560 dealers are now committed to an electric future.

Ford Opts for Specialization

On March 2, 2022, Ford announced a major corporate reorganization after evaluating whether to spin off its EV business as a separate company. The automaker opted to create distinct EV and ICE business units that remain wholly owned. Ford Blue will focus on ICE products while Ford Model E will develop and produce EVs along with software and services. In 2021, Ford established another business unit focused on commercial vehicles called Ford Pro, and the smart mobility business unit has been rebranded as Ford Drive. This approach allows Ford to use the cash and profit engine that is the ICE business to fund the tens of billions of dollars in investments needed to make the electric transition until those products are fully profitable on their own. 

One of the interesting details from the announcement is that Ford is working to establish new dealer standards and will encourage dealers to specialize. Ford already has about 600 dealers out of its 3,000 retail outlets that focus on commercial vehicles; the company will now be trying to get a significant portion to specialize in EVs. 

Over the past year, in its sales reports, Ford has been specifically calling out the increase in retail factory orders as buyers are not able to find what they want in dealer inventory due to shortages. More customers custom ordering potentially allows EV dealers to slash their inventory and physical footprint, thus driving down costs. Dealers would no longer have to pay financing costs of hundreds of vehicles as soon as they arrive from the factory. This change could offset lost service revenue and make selling EVs more appealing and in turn improve the customer experience. 

Legacy automakers face many challenges in making the transition from ICE to EV, but finally seem to be finding a way around the dealer constraint by pushing dealers to go all-electric or fall by the wayside.