Recently, automotive service and repair shops have experienced their share of challenges. Worker shortages, parts delays, and a shrinking volume of repairs have topped the list.
Longer-term, the industry's bigger challenge could come from the electric vehicle. Built with fewer parts and having less reliance on aftermarket suppliers, the growth of EVs could represent a multibillion-dollar revenue hit in coming years if not properly managed.
This topic is top of mind, with several media outlets covering the challenges that EV repairs represent for the auto industry, consumers, and repairers, recent news about slower-than-expected EV adoption in the short term notwithstanding. It promises to be a dominant theme at the annual Specialty Equipment Market Association (SEMA) show coming up in Las Vegas. AlixPartners is attending this year's event, and EVs will be center stage (scroll through the topics of SEMA's "Education Program" for evidence.)
From Pumping Up to Plugging In
Historically, SEMA was primarily about muscle cars and modifications, with exhibitors showing off all sorts of solutions to make internal-combustion vehicles more expressive – whether that was increasing sex appeal, boosting horsepower, or other ways to make a statement.
The world is changing, with AlixPartners recently forecasting that new and used EVs are poised to increase from about 1% of the current total U.S. car parc (all vehicles registered) to about 11% by 2030. However, the rolling 10-year U.S. car parc (all vehicles registered in the previous 10 years) will be approximately 19% EV by 2030.
These vehicles lack an engine and traditional transmission, lowering the need for routine services like oil changes and transmission flushes. How steep will the service-and-repair decline be? AlixPartners forecasts that EVs will generate 40% less service revenue per vehicle than traditional vehicles. And as a result, through 2030 the service industry could see an 8% reduction in annual revenue, or a total reduction of $4 billion to $6 billion. (Fig. 1)
Collision-repair operators will also need to brace for change. Currently, EV repairs in the U.S. yield a gross profit margin about 4 percentage points below comparable ICE repairs. That's due to EVs requiring a higher percentage of original-equipment replacement parts at lower margin vs. higher-margin aftermarket parts. These lower margins aren't offset by repair-labor gains. Plus, there are additional costly requirements related to EVs such as the calibration of an increasing number of electronics.
We estimate that collision-repair businesses in the U.S. will need to invest $150,000 per each shop, or over $3 billion for the industry as a whole. (Fig. 2)
Add Capabilities, Attract Investment
The service and repair industries must prepare for the revenue and margin impact of the EV transformation. They need to evaluate additional investments needed to upskill workers and consider forming partnerships to provide the new capabilities required for EVs (e.g., electrical calibration). Additionally, companies in these industries may need to consider consolidation due to the revenue and margin challenges. Meanwhile, private equity and other investors should seriously evaluate this space for investments, acquisitions, and operational improvements.
Industries that plan for the EV transition with a proactive, but thoughtful, fact-based approach have a better chance of success than those who don't. That's as true for the "back-end" of the auto business as is it for the automakers and suppliers.
We estimate that collision-repair businesses in the U.S. will need to invest $150,000 per each shop, or over $3 billion for the industry as a whole.
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