Direct sales cost California dealers $910 million in profit

THE direct sales model manufacturers of electric vehicles like You’re here, Lucid And Rivian have always posed a threat to dealersbut we can now assign a monetary value to the imminent threat of direct-to-consumer car sales in California. In 2022, direct sales from electric vehicle manufacturers would have cost Golden State franchise dealers $910 million in gross profits, according to Automotive News. And this lost profit opportunity only represents the direct sales of EV newcomers, since legacy automakers have yet to switch to direct selling.

You can imagine that when Ford, Honda, GM And VOLVO massively shifting to direct sales, the profit losses for dealers in the Golden State (and beyond) will be greater. Thus, it turns out that the resellers’ fear of direct sales was indeed well founded. The sky is really falling; or at least the profit cap has come down, to the tune of hundreds of thousands per dealer, as Automotive News reports:

Direct-to-consumer EV makers likely cost California franchise dealers $910 million in gross profit opportunity last year.

That breaks down to nearly $700,000 on average across the 1,303 franchise dealerships in the state based on a Automotive News analysis, the shortfall affecting luxury outlets the most due to the high transaction prices of electric vehicle brands.

Gross margin per new vehicle for dealerships has steadily increased since 2019 in the wake of the global pandemic. According to JD Power, gross profits peaked at $4,700 on average for each new car sold in the United States, including income from finance and insurance. But in California, large dealerships with franchise agreements earned more than the national average at $5,300 to $6,700 per vehicle sold.

Tesla, Rivian and Lucid had a combined sales figure of 193,707 vehicles across the state, and even using the lower national average of $4,700 in gross profit per sale, the amount that went to direct sellers versus dealerships is $910 million.

It will be a rude awakening for franchise dealers in California who expected to ride the crest of the earnings wave and likely expected earnings to last even longer. But the wave must have crashed at some point, and electric vehicles are a big reason why. EV manufacturers have always been okay with direct sales; now, traditional automakers are slowly shifting to the direct-selling model as new EVs arrive in their lineups.

In California, electric vehicles account for 36% of market share in the new car market. This is the highest in the United States, which explains why profit losses per dealer were so high. But in other states where electric vehicles haven’t captured the same market share, direct sales of all-electric cars are also driving down average gross profit potential. Automotive News cites Washington State, where Tesla sold only 16,000 vehicles in 2022, and yet that represents a missed profit potential of $244,000 per dealership in the state. The direct sales model isn’t going to wipe out dealerships just yet, but it’s already affecting their bottom line in the United States.