EV trends: From battery leasing to the death of the hybrid

EV trends: From battery leasing to the death of the hybrid

The EV headlines just don't stop coming, but where are the trends actually leading the automotive industry?

The EV headlines just don’t stop coming, and each one poses more questions than it answers. We are expecting more than 100 new EV models between now and the year 2026. China is allegedly leading the EV arms race, but the Bipartisan Infrastructure Bill is throwing billions of dollars at revitalizing the U.S. electricity grid as well as deploying new charging stations all around the country. Not to mention, a shift to EVs means a shift to generally more expensive parts, but less overall maintenance. It’s a lot to consider, especially when it comes to the future of the automotive aftermarket.

Where are these trends leading the automotive industry? What does all this mean for vehicle care? What does it mean for you, specifically? You’ll need to read the electric tea leaves to find out.

The Auto Care Association and MEMA Aftermarket Suppliers have partnered to release a Joint EV Trends and Outlook Forecast: An update on trends driving change in the EV market. The report covers topics such as projected growth for EV sales, the impact of adoption on aftermarket parts sales, data on the impact to the service and repair sector, and more.

It’s an overwhelming amount of information, but thankfully today we have two guests more than capable of unpacking it all: Mike Chung, the director of market intelligence for the Auto Care Association (ACA), and Philip Atkins, the director of strategic research & planning for MEMA Aftermarket Suppliers.

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Here’s a transcript of the show:

David Sickels: Hello and welcome back to the Amped EV podcast. My name is David. I am the editor for The Buzz.

Nadine Battah: And I’m Nadine Battah. I’m the multimedia senior editor of ShopOwner.

David Sickels: So today, looking forward, we’re always trying to figure out, okay, where’s this EV thing heading? Right?

Nadine Battah: It can be overwhelming.

David Sickels: Extremely overwhelming. There’s so much to think about. And I feel like we’re all kind of on the same page as far as like, okay, EVs are getting a little more popular. People are talking about them, people want to know about them. That’s why we’re here. But looking forward, looking into 2030, 2040, 2045, where is this thing heading? And we have this huge gigantic study put together by the ACA, the Autocare Association, and MEMA Aftermarket Suppliers. They kind of teamed up and helped to put on this study, and they helped to tell us what this study means. We’re going to hear from them today.

Nadine Battah: Let’s do it. I’m ready to dive into this topic and learn more.

David Sickels: Awesome. So our guests today are Mike Chung, the director of market intelligence for the Auto Care Association (ACA), and Philip Atkins, the director of strategic research & planning for MEMA Aftermarket Suppliers. Let’s get right to it. Mike and Philip, thank you both so much for joining us today on the show. I really appreciate your time to help us dive into a study of this magnitude. There’s just so much here, and I really want to hear from you as far as how do you approach a subject like this? Where do you begin?

Philip Atkins: Well, David, this is a huge initiative for both Mike and myself. I think one of the key aspects was we wanted a study that had a reach far enough out in the future that would make it unique and be more helpful to our members. So one of the criteria for the study became, well, let’s look out to the year 2045. And as far as I know, that’s pretty unique among the reports that deal with the electric vehicle market.

Michael Chung: Yeah, I’ll be happy to add. So Autocare Association and AASA MEMA, we’ve collaborated on a couple of different projects that are beneficial to the entire industry in the sense of particularly coming up with a singular number to size the industry. One of those is our joint channel forecast model where we say, this is how large our industry is. And as our executive leadership was thinking about what other trends are happening that we should be reporting on so that we have a singular voice, electrification and adoption of EVs was one of them. So Philip and I identified which organizations can we work with as external consultants that we have a strong working relationship with that we can get verifiable trustworthy data from. So that’s part of the process as well, because I know that Philip has worked with our provider, Strategy&, for this particular study, that they have a longstanding relationship. So there is some history there. So certainly a tip of the hat to our external provider, Strategy&, for the forecasting that they did here.

