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What is Phase 2? Are you ready?

Updated: May 16, 2022

In April electric vehicles sales (NEV) reached 20% of the share of passenger vehicles by fuel type up from 3.4% just 12 months ago. This dramatic shift is accelerating, fast, and with it come a lot of changes to your business.

To be clear, the 20% wasn't all BEV (Battery Electric Vehicles). 6.6% were BEV and 13.1% were PHEV. Mild hybrids got a lift too they doubled from 12.5% to 25.2%, but for clarity Boost Auto and most commentators will classify a mild hybrid as ICE, not BEV.

So while your dealership's fluid sales are safe, for this year at least, there are many other challenges that your business needs to scale up to. NEV sales double every 12 months and have done for the last three years. Like the farmer asking to be paid one grain of rice the first year and two the second year and four the third, this exponential growth becomes massive very quickly.

If you have a brand that doesn't have at least a PHEV in the range right now, you'll be catapulted into the NEV market when they come available and you might well be caught out.

What is Phase 2?

Phase 2 is the mainstreaming of EV's. Today they are no longer niche, but are not yet affordable. Phase 2 is the widespread affordability, availability and demand of EV's so they become the first choice of most car buyers, not of the few. To be clear, TradeMe signposted that consumer demand for NEV exceeded supply three years ago. But despite the demand for NEVs affordability remains a significant barrier. Humans are not great about thinking about whole of life costs.

Some NEV may be relatively affordable compared to other NEVs, but $50K plus, or $42K after rebate is not really affordable when compared with the average retail price for an ICE vehicle. Phase 2 is the boost (or turbo charging*) of the NEV market that will happen as parity becomes much closer, and cars become affordable.

Affordability is created by two factors.

Firstly new to market brands, MG, BYD, Ora (plus any one of a plethora of strong Chinese domestic brands that are either eyeing overseas markets or have commenced their export market expansion) arrive in New Zealand and Australia with NEVs retailing at $30-39K before rebate.

Secondly, older earlier NZ new BEVs become available on the second hand market. Nissan Leaf 40kWh, Hyundai Ioniq, Hyundai Kona, VW e-Golf, some of which now are three to four years old. To some extent that exists already with older Nissan Leaf, which has consistently entered the market at the rate of 200 per month, but early Leaf are now range compromised, and do not fit the requirements for most Kiwi families like an Ioniq could do.

Remarkably there are some mainstream brands in NZ that don't offer a PHEV or BEV right now (including the brand that has set itself a target of outselling Tesla by next year). These are likely to be the brands that are caught out by Phase 2 the most.

Phase 2 will affect the price of used cars, workshop margins, and is likely to cause a staffing crisis way beyond the tech shortage caused by border closures. It will cause back-logs and pinch points in your business that you have never faced before. As a forward thinking business you need to consider and plan for the implications.

Used vehicle Pricing:

With parity around the corner, a three year old ICE vehicle won't be worth a lot. Imagine being offered a choice of a car where the fuel is 20% of the cost of the other vehicle. It is likely that petrol will become much cheaper as a result of reduced global demand (however electric will still only be 15-25% of the cost). Have you got a plan for managing your used vehicle inventory more carefully? While the CCA has had a bumpy introduction, you should already start to see the shift in buyer behaviour that this brings. The tolerance for poor fuel consumption reduces quite quickly when it is front and centre of new car sales. We are educating our customers to be more demanding of manufacturers, and this will spill over into used vehicle buying behaviour too. $3.00 a litre helps focus the mind.

Technicians and Training:

How many tech's do you have today that are high voltage trained? Do you think they will become hot property (just as any trained tech is today?). You won't be able to import HV techs, as our primary markets for skilled techs are not yet strong EV markets. Do you think MITO will have the spare capacity to train all the HV techs in another 18 months if you wait until then, just as many will do? Demand for HV techs will increase rapidly as dealerships realise they need more. Those already trained will be in high demand. Training capacity will be constrained. Better work out how to train at least 50% of your staff now.

Power Supply and Charging:

How many charging points has your PDI centre and service centre got? How long does it take to charge a vehicle using it? You will need multiple faster charging points than today. 22kW or 50kWh. That sort of power supply isn't easy to get into the building.

Aftersales Margins and hours:

How are you going to mitigate the loss of fluids margin (and time taken to do those oil changes)? Have you calculated your fluid margin and revenue for time sold for fluid changes? That is your potential revenue loss. Better start thinking about service plans, tyres, and increasing customer retention again to weather the changes ahead. Expect to be targeted on home charger sales by the OEM too.

Fuel recharge for staff and vehicle loan cars:

If 80% of charging is done at home, how do your staff charge their work vehicles unless they have a charger? This relatively minor issue might derail your charging plan, if staff are charging at work. Expect to subscribe to some EV charging infrastructure plan for your staff. Can you install a home charger if your staff get a company car but are home renters? Some large corporates like The Warehouse Group have already grappled with this dilemma.

Retail Staff Training:

A quick read of any Facebook owners group today will show you that most customers are ahead of dealers on charging infrastructure, power usage, range, home chargers, software updates and a range of BEV related topics. How do you ensure that your sales team are ahead of the pack and are the BEV experts? For one, make sure that everyone in the business has lived with a BEV or PHEV for a week. A week, because then you go through the range of anxieties that a customer will go through. Range anxiety, the challenges of charging, the impact of AC usage, the importance of a good home charging solution. Owing an NEV is almost like re-learning to drive. There's an eco-system for ICE we take for granted, yet we have to discover the new eco-system for NEV ownership.

Phase 2 won't happen on a fixed day. A little like picking the top of the housing market, you'll only notice when the peak has passed. But Phase 2 will happen later this year or in the first half of 2023. When there are 3-5 models in the market that are sub $39K before rebate, this will be the catalyst for an even more rapid uptake in EVs. And then EV sales above that price point will strengthen also. Despite supply chain challenges, batteries are getting cheaper, and that means that more affordable cars are on the way. That pure BEVs are simpler to manufacture will simply fuel their affordability.

Are you ready for the change?

Just after publishing this blog, the Emissions Reductions Plan (or scrappage scheme) was announced without the detail. Programmes such as ERP will undoubtedly accelerate the update as described above.


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