The growing electric vehicle market, especially the much-anticipated electric truck market, is a complicated situation with consumer interest in future models forming a complex network of possible financial liability of automotive dealers. With buyers continuing to make numerous deposits on different types of electric trucks under development, a trend has been created that puts dealers in a vulnerable situation as customers ultimately decide to go with one type of vehicle and cancel the others.

The Multifaceted Electric Truck Market

This trend is growing stronger with the increased number of electric trucks, including Tesla Cybertruck, which are coming off of factory lines to consumer driveways. Although newer companies, such as Rivian, have had difficulties in order fulfillment, and long-established companies, such as Ford and General Motors, have a slower rate of production of their electric trucks, Tesla is looking to improve its delivery speed and may surpass companies that entered the market earlier, according to some industry analysts.

But this competitive race, whichever truck will be the first to get to a customer among those who have more than one reservation, will pose great disadvantages to dealers. According to Karl Brauer, an automotive analyst at iSeeCars, dealers, who handle early customer orders, are the first to benefit in this market behavior. An example is when a Ford F-150 Lightning or GMC Hummer EV order is available, and the customer has already taken a Rivian R1T, the dealer will be left with an electric truck on their lot without a buyer assured.

Brauer explains the difficult mediating position of dealers, saying, There is consumers out there and the cars are made, and the intermediary between the two is the dealer. He also adds that dealers are in this tough situation where they are supposed to keep on absorbing these vehicles that are being manufactured by manufacturers. This scenario puts a significant strain on dealerships, which shows how vulnerable they are in the changing EV supply chain.

Dealerships as the Early Warning System of Automotive Industry

In fact, dealers are usually the canary in the coal mine of the larger automotive industry. According to recent reports, certain Ford dealers already refuse to accept certain electric vehicle allocations because of the perceived slowdown in the demand of these models. This is not unique to Ford, even Tesla, in the midst of the Cybertruck rollout, has had to deal with high inventory levels in the present year.

The analysts and executives working in the industry believe that those developments are a sign that the future of EV adoption may be difficult because the market is moving out of the early-adopter stage. Therefore, it will be of utmost importance to car companies to pay close attention to dealer knowledge about market demand changes as they roll out a growing number of electric models over the coming years.

Brauer emphasizes the importance of dealerships and states that dealers have real time feedback and know what the market is doing. He continues, saying that they have always been the first red lights on the dashboard of the automotive industry. This real time intelligence is priceless as it provides manufacturers with first hand information on consumer preferences and market absorption capacities.

Moreover, in such situations, dealers usually have more financial consequences than manufacturers. Carmakers with a dealership business structure normally recognize income when a car leaves the factory, which is a major benefit of old car manufacturers over startups that use direct-to-consumer sales. On the other hand, unsold inventory on dealership lots incurs direct costs on dealers.

Changing Customer Behavior and Market Risks

Selling a slow moving car may require the dealership to give discounts thus making it to lose some money. This relationship adds to the risk of holding vehicles that customers who have already made several deposits ultimately do not purchase, thus making the dealership network more financially volatile.

It is expected that the nature of order banks will be more risky in the coming few years. With the electric vehicles project projected to take about 10 percent of the U.S market in that period, the demographic composition of EV purchasers is experiencing a shift. This change is likely to add new dimensions of riskiness as pointed out by Jessica Caldwell, an automotive analyst at Edmunds.

The initial EV adopters were often driven by emotional considerations, and they were more likely to wait longer, have inconsistent customer service, or accept cars with early glitches and quirks. The industry however has mostly tapped this portion of the market and the average car buyer will be less patient and tolerant of such inconveniences.

To add to this change is the fact that the automotive market has slowly come back to some level of normalcy following a three-year history of unparalleled upheaval due to the pandemic and a global computer chip shortage. Within this rebalancing context, the subtle task of selling EVs to the common customer, especially when paired with the long wait times, becomes an even more hypothetical undertaking.

Strategic Pivot of Canoo in the Face of Market Challenges

Caldwell notes this change as she notes, “Last year, everything was selling off the shelves and we were all on long waitlists, EV or not. She then includes an important point concerning the existing market: “With the inventory returning to more normal levels, the average customer will not be as patient. And that will be the character of the game at least in the next five-to-seven years. This predicts a scenario in which customer patience will be a luxury good.

In a highly unusual move that signifies these market issues, electric vehicle startup Canoo has declared that it has decided to repay all customer deposits made since the first unveiling of its models in May 2021. Three and a half years ago, the Texas-based company began accepting orders of its lifestyle vehicle, MPDV and pickup truck, both of which had a deposit of 100 dollars.

The Lifestyle Vehicle, which is also part of the Lifestyle brand, was originally scheduled to be launched in the market in 2022, and the lower-end model is expected to have a starting price of around $35,000. Nevertheless, in its third-quarter earnings announcement, the CEO of Canoo, Tony Aquila, explained the strategic pivot of the company.

Aquila said, we will only be in this stage concentrating on our fleet order books. Thus, we have decided to refund the customer deposits of consumer vehicles, which is a hard decision. He also explained the reasoning behind this, saying, “We love all of our consumer orders that we have received so far, but, as most of you know, we can not enter the consumer market profitable or viable until we have scale. Therefore, we are targeting fewer high credit grade customers that can be serviced and profitable at lower volumes.