David Sickels: Oh, excellent. Excellent. So there’s so much to go through here. It’s hard to condense it in into one show, but I’m going to do my best here. One particularly interesting note that caught my eye within the study was regarding hybrids. So the forecast notes that hybrid vehicles, both HEVs and PHEVs will constitute less than 5% of the future U.S. car parc even in the long run. So why do you believe that the love for hybrids isn’t going to really have a solid hold in the states? Mike, I’ll start with you.

Michael Chung: Sure. A couple of things come to mind. One is, what’s really getting the headlines? Certainly, we’ve seen Toyota Prius, we’ve seen other hybrids make a mark into the market, but not sure if I’m allowed to say it this way, but is it quite as sexy as EVs? We see EVs getting the headlines from both a policy standpoint as well as a manufacturer’s standpoint. Manufacturers committing to turning their fleets into a hundred percent EV by such and such a timeframe. And I think that’s balanced with policy goals at the state and federal level to make pronouncements such as, we are going to have X percent of new vehicles by such and such date, BEVs or basically zero-emission vehicles. So I think those kind of go hand in hand with one another when you have a policy pronouncement along with a manufacturer commitment and that help buoy each other to go up.

Whereas for the hybrids, we haven’t really seen that type of emphasis. And I think if we look at the consumer, I feel like we can put a persona around the hybrid vehicle buyers and for whatever reason, it just hasn’t accelerated with regard to adoption as much as it has. And so EVs have been able to take hold of that and then press on the gas a little bit harder.

David Sickels: That makes a lot of sense. Philip, do you have anything to add?

Philip Atkins: Yeah, to Mike’s point, we are expecting upwards of a hundred new EV models between now and the year 2026, which gives a consumer a wide array of options to choose from when they’re looking at a new vehicle. You’re not going to see that kind of commitment from the OEMs around hybrids. Also, David, I think that what’s important is the fact that the hybrids will still have that internal combustion engine, the ICE and the power train that goes with it, and all the parts associated with that, which means all the repairs and maintenance that go with those ICE associated parts. So that’s just an extra cost that the hybrids bear, that the EVs won’t, and that’s what the OEMs are promising for the EVs, just a total lower cost of repair and maintenance for the BEVs.

Nadine Battah: You both point out some awesome points. You project that the parts market through 2045 will see an increase in price since EVs have fewer mechanical parts prone to failure when compared to ICE vehicles. How will this shift to having to carry generally more expensive parts affect automotive repair shops across the country? Mike, we can start with you.

Michael Chung: Sure. And really interesting question. It’s an interesting question because as you point out Nadine, EVs tend to have fewer parts that need to be replaced, and fewer regular service items, whether it’s a failure because of a mechanical issue or just wear and tear that needs to be replaced like an oil change, a brake pad, and so forth. And I think what’s interesting here is that it can be really become an inventory and a supply chain management challenges for repair shops as well as retail stores. Because with the increasing adoption of EVs, if you are an auto parts retailer, if you are a service provider, how are you managing another set of parts potentially as EVs continue to become more common?

So there’s that aspect, and I think whether it’s a more expensive part or a less expensive part, I feel like each part could be its own case study with regard to how competitive it might be to be a parts provider for something that is less expensive or perhaps more expensive and more complex. So I feel like there could be a lot of variations on a theme with regard to how competitive it could be, how many parts providers there will be, and as a, say, a service shop provider, how are you managing those relationships with the distributors, the parts manufacturers, and then forecasting the demand so that you can have the right level of inventory in your shops?

Philip Atkins: Yeah, I would say when you look at the value chain, the supplier, the distributor, the retailer, and then the repair shop, among all of them, the repair shop is least affected by whatever the cost of the part is. It’s really the distributors and the retailers that carry the inventory. All the repair shop does is, one day they place an order for a part to the distributor, to the retailer. They receive the part, they put it in the vehicle, turn around and sell it to the vehicle owner as part of the overall cost of repair. So they don’t really carry that much inventory. And to that degree, there’s not that much of an effect on the repair shop.

David Sickels: Got it. Got it. So I want to get into some of the global outlook here that your forecast looks into. Philip, the forecast describes China as being the global EV leader as of today. So is there anything that we can kind of glean from the progress that China has made here in the US that might make the transition to EVs a little simpler or a little easier? Anything that we can learn there?

Philip Atkins: Yeah, that’s a good question. And here I’ll point to the studies that Mike and I produced along with Strategy&, because we do have a section that talks about what’s going on in China, and it makes a couple of points. One is how China has addressed the high cost of batteries and they’ve done something pretty novel. Some of the OEMs have separated the cost of the battery from the actual cost of the vehicle, which really reduces the sticker price for the vehicle. Now of course, you still need a battery and you can buy one outright or you can enter into a subscription model so that every month or whatever time period you pay for the battery. And this is something that we’ve seen a Vietnamese company adopt called VinFast, and they’re coming here to my home state, North Carolina, and they have this subscription model for their batteries, and you pay that monthly cost and then they take on the full cost of repair, maintenance, and ultimately replacement for that battery for the life of the car. So that’s pretty novel and that originated in China. Did that make sense?

David Sickels: No, that makes a lot of sense. Do you see that being strictly automotive kind of design, consumer automotive or do you see that maybe being able to work for fleets, maybe medium duty as well?

Philip Atkins: Oh, I think the fleets will love that model, yes. Because they’re passing on the cost of the replacement and repair, which will be a big part of the overall fleet cost, don’t you think, Mike?

Michael Chung: Oh, I agree. It reduces a little bit of that variability with regard to your operating expenses, certainly.

David Sickels: Excellent. And Mike, do you have anything else that you’d like to add as far as what we can possibly learn from China here in the US?

Michael Chung: Sure. And certainly China and the U.S., they have their distinctions as marketplaces and large ones at that, of course. And kind of along the lines of what Philip highlighted, another one of our study partners, YCP Solidiance, they’ve done some really interesting case studies on several companies in China that have really changed their business model. And I think it can be interesting from the US point of view because in the United States, we certainly have a very well-established framework, a lot of well-known companies from the parts manufacturers to the distributors, to the service providers, to the OEMs, and so on and so forth. And it’s an opportunity perhaps to look at what has been done in China. And I’m thinking about companies like Tuhu, which is T U H U, and this kind of what they call a self-operated O2O, online to offline business mode where you think about your users, those individuals like any of us who may be purchasing a car in corresponding parts, are they going in person or are they executing their purchases online?

And so if you have an E-commerce platform, how does that connect to your warehousing, your logistics systems? How does that data, how does that order of information get communicated to an online store, an offline store, to the manufacturers as part of that feedback loop for parts demand? And another thing I’ll point out along those lines is kind of that after-sales system. So you have your supply chain system, your online service, your warehouse and logistics systems, your offline and your service system, and your after-sales system. How does each stakeholder interact within the systems from a purchasing standpoint and from a data-sharing standpoint? So are there opportunities where new entrants can come in and “disrupt” the model, particularly as we have new vehicles, perhaps as Philip mentioned, new ways to purchase or take responsibility for particular parts. So it’s a real opportunity for innovation and certainly, a lot can be learned from what’s happening in China.

David Sickels: Interesting. Yeah, I think you’re right. As far as innovation goes, we’re already seeing these new players in the EV space come up and they’re kind of disrupting even the way that you sell cars. We’re seeing more of a selling these EVs online kind of model, rather than going to your local dealer to get these. So I think you’re right. There’s probably a lot of innovation to be had in the parts and suppliers arena as well.

Michael Chung: Sure. So I think kind of piggybacking off of that is sometimes Philip and I will talk about things like, what’s the dealer of the future look like? And we’ve seen some headlines about that with regard, particularly with all the supply chain and inventory challenges that dealers have had, all of that real estate, the service, movement towards EV, there’s a lot. I think it’ll be very interesting to go a couple of decades into the future and see where we will be. But yeah, Philip, back to you.

