The direct sales model pioneered by Tesla and favored by newer companies like Lucid and Rivian is having huge effects on the profit margins of traditional auto dealers in California and beyond. Automotive News estimates that direct sales cost dealers in the golden state $910 million in potential profits during 2022 and it's a trend that will continue as legacy automakers get on board with the model.
Californian auto dealers see some of the highest profits per car in the country and are therefore hardest hit by the model, but the same is true anywhere that EV companies cut out the middle man.
Lucid's Studio network allow customers to get to know the Air and order direct from the manufacturer.
End of the Boom Times?
Dealer profits have been climbing since the pandemic thanks to short supplies and increased markups but it seems as though those halcyon days are coming to an end. Auto News arrived at the $910 million figure with J.D. Power's report that gross profits reached a high watermark of $4,700 per vehicle country-wide, though large Californian dealerships were seeing as much as $6,700 per vehicle.
Using the lower $4,700 figure multiplied by the 193,707 EVs sold in California by the trio of companies in 2022 gives us the $910 million quoted in the article. That breaks down to around $700,000 in lost potential profits for each of California's 1,303 franchised dealerships and this number is expected to grow as legacy automakers begin to explore the direct sales model for their new EVs.
Tesla faced and largely overcame numerous dealer challenges to its direct sales model, while Lucid and Rivian were sued by the Illinois Auto Dealers Association last year for the same practices. That ruling came out in favor of the EV manufacturers earlier this year.
Traditional dealers will be hit hard by the transition to EVs with spending required on new equipment, training and the decline in service revenues thanks to the fewer moving parts that make up electric cars. Financing remains a strong source of revenue while EV prices remain relatively high but major changes are coming to the industry as a whole.
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James Walker is an Automotive Journalist at Torque News focusing on Lucid Motors. If it's got wheels he's interested, and he's looking forward to seeing what kind of cars the EV revolution brings us. Whether it's fast, slow, new, or old, James wants to have a look around it and share it in print and on video, ideally with some twisty roads involved. You can connect with James on Twitter, Instagram, and LinkedIn.