Electric Vehicles | Impact on Quick Lube, Tire Sales, and Auto Repair
In June 2023, the hybrid Koenigsegg Regera achieved a world record for zero to 400-0kph in 28.81s. This surpasses the previous record set by the all-electric vehicle Rimac Nevera in May 2023 at 29.93s and the Regera itself at 31.49s before that. This prompts a recurring question within the industry: “Which is superior, gasoline or electric vehicles?”. Or, “What repercussions will my automotive investment face if states emulate California’s initiative, mandating that all new cars sold must be emissions-free by 2035?”
Impact On Quick Lube
By 2035, every sale of new light-duty passenger vehicles in California must consist of Zero Emission Vehicles (ZEVs). This encompasses both battery-electric and fuel-cell hybrid vehicles. The California Air Resources Board has devised a ZEV Market Development strategy, which formulates and mandates regulations concerning the sale of new light-duty cars and trucks. This will eliminate the sale of “new” internal combustion vehicles in the next decade. These states are following California’s lead in regulation and eventual elimination of solely gas-powered cars: Colorado, Connecticut, Delaware, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon, Rhode Island, