Auctions prepare for EV influx

Key players in the wholesale auction business in 2022 are busy trying to prepare their operations for the influx of used electric vehicles expected to permeate the market in the next few years.

As more automakers announce EV lineups and chart all-electric journeys, leaders of major auction companies find themselves wrestling with how to transform their spaces from the top-down to better accommodate those cars and all of their technological nuances.

Large and small auctions alike have to determine how much to invest in steps such as building out charging infrastructure — which gets more expensive for faster charging stations. They have to hire from a too-small pool of service technicians who understand EV battery packs and other special modules, not just internal combustion-powered vehicles. On top of that, they find themselves fielding increasing dealer demand to clearly indicate before a sale the health of a used EV's lithium ion battery, an expensive component to replace.

"There's just a lot of complexity, but we know that the industry is going there, and these cars need to get charged," Grace Huang, president of auction giant Manheim, said this month.

It's a matter of timing: Scaling operations to correctly match the intensity of EV volume flows will be critical, remarketing industry experts told Automotive News. Investing too little too late could put auctions behind their competitors in terms of the ability to process and sell a flood of EVs. Investing too much too quickly could leave auctions strapped for cash if consumers' EV adoption is more of a gradual process.

"It could be one to three years on average before we start really seeing a whole lot of [EV] volume, but it is picking up for us," said John Hammer, president of ADESA U.S., the No. 2 auction player that was acquired in May by Carvana Co. ADESA is now seeing EVs flow into its network primarily through repossessions and leasing, he said.

The current volume of used EVs selling through auctions is low — an estimated 3,000 to 4,000 vehicles per month, or less than 1 percent of industry auction volume, said Alex Yurchenko, chief data science officer at Black Book. Most of those are in California, Texas, Florida and Pennsylvania, he said.

While consumer interest in EVs is growing, as are U.S. EV sales year-over-year, the overall sales volume of those vehicles remains relatively low, Yurchenko said. Tesla, the top-selling EV brand, has low penetration in lease and rental fleet channels, he said, so they aren't feeding back into the wholesale market quickly enough. And leased Teslas don't always go to auction because Tesla has its own remarketing channel.

Black Book estimates that 20 percent of new-vehicle sales will come from electric cars by the end of the decade, but Yurchenko does not expect the number of used EVs going to auction will exceed 1 million vehicles annually before 2029.

"With a gradual growth in new sales and with a tighter control of returning BEVs by OEMs, I don't expect the share of BEVs at the auctions to exceed 10% by the end of this decade," Yurchenko said in an email.

EVs represent less than 3 percent of Manheim's auction volume, according to a company spokeswoman. If new EV sales reach 30 percent by 2030, then Manheim would expect EV sales volume at its auctions to possibly hit 30 percent in the mid-2030s, assuming consumers do not retain EVs longer than they do vehicles powered by internal combustion engines, Manheim owner Cox Automotive projects.

Manheim estimates it will process roughly 144,000 electric and hybrid vehicles in 2022.

An infusion of plug-in hybrid vehicles into the market over the last 14 years has helped auction companies gain some familiarity with vehicles.

Most auctions "know what the routine is" for them, said Cam Hitchcock, CEO of America's Group, a network of 39 U.S. auction sites in 19 states formed when XLerate Group acquired America's Auto Auction at the end of 2021 and rebranded under the America's name.

But auctions will need to further adjust.

"It's going to come, and I just want to make sure that we're properly invested and ready for it and not 10 years early on the investment or two years late, which doesn't work for anyone," Hitchcock said.

Inspection processes and tools still need to evolve to properly assess EVs, said Eric Widmer, senior vice president of sales and marketing at Alliance Inspection Management, which provides vehicle inspection at some Manheim and independent auctions. But EVs are not alien technology, not when models like the Nissan Leaf have been out for more than a decade, he said.

But the industry must be more transparent about disclosing where an EV's battery is at in its life cycle. That is a key data point when it comes to valuation: Dealers want to avoid used EVs with aging or exhausted batteries, which can cost thousands of dollars to replace. The industry is "looking for the right solution," one that will entail hiring more service technicians with EV expertise or training their own employees to have that, Widmer said.

"We're not gonna be checking oil anymore," Widmer said. "We're gonna be checking batteries."
Getting technicians up to speed on diagnosing EVs will take time.

Technicians at service shops and engineers at automakers have an abundance of knowledge about cars and trucks with internal combustion engines. But how much of that current knowledge can be leveraged for working on hybrid and electric vehicles?

Not much, unfortunately, said Mark Quarto, founder of Quarto Technical Services, a Dallas company that offers consultations and training on vehicle electrification.

Some basic technology knowledge will overlap, but when it comes down to the nitty-gritty of high voltage, there's "literally nothing that will transfer over," Quarto said last month.

Power levels and how EVs operate and fail are different, Quarto said.

It's not just batteries that need special attention. The electronic gadgets throughout an EV do, too. Tesla's cars and the slew of new EV products coming out of Ford Motor Co. are essentially "computers on wheels," Widmer said. So it's critical to make sure inspectors understand that technology and can "document it in a way that'll make sense to a buyer and a seller," he added.

"As this transition happens, anyone who's looking at a car or appraising or inspecting a car has to understand what the new value points are versus the old," Widmer said.

Auction leaders also said closely examining which locations to overhaul is necessary.

EVs are scarce in some regions of the U.S., especially areas where charging infrastructure is not built out or where municipalities haven't addressed equipping power grids to handle that technology, they said. An auction in a particularly hot or cold region could see its operation disrupted if temperatures fluctuate enough to inhibit EV battery performance.

Companies like Manheim, ADESA and America's Group have a lot of space that can hold EVs for charging. For Manheim's Huang, whether the grids can service all those EVs is a major unanswered question. Utilities in certain regions are forward-thinking about EVs, she said, while others are not.

"It's a bit all over the board," Huang said.

To ease into the EV shift, some wholesalers are considering outsourcing the overhaul of auction house infrastructure, standards and processes. Manheim works with "several different vendors" that help it determine which locations are ideal for EV infrastructure additions, Huang said. The company began investing in that infrastructure in 2019; it now has roughly 16,000 EVs, and hybrid and plug-in hybrid vehicles on its lots on a given day.

America's Hitchcock told Automotive News the company is working with sister company Amerit Fleet Solutions to hone its strategy for adding charging stations and sourcing technicians.

"We may end up outsourcing to them some of that, initially, until we see what the flow is really going to look like," Hitchcock said.

Meanwhile, interest in EVs continues to grow on the dealer's end. Wholesale prices paid by dealers for certain newer models are particularly strong. Online auction company ACV Auctions Inc. said average auction bids for Rivians and Ford F-150 Lightnings on its platform in 2022 so far have been more than double those for Teslas and EVs overall. The F-150 Lightning debuted on ACV's platform in June at an average sale amount of $118,130, while EVs on average sold for $55,208, according to ACV.

Auctions providing more battery health details to buyers would be helpful, but it would make more sense if auctions first boosted their EV volumes, said Bill Wallace, president of his namesake auto group in Stuart, Fla.

"Right now, if they had them, we would absolutely be buying them," Wallace said.