Why Subscription Models May be First Step to EV Adoption
This article was originally published HERE
As a long-time “car guy,” or “fleet car guy,” whose subscription to Automotive Fleet began in 1986 (longer…gulp…probably, than many readers of this have been alive), I couldn’t help but think about the historic change happening in vehicle propulsion systems, and how this may at first foster a new approach to vehicle “acquisition” and disposal.
While I don’t go as far back as when the first open-end fleet lease became the finance program of choice for many business cases, I do remember when consumer closed-end leases were a new financial instrument to gain vehicle sales traction for wider reach and affordability for a broader audience.
It took a while, but up until the unprecedented demand/supply imbalance and shortage, leases became a large percentage of the car “sales” market, particularly for all luxury and premium luxury vehicles. All it took was a little time for visibility and education at the retailer level and to the target audience, which companies like Half a Car provided. It’s no exaggeration to say that leasing changed traditional automotive retailing.
Now the rapid push to electric vehicles might give a major incentive for a change in vehicle usage/platform to usher in mass electric vehicle adoption. As the open-end lease fit perfectly with many fleet users’ needs, and the retail closed-end lease made all new vehicles more affordable and opened this sector up to a wider retail audience, so too now may fleet “subscriptions” spur more usage.
Addressing Barriers to Fleet Electrification
The fact is there are additional barriers beyond the increased cost that need to be addressed for potential retail and fleet EV adopters. First, there is “suitability,” “range anxiety” or whatever term you want to use. Put directly, the questions are: Will it work for me, or my fleet, or am I making a big mistake? And for fleets, what will the vehicle be worth when it’s time to remarket?
Subscription or subscription-to-ownership model may work as a bridge until all the immediate issues are answered, while alleviating the financial commitment of a purchase or an open or closed lease, receiving the benefits of driving an EV (reduced fuel and maintenance costs), following corporate mandates to “go green,” and providing an inclusive pay-as-you-go car sharing.
A person or institution immediately incorporates this more expensive mode of transportation — EVs cost about 20% more than ICE vehicles — for an unlimited time before taking on any financial commitment of any ownership or resale value risk.
In addition to the suitability and range anxiety issues, commercial fleets must acknowledge the virtually unknown residual value risk when it’s time to turn over an EV unit. While resale values of premium luxury EVs, such as Tesla models, look very good now, as do most all used electric and ICE vehicles, is this just a factor of the massive vehicle shortage that has driven the price of all remarketed units sky high? What happens when the depreciation curves back down to more normal parameters, as it eventually will? Then where will EV values with various levels of battery degradation end up?
The big variable to remember here is that a program for mass EV adoption, which hangs on battery health, has many inhibitors: increased cost, suitability, and the potential to become obsolete as the propulsion technology changes far more quickly than those of ICE units. If the comparison of vehicle life today mimics other battery and technology-focused durable goods (phones, laptops), is the average three-year holding time for fleet vehicles way too long or too short for optimal resale?
The fact that there is no historic remarketing data or value precedent leads to increased risk, which naturally deters adoption — unless a “Vehicle as a Service” subscription type program is available to optimize the risk/usage timing.
In sum, while “only pay for the portion you use” was the consumer mantra that led to the massive growth of leasing on the retail side of the business when first introduced, the clarion call for car sharing, subscriptions, and subscription-to-ownership models as today’s new form of “ownership” for EVs might fulfill all of your corporate mandates and get all the benefits of driving an EV. And you can test it out before you financially commit.
There will undoubtedly come a time when EVs carry no price premium to ICE units, “range anxiety” is a thing of the past, charging stations are everywhere, and resale and remarketing values can be predicted within a narrow range for EVs. That time is clearly not now, so the electric vehicle market calls for new programs for immediate adoption, or the growth curve might be much lower than most predict or desire.
John F. Possumato is the founder and CEO of DriveItAway Holdings Inc.
Originally posted on Charged Fleet