Financial Adjustments and Investor Confidence of Canoo

The financial disclosures made by Canoo showed that the company had revenue of $900,000 in the third quarter which was higher than the revenue of 605,000 in the second quarter and a 73% improvement over the same period last year. The third quarter adjusted EBITDA stood at $43 million compared to 46 million in the third quarter of 2023.

Notably, the company had pulled its 2024 revenue projections in September, as well as its manufacturing run rate, vehicle production and delivery projections to 2024 and beyond. In the past, Canoo had projected an annual revenue of between 50 and 100 million. To further complicate the issue of leadership changes, its Chief Financial Officer, Greg Ethridge, and its General Counsel, Hector Ruiz, also submitted their resignations by October 31.

In spite of these internal changes, there are some external signs of continuing confidence. An example is the subsidiary of Fidelity, Geode Capital Management, which added 25.6 percent of Canoo between July and September. Also, Canoo has been conducting pilot projects, such as one with the largest electric fleet operator in the UK, Royal Mail, earlier this month, as Royal Mail aims to electrify its large fleet of more than 43,000 delivery vehicles.

The start-up had also just received Individual Vehicle Approval (IVA) regulatory certification in the UK, which proved that its right-hand drive electric commercial vans are technically compliant with national standards. Moreover, Canoo declared a new 12 million secured revolving credit facility with AFV Management Advisors, LLC, which is an organization formed by CEO Tony Aquila, last week.

The Greater Electric Pickup Market and Consumer Realities

In November 2022, two years earlier, Canoo publicly claimed to have received 2 billion in customer orders and it was ready to start production that month. This history highlights the changing environment and problems of EV startups in converting initial excitement and order books into sustainable, profitable businesses, especially in the consumer market.

Taking a closer look at the wider electric pickup truck market, the consumers have a range of choices offered by different manufacturers. Nevertheless, one of the similarities in most of these models, especially the ones that are much expected, has been the lag in achieving mass production. Regardless of such production schedules, almost all EV manufacturers allow customers to deposit, in some cases as much as $1,000, on trucks that are not yet in large quantities.

Take the case of the Tesla Cybertruck, which, in spite of its bold design, begins with a price of $39,900, more than a base model Ford F-150 by more than 10,000 dollars. The Cybertruck starts at the top tier of nearly 70,000. In late 2019, Tesla started taking down deposits of $100 on the truck, and it is said to have received over 650,000 reservations, which is at least 65 million dollars in deposits on a product whose mass production scale has just started to emerge out of the factory.

The Rivian R1T, which costs at least 69,000, is also aimed at a similar wealthy market segment of pickup trucks. R1T is deposited with a deposit of 1000 dollars and as per the industry reports, Rivian has already received more than 30,000 deposits, which gives the company an inflow of around 30 million dollars. Nevertheless, the release of the R1T was delayed significantly, more than half a year, because of the COVID-19 among other reasons, even though Rivian had a specific factory to produce the R1T.

Production Timelines, Performance Promises and Market Expectations

The Hummer EV, which is the entry of GMC, also accepts deposits of 100 dollars. In contrast to some of its competitors, GM does not have a reservation on the basis of the estimated production years and this implies that it is more calculated in its approach to demand and supply management. Hummer EV is a six-figure car, and its lowest-priced model is expected in 2024. These firms boast of great performance numbers, including less than three-second 0-60 mph acceleration and large towing limits.

Tesla states that its Cybertruck can accelerate to 60 mph in less than three seconds, tow more than 14,000 pounds, and have a range of more than 500 miles. Rivian claims that its R1T has a top speed of 60 mph in three seconds, a tow weight of more than 11,000 pounds, and a top range of more than 400 miles. Finally, GMC says that the Hummer EV will accelerate to 60 mph in three seconds, have an electric range of up to 350 miles, and have 1,000 horsepower.

It is important to note that these are mainly estimates and the performance specifications are likely to be confirmed closer to the customer delivery. There is the real risk that, years of anticipation and investment might be wasted as the end product might not entirely match the original hype. This unverified performance information and in most cases unconcrete release dates are the natural obstacles to making deposits on these groundbreaking electric cars especially when the manufacturer is new to the EV production and does not have the proven infrastructure in place.

GMC Hummer EV seems to have the most tangible roadmap of these three, having the support of one of the largest car manufacturers in the world. Its capped deposit system also indicates a well thought production schedule. Although early projections were optimistic that some models would arrive in 2021, the process of getting out of the design board to the dealership floors has been a long one with customer patience becoming a very crucial ingredient.

The Future of the Electric Truck Sales and Dealer Sustainability

Finally, the topography of electric truck pre-orders and deposits depicts a critical point in the automotive industry. The excitement of the early adopters in the innovative technology is being replaced with a more realistic market where the average consumer is seeking assurance, punctuality and reliability. This shift requires a radical reconsideration of sales policies, manufacturing capacity, and, most importantly, the role of dealerships as invaluable channels of market information and front-line managers of inventory risk, which is frequently ignored.

With the maturity of the EV market, the complexity of the game of projections, expectations, and realities of the dealers will determine success. Those companies that actually pay attention to the first warning signals on the dashboard by their dealer networks and adjust their models to the changing needs of a less lenient customer base will be in the best position to sail these changing currents and achieve long-term profitability in the dynamic electric vehicle marketplace.

Manufacturers need to understand that the financial performance of their dealer partners is closely connected to the sustainable development of the EV industry. The lessons learned through their real-time market feedback, especially in relation to the sustainability of the existing pre-order practices and inventory control will be the most important in strategic planning in the future.