Shop investment needed to compete in growing EV market

BETHESDA, Md. — Battery electric vehicle (BEV) sales are projected to reach 9% of total U.S. light vehicle sales in 2023 and grow to 35% by 2030, according to the new "2023 Joint EV Trends and Outlook Forecast" report by the Auto Care Association (ACA) and MEMA Aftermarket Suppliers.

BEVs are projected to account for about 10% of the U.S. car parc, or vehicles in operation, by 2030, with that number expanding to nearly half of all vehicles by 2045.

As the complexity and cost of replacement components increase, the aftermarket parts market will continue to grow — meaning the average service shop with two to three bays may need to invest $80,000 to $270,000 to remain competitive in the EV service market, according to the report.

"The study reveals that electrification and ADAS offer the greatest growth potential, growing at 18% and 8% CAGR as the car parc transitions to newer technologies," Paul McCarthy, MEMA president and CEO, said.

"We have learned from the current crop of EVs that while sometimes different things break, they still break — and the aftermarket will be ready," he said.

"By the end of this decade, one in 10 new vehicles in the U.S. will be a BEV," ACA President and CEO Bill Hanvey added.

"The trend toward electric-vehicle adoption among Americans continues to rise year over year, presenting the aftermarket industry with a clear view of its future: investment in the modernization of auto care businesses now will be essential to our survival in the decades to come."

Research and analysis in the 2023 Joint EV Trends and Outlook Forecast were contributed by PwC Strategy&, IMR Inc./AutomotiveResearch.com, Schwartz Advisors and S&P Global Mobility.

New vehicle sales in the U.S. are expected to grow as pent-up demand, new technologies and population continue to increase, according to the report.

As drivers keep their vehicles longer, pushing the average vehicle age to 12.5 years, the car parc is anticipated to grow to more than 235 million passenger vehicles from 283 million currently.

As internal combustion engine (ICE) vehicles age out, the composition of the car parc will slowly change, comprising about 10% BEVs by 2030 and about 47% BEVs by 2045.

Yet BEV sales estimates "are highly dependent on vehicle economics, BEV supply, consumer behavior and charging infrastructure," the report stated.

Sales of hybrid vehicles, meanwhile, are growing but represent only a small fraction of the car parc.

In the U.S., hybrid sales will decrease as BEV sales are expected to grow at a much faster pace, the report said, noting that only a few OEMs are investing in full-hybrids and plug-in hybrid technologies and plan to have them in their portfolios through 2030.

The automotive aftermarket will still thrive despite the changing makeup of the car parc.

Today, the value of the U.S. light vehicle aftermarket is estimated to be $418 billion, according to the report, and it is expected to hit a 1.5% compound annual growth rate through 2045 to over $575 billion.

Most of the growth in the parts market is expected to be in the electrification and ADAS categories as traditional ICE components begin to decline by 2040 as these vehicles start aging out of the car parc.

"Service providers will need to adapt in order to provide competitive service levels and maintain market share. Newer technologies paired with higher BEV penetration are bringing new hardware- and software-related requirements that service shops must be ready to provide to their changing customer base," the report said.

The report predicted that small and medium-sized service shops will need to make investments in equipment and training to be prepared for BEV maintenance and repair.

The report claims BEV penetration will be impacted by four critical forces: vehicle economics, model availability, consumer behavior and charging infrastructure.

Government regulations impact the economics of buying a BEV by offering incentives or instituting ICE phase-outs.

However, BEV range anxiety, consumer familiarity with charging providers and their networks, and a more prevalent charging infrastructure will impact EV adoption.

Total cost of ownership parity between ICE and BEVs "will be the tipping point for large electric vehicle adoption," the report said, noting that battery costs will be the primary driver for BEVs to reach cost parity.

Upfront vehicle costs remains the biggest deterrent for buyers when considering purchasing BEVs, according to the report.

Among the tailwinds for adoption are:

• Decling battery and technology costs;
• Adoption of stringent regional, national, state and local government regulations, along with new subsidies;
• Plans by vehicle makers to introduce 190-plus models in North America by 2030; and
• Growing private-sector Investment.

With the rise of new propulsion technologies over the past decade, OEMs are facing the challenge of balancing investments, meeting CAFE regulations and maintaining a competitive edge, the report said.

While hybrid vehicles, such as the Toyota Prius and Honda Accord Hybrid, have been widely accepted by consumers, BEV adoption is increasingly driven by changing consumer preferences and a wider availability of BEV models, the report noted

Hybrid sales will continue to grow through the end of the decade, but BEV sales are expected to keep pace or grow even faster.

The report noted that OEMs with a more conservative view on BEV adoption are investing more on full-hybrid and plug-in hybrid technologies and expect them to be part of their portfolio mix through 2030.

The average auto service provider (three to five services bays with one to three technicians) will need to invest between $80,000 and $270,000 over the next few years to prepare for the BEV transition, the report warned.

These investments include:

• Technician training and certifications for BEVs: $2,500 – $10,000;
• Safety equipment: $5,000 – $15,000;
• Level 3 charging capabilities (50-150 kw): $40,000 – $100,000;
• Battery testing equipment: $10,000 – $20,000;
• Diagnostic tools: $7,500 – $15,000;
• Lift modifications and battery handling equipment: $15,000 – $40,000; and
• Optional test vehicles: $30,000 – $70,000.

Some of the other challenges for independent service shops in the EV-service space, include:

• Competition from dealers as control increases over diagnostics, parts availability and software updates;
• New technical expertise required for new technologies, diagnostics and software integration; and
• Warranty-, regulatory- and safety-related concerns around new BEV and ADAS technologies.

In order to stay competitive in the BEV service market, according to the report, vehicle service providers must:

• Establish relationships with BEV manufacturers, dealers and suppliers to access parts, tools and technical support;
• Diversify service offerings to balance traditional ICE and/or BEV services;
• Increase customer convenience, such as mobile repair and maintenance;
• Invest in training and certifications to stay up-to-date on technologies and service procedures;
• Invest in technology to stay up-to-date on the latest tools and software for BEV maintenance; and
• Invest in safety measures among employees and customers around high-voltage equipment.