Philip Atkins: Yeah, just to add to that point, which I think is an interesting one. Certainly, the dealer model must embrace and enhance the revenue they get from the service side of things. And EV vehicles give them that chance because right now the EV owner is being trained to go back to the dealer for service. But I like what Tuhu, Mike mentioned Tuhu in China, I like what they’re doing that kind of defends the independent aftermarkets share. Tuhu is setting up a series of brick-and-mortar facilities that focus just on EV. And that’s got to be pretty reassuring to the Chinese vehicle owner that okay, if I take it to this repair shop that is just EV oriented, they must be pretty well trained. They must have all the technology they need to make these repairs. So I think that’s a good way of defending the independent aftermarket’s share of EV maintenance.

David Sickels: Great point.

Nadine Battah: Excellent points. So, Mike, I’ll start with you. Both small aftermarket service shops with about one to three bays and larger ones with four or more bays are beginning to make EV investments at about 40%. But your research shows only around 15% of the smaller shops are actively advertising they have hybrid EV serviceability, where that jumps to about 45% in the mid to large shops. Why do you think that is?

Michael Chung: Yeah, really good question. And a couple of things come to mind. Certainly, one thing I think about is working capital. How much do you have in the way of assets to make the investment to service, diagnose and repair EVs? Because the infrastructure costs are not insignificant, certainly. And I’d just like to think that larger shops which perhaps may be part of a larger franchise or regional or national network, would likely have more investment capability to make the foray into EVs.

Another thing that comes to mind, Nadine, is regional effects. As we see California, some of the warmer weather states, now granted there are some colder weather states that have higher EV adoption rates. But I think about if I’m a shop owner, what am I seeing day to day? Who is my clientele? Do I see EVs in my service mix or am I perhaps catering to a crowd that is more ICE vehicles of a certain age, certain makes? So those things come to mind as well as just the normal day-to-day busyness rather. So if I’m an owner of a smaller shop, I may be just very busy taking care of my vehicles and then being able to make that investment and then advertise it could be, I’m not quite there yet. So those are some of the things that come to my mind.

Nadine Battah: Okay. Philip, was there something that you’d like to add?

Philip Atkins: Nadine, I think Mike has hit the nail on the head with the total park that is the share of vehicles on the road for the hybrids and the EVs and the BEVs at 2% right now, that means 98% of the vehicles on the road are the internal combustion engine variety. If I’m a small shop owner, just as Mike said, I’m probably going to make the decision to focus, if I do any advertising at all, and I probably don’t if I’m that small of a shop. But if I do any advertising, it’d probably be toward the internal combustion engine. But it does raise a question, and it’s a good one, Nadine, of eventually the independent aftermarket has got to come to grips with this issue because if they are not servicing the BEVs right now, that means the dealers are, and again, as I mentioned before, all the BEV owners are being kind of trained to go back to the dealer. And that’s just something that the independent aftermarkets going to need to come to grips with.

David Sickels: That’s a really interesting point. And with that, you had a lot of research that you did as far as specific components or types of components that you forecasted going into 2045 as far as replacement rates with those kinds of things. And one of the ones that caught my eye was electrical component replacement rates. Through 2045, you have that some components are seeing a large increase there whereas others are actually decreasing. And so I wanted to kind of ask you, Philip, where is that coming from? How are you gauging that, especially with EVs becoming more popular, you would almost think that it would just all go up?

Philip Atkins: Oh, well, that’s a curve. I honestly thought that our replacement rates would go up or at least stay the same if they’re the true BEV area unless you’re looking at some components that are associated more with the ICE technology. When I think about the replacement rates, and it’s been a while since I’ve looked at them, they went up through 2030, 2035, and the share of parc for BEVs and EVs didn’t change much between now and 2030. So the replacement rates really whether ICE or BEV shouldn’t change that much either. But I guess I’m stumped a little bit on that right now. Mike, can you help me out at all?

