Everything to Know About EV Reservations & Pre-Orders
During the lockdowns in 2020, brick-and-mortar car dealerships were not deemed “essential services” and many had to furlough workers, shut their doors and halt orders from factories. Little did we realize that demand for cars would quickly rebound, buoyed by federal stimulus checks and lower public transit use.
The auto industry, however, began to see inefficiencies in the traditional inventory model: Dealers have to pay for physical space to store cars that may or may not be purchased, pay to keep cars in inventory and showroom ready and pay to have specific colors or trims shipped from other locations. Anticipating customer demand is a big part of the business and costly to get wrong.
Ford recently announced an industry-shaking move to an online, fixed price, direct model for its electric vehicles, citing high distribution and advertising prices. On the manufacturing side, Ford CEO Jim Farley explains, “You cannot imagine … how much money we waste by not (switching to a buyer-direct model) — by guessing what our launch mix is for a new product.”
Parts such as semiconductors, which are heavily used in electric cars, are in tight supply, and manufacturers want to use them only for cars that people will buy.
The overhead of the traditional model is even more pronounced when it comes to new technology, such as EVs.
Dealerships feel like they are taking a risk to bring them onto their lots, and manufacturers didn’t want to overproduce cars that wouldn’t get bought. The pre-order model solves this problem for both parties. Manufacturers can make cars that people want, and dealerships get easy sales by delivering them. Pre-orders also mean up-front insight into market appetite, and resource allocation to vehicles that will sell. Plus, Tesla had been using a pre-order model for almost a decade, with overwhelming success.
Phantom Orders by EV Model
This spring, Recurrent surveyed over 200 EV shoppers (and counting) in partnership with AAA Washington to ask two simple questions: What EVs have you preordered, and which do you intend to actually buy? How likely it is that those big reservation numbers turn into actual sales depends a lot on the model.
The data suggests that while many EV enthusiasts have made reservations, some are not serious shoppers. There are also two clear outliers:
- Tesla’s Model S, Model X, Model Y and Model 3 have 100% order fulfillment;
- Chevrolet Silverado has under 20% intended fulfillment.
In the case of Tesla, there is a non-refundable order fee that may weed out some impulsive reservations, as well as the knowledge that the market is hot enough to resell your order before you even take delivery.
For the Silverado, those who have put down reservations may feel like the delivery timeline (2024) is too far away to commit to, or they may worry the price will be much higher than quoted (as happened with Rivian pre-orders this year).
These two outliers point to larger themes we suspect are driving these reservation fulfillment numbers.
Uncertainty on delivery time — or delivery at all — may cause some shoppers to modulate their enthusiasm for certain vehicles. Of course, the Tesla Cybertruck, with its seemingly infinite production delays, comes to mind here.
Refundable reservations mean that customers can express interest in many cars and make the decision when they see when, and what, they can actually drive off in.
With all the buzz around electric vehicles, manufacturers may be incentivized to make reservations easy for shoppers in order to pump up their numbers, even if these reservations don’t all turn into sales.
This last point brings us back to the very concept of car pre-orders. Pre-orders mean up-front cash before the customer actually has anything to show. There are hundreds of thousands of people giving $100 to car companies only to pay dealerships another $50,000 after a year (or more!) of waiting. While pre-orders can be great, it’s also worth considering Marques Brownlee’s healthy dose of skepticism.
For a more in-depth review of all things EV pre-orders, visit the full article on Recurrent.com.
– Written by Liz Najman, Recurrent
– Top photo is by Sergii Chernov/AdobeStock.