While EV engines don't require mechanical work like combustion engines, their battery systems rely on software, sensors and on-board computers. Vehicles will still need to be serviced, but technician expertise will shift from mechanical to technical.
At APCO Holdings, we have found that nearly 75 percent of vehicle service contract claims are on items that exist on EVs such as tires, brakes, electronics and air conditioning. Just more than 25 percent of such claims are on the powertrain. To make up for any loss in mechanical-related service revenue, dealers can put a greater emphasis on retaining service-customer loyalty via increased penetration of F&I contracts.
At first glance, it may appear that EVs could negatively affect the sale of vehicle service contracts, prepaid maintenance plans and extended warranties. However, it's shortsighted to think that only mechanical parts need product protection coverage.
Do you know which product has the bestselling product protection coverage? Cellphones. There are no moving parts, yet consumers buy protection plans for cellphones at a higher rate than they do for their combustion vehicles, Asurion says. Might they do the same for EVs?
Hybrids and plug-in hybrids in particular may drive high attachment rates for vehicle service contracts, GAP, appearance and ancillary product protection plans. Why? These vehicles are more expensive than internal combustion vehicles, and their complex drivetrains require specialized mechanical and electronics knowledge.
BEVs should also drive higher attachment rates for GAP and appearance products, because similar to hybrids and plug-in hybrids, these vehicles cost more upfront. These all-electric vehicles will depreciate much more quickly than other vehicles because of the battery. This is something that I believe many people haven't processed yet. As a vehicle's battery life declines and approaches the need for replacement, the vehicle becomes nearly worthless. Consumers will need to protect against this rapid depreciation with a GAP plan.
EV batteries are also expensive to replace. F&I providers currently don't offer coverage for batteries, but this will change as many consumers would prefer to spread the cost of battery replacement over many months via special protection plans.
Consumers may also be more willing and able to buy protection for their EVs since they will be saving hundreds, if not thousands, of dollars at the pump every year, compared with gasoline-powered vehicles.