The Australian ZEV Challenge - Part 2: The Dealership

In part one of this series, I explored the challenges posed by Australia’s national New Vehicle Efficiency Standards (NVES) and state-based Zero Emissions Vehicle (ZEV) targets for Original Equipment Manufacturers (OEMs). Now, in part two, I examine how these targets are impacting motor dealerships. 

The challenge 

While dealerships had a seat at the table during the planning stages of the NVES and ZEV targets, the financial penalties tied to these regulations apply directly to manufacturers, not dealerships. At first glance, it may seem as though dealerships are somewhat removed from the consequences of success or failure in meeting these targets. 

However, dealerships operate as independent businesses, each facing its own operational pressures. As John Lennon aptly put it, “Life is what happens when you are busy making other plans.” While manufacturers wrestle with ZEV compliance, dealerships are focused on their own challenges, such as maintaining profitability in a competitive market. 

Is there an impact on dealership profitability? 

For most dealerships, the current product mix includes a combination of electric vehicles (EVs), petrol cars, and hybrids. Outside of pure EV brands like Tesla and emerging Chinese entrants, manufacturers are increasingly subsidising EV sales to boost consumer demand. Despite this, high upfront costs and other barriers have dampened enthusiasm for EVs. 

These subsidies often erode dealership margins on EV sales, making petrol and hybrid vehicles a more profitable option in the short term. 

What about after-sales revenue? 

After-sales revenue is a crucial factor in dealership profitability. Service absorption—a key financial metric in the automotive industry—measures how well a dealership’s service department can offset its fixed operating costs, such as rent, salaries, and utilities. 

Petrol and diesel vehicles typically require more maintenance, such as oil changes and engine repairs, providing a steady revenue stream. In contrast, EVs have fewer moving parts and reduced maintenance needs, which could threaten this important revenue source. In a challenging market, this may reduce the incentive for dealerships to prioritise EV sales. 

What about consumer choice? 

Although the range of EV models is growing, the variety of EV options still lags that of petrol and hybrid vehicles. Dealers often face challenges in meeting customer preferences when it comes to type, size, and price point—factors that are more readily addressed with petrol or hybrid options. 

Supply chain issues also contribute to long delivery times for some EVs, further complicating matters. For dealerships, delivering a vehicle quickly is critical, and delays associated with EVs can be a significant drawback. 

Additionally, sales teams often struggle to educate consumers on the benefits of EV ownership. With high staff turnover in dealerships, newer, less experienced salespeople may gravitate towards selling what they know—petrol and hybrid vehicles—rather than taking the time to guide consumers through the transition to EVs. 

What are the consumer concerns? 

Dealers consistently report three major concerns among consumers when it comes to EVs: 

1. Cost

The entry cost remains the single biggest barrier. On average, EVs are around 20% more expensive than their petrol or hybrid counterparts, and in some cases, this gap is even wider. In today’s high cost-of-living environment, even manufacturer subsidies may not be enough to overcome this obstacle. 

2. Battery life and charging infrastructure

Consumers often worry about the longevity of EV batteries and the availability of reliable charging infrastructure. For those without access to home charging, higher public charging costs add another layer of concern. 

3. Inconsistent government policies

While state-based EV incentives exist, they have yet to significantly influence consumer behaviour, leaving many buyers hesitant to make the switch. 

The negative impact of subsidising EVs 

While manufacturer subsidies aim to encourage EV adoption, their long-term effects on dealerships must also be considered. EVs currently depreciate at more than twice the rate of petrol and hybrid vehicles, posing challenges for dealerships when persuading customers to choose an EV. This rapid depreciation can lead to concerns over resale value, undermining consumer confidence in EV ownership. 

Are lower monthly payments the answer? 

Leasing companies have begun marketing EVs with seemingly attractive low monthly payments, achieved by using high residual values. However, this approach introduces risks. Consumers expect dealerships to match these low payments, yet many automotive finance providers are unable to offer similarly competitive rates due to the underlying financial risks. 

For dealerships, this poses a double challenge. With tighter margins on EV sales, the additional profit generated from financing becomes even more critical. Competing on lower payments could erode overall profitability further. 

Where does this leave dealerships? 

In summary, dealerships face significant challenges in navigating the complexities of the ZEV transition. While they are not directly penalised under NVES or ZEV regulations, they are grappling with declining consumer interest in EVs, concerns over affordability, battery technology, and charging infrastructure. Additionally, inconsistent government policies and the need to educate both staff and consumers add to their workload. 

Dealerships are left focusing on areas where they have the most control—selling what customers want. For many, this means prioritising petrol and hybrid vehicles or even shifting their focus to used cars. 

At CGI, we understand the unique pressures dealerships and manufacturers face in this rapidly evolving market, offering tailored strategies and technical solutions to help them overcome these challenges. From navigating the complexities of EV adoption to addressing commission disclosure requirements and improving product sales data management, we deliver proven support to meet today’s needs and prepare for tomorrow. 

Next up – The Australian ZEV challenge part 3 of 5: Federal and state government. 

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