Car Rentals may hold Key to Profitability of Electric Vehicles

Electric Vehicles Charging

Direct sales to fleet companies could improve automaker bottom line

A study released in March reveals that automakers who sell electric vehicles directly to fleet-oriented customers like car rental companies will be further ahead on the road to recovery, given the exorbitant costs of producing green technology automobiles./span>

Released by industrial consulting firm McKinsey & Company, the report suggested that supplying electric vehicles directly to organizations highly dependent on their internal fleets for revenue generation will go a long way towards profitability. The logic goes that direct selling to that base would circumvent the otherwise high costs of selling and marketing to other consumers. This could result in fleet companies realizing purchase savings as high as $1,000 per vehicle. Additionally, the high-mileage nature of such companies would result in greater fleet turnover, resulting in a steadier and more consistent sector buying electric vehicles from automakers.

Recent market analyses of activity in the internal-combustion wing among automakers bear this out, according to quarterly statements from March. In them, automakers sold more than 550,000 vehicles to car rental firms. That’s a six percent spike in sales compared to the same period in 2018, which made overall revenue drops among the big automakers easier to swallow.

At the moment, electric vehicles are hardly profitable. However, if selling activity were the same as experienced by the internal combustion sector, cars powered by green technology could have paralleled the same economic performance as their more conventional counterparts, or even turned a profit, as early as 2015.

That scenario, however, is dependent on massive overhauls to the way electric vehicles are produced and sold. McKinsey and Company currently estimate that the cost of producing an electric vehicle is roughly $12,000 more than that of creating a comparable internal combustion product.

Suggestions include streamlining the car dash, electronics and body structure, which would save companies $600 per vehicle without sacrificing key features. Redesigning the interior and other car components for a smarter use of space would net additional savings of up to $1,800. Additionally, reducing car battery wattage without risking range potential revealed even more savings as high as $2,100. Those suggestions, as well as cost reductions realized through economies of scale inherent in mass production could see those savings rise by as much as $5,700 per vehicle.

“Our analyses show that better options exist, even today, to accelerate the industry toward profitability from both product and business-model perspectives,” stated the report. “There is no debating that the next five years will be a challenging transition period for automakers and suppliers alike.”

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