Who Will Win? A J.D. Power Exclusive

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After General Motors abandoned its revival of the battery-electric vehicle when it ended production of the GM EV1, Tesla Motors was the next to take up the challenge. After a faltering start, it has succeeded in designing, manufacturing, and marketing BEVs that consumers want.

For more than a decade, Tesla had the startup portion of the EV market to itself. At the same time, Nissan took a leadership position in EVs from the legacy automaker side. Despite naysayers, Tesla stayed the course through several lean years to become not only the dominant EV supplier to the US market but also the top-selling U.S. luxury brand. At the same time, Nissan has not profited nearly as much from its early entry into the battery-electric vehicle space.

Editor’s Note:¬†Author, Elizabeth Krear, is the vice president of the electric vehicle practice at J.D. Power.

Co-Author, Kristen Lanzavecchia, is the director of ALG Industry Solutions at J.D. Power.

Now, the game is changing at a serious pace. Tesla’s remarkable rise has spawned additional EV startups. And beyond that, it has prompted luxury and mass-market brands to develop their own BEVs. Worry over climate change and the resulting laws, regulations, and government pressures have also played their part in persuading both established automakers and venture capitalists to invest in new BEV models.

This led to an unprecedented number of BEV launches in the past two years, with an equal or greater number still to come. Now, with both legacy and startup automakers deep in the fray, it begs the question, will the established auto manufacturers fight off the challenge from the upstarts?

Many think they have the answers to these multi-billion-dollar questions, but what do we learn from the data? The J.D. Power EV Index monitors six key factors enabling us to track the progress of the transition from internal combustion engine (ICE) vehicles to EVs. While this index looks at conventional vehicles versus those powered by electricity, it also gives us a window into legacy automakers and startups’ relative strengths and weaknesses in the EV space.

One of the six factors is Experience, a compilation of the measures of ownership experience offered by specific EVs compared with their ICE segment average. Experience is derived from data captured and quantified regarding initial quality, vehicle dependability, appeal, sales satisfaction, customer service, and vehicle range. As of February, the Experience factor score was 87. Since a score of 100 indicates EV parity with ICE vehicles, one could say EVs are approaching parity.

More telling in helping answer the question of whether established automakers or startups will succeed in the EV market are areas where there are separations between startups and legacy makers. We note two areas of obvious separation: vehicle sales experience and initial quality.

The startups perform on average better than legacy makers in sales satisfaction. At the same time, established carmakers perform better than startups in initial quality. While some could view this as an indictment of the dealer franchise system, it might be more a reflection of the ability of startup EV makers to be single-focused in their sales training. And the latter might be explained as “teething problems” that will end when the startups’ manufacturing processes mature.

Startups have an advantage over legacy companies selling EVs because they can focus 100% of their efforts on the EV sales experience. Salespeople at the majority of dealers representing legacy carmakers must be conversant with both EVs and ICE vehicles. Since the EV ownership experience is quite different from the ICE ownership experience, the opportunity to build an entire sales staff trained and focused on selling EVs and only EVs is a distinct advantage for startups.

Traditional automakers who want to increase their EV sales are well-advised to understand that they have a hurdle to jump. They need to ensure that the salespeople representing their EV products are well-versed in the nuances of EV ownership. The data also show positive levels of sales satisfaction for startups that use a direct-to-consumer sales model because that method eliminates price negotiation from the process.

While startup EV makers appear to have an advantage in the sales process, the established automakers demonstrate an edge in their ability to build high-quality vehicles. The data shows that startups struggle with fit-and-finish issues like panel gaps and paint coverage versus their traditional competitors. The decades legacy carmakers have spent developing and tuning process controls for manufacturing give them a leg up in initial quality.

One thing startups and legacy carmakers have in common is their customers’ overall enthusiasm for the EV offerings versus the enthusiasm customers have for ICE vehicles. Whether they purchased an EV from a startup or a traditional carmaker, EV owners love their vehicle’s quiet ride, strong acceleration, distinctive exterior styling, and interior roominess. On the other hand, EV owners are decidedly less enthusiastic about their vehicle’s range. Even though we don’t hear the term “range anxiety” as much anymore, range remains an issue.

Any EV with a range above 275 miles gets a residual value credit. Any vehicle with a range below 275 miles suffers a deduction in residual values. But there is a diminishing return beyond 300 miles of range. Further, as the charging infrastructure improves and the time to charge drops, a higher range will be less influential to residual values. Still, whether it comes from a startup or a legacy automaker, any breakthrough offering significantly expanded range or significantly diminished charging time could have a meaningful effect on winning the EV market.

Based on what we’ve seen, neither startups nor established automakers have such an edge in the EV space that it would preempt the other from success. At the same time, the legacy automakers, with their established supply chains, development processes, manufacturing skills, and marketing expertise, have demonstrated expertise in critical areas. They also can change their techniques and improve performance in areas like sales, where the startups currently have an advantage. Meanwhile, startups claim they have a clearer path to innovation since they are not burdened by tradition and conventional thinking.

This example might say it all. During the past few months, Chevrolet and Tesla have been neck and neck for EV consideration. One brand is about as traditional as you can imagine. The other is leading the startup vanguard. That they are so closely competing for the EV customer just demonstrates that the American consumer has a very open mind when it comes to their choice of electric vehicles.

Lede Image Photo Credit: electricfelix

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