Michael Chung: Yeah, I’m seeing a couple of different things here. And Philip, I think you’re right with regard to the replacement rates, they are staying pretty steady. One thing I was thinking about David, is also just the growth of the parts by category. And certainly electric has strong growth. Now, EVs, higher adoption as we go forward, it makes sense that those part categories would be strong performers into the future. And I think ADAS was another strong performer. So I think as the car parc shifts towards EVs, then we’ll certainly have more vehicles and ergo more parts to supply those vehicles and then part of the maintenance that goes along with it. And I think that gets to your replacement rate aspect. So certainly electric parts and then the ADAS as we see more vehicle technologies, the proliferation of newer technologies, and as they get adopted into both ICE and EVs, that’s certainly an area for growth.

David Sickels: Got it. Got it. No, that makes complete sense.

Philip Atkins: I have one thing to add, as I’m thinking through your question. Right now of course, the EV category is new. That means the parts are new and with any new technology, the failure rate of components is going to be higher now than in the future. And so that could be an explanation for how we’ve modeled, how Strategy& has modeled the replacement rates in their report.

David Sickels: Well, hey, thank you both for taking the time today, so much that we could get into here. I’d love to talk to you again, maybe down the road, but just really appreciate your insight here because I know I learned a lot.

Philip Atkins: Great talking to you.

Michael Chung: Great to be part of this conversation and would look forward to continuing it in the months to come. So thank you for having me, and thanks for having us.

David Sickels: Okay. That’s a lot to break down.

Nadine Battah: That was a lot to take in, but that was very interesting to hear about.

David Sickels: And honestly, we could be here for another two and a half hours. I mean, this study is substantial. There is a lot to it, but I mean, they really… One thing, I’ve got a hot take for you, China, right? You never really know what they’re doing over there. It’s a little mysterious and everything, but they have some really good points when it comes to how China is approaching EVs and what the US could possibly do to kind of learn from them. One of them is that model where you kind of separate the vehicle itself from the battery and you can just kind of have this model where, okay, I’m going to take the vehicle, I’m going to purchase the vehicle, but then I’m going to lease the battery. That’s really interesting. That’s a really interesting thought. And as Philip was saying, fleets especially, this could be a very, very lucrative model for them where they don’t have to worry about these batteries getting old or what they’re going to do when they need to all of a sudden recycle hundreds of batteries being in their fleet. That was really interesting.

Nadine Battah: Something else that I thought was really interesting too was the fact that they were saying by 2045, there might not even be hybrids on the road.

David Sickels: Yeah, yeah. Hardly any, hardly any at all. It makes sense when you think about it. These manufacturers are saying, Hey, we’re going to only produce battery electric vehicles by X date. Fleets are doing the same thing. They’re saying, Hey, we’re going to integrate all these battery electric vehicles by X date, and if this is happening with everybody, where do the hybrids go?

Nadine Battah: So David, I see you pulling into work every day. Are we behind with our gas cars?

David Sickels: We are. We’re very behind. Yeah.

Nadine Battah: Oh my goodness.

David Sickels: Well, I truly don’t know. Right now the car parc is 2%, 2% EVs. So are we behind? Actually, maybe not. I don’t know if we want to be early adopters or not. That is a good point when you start projecting out that far.

Nadine Battah: And if you really think about it, it’s already my 2023. It’s going to be here before we know it.

David Sickels: You’re right. 2023 is going to be a whole new year for EVs, just like 2024 and probably 2025 and beyond. And I think it’s good to have these kinds of forecasts to see, okay, where are things headed? I learned a lot. There’s a lot more to learn. I hope we can get these guys back on the podcast.

Nadine Battah: Yes, seriously, thanks again for having me, David. I always love these conversations and learning more about the EV side of things.

David Sickels: Nadine, I am Amped. Thanks for joining us today. We’ll catch you next time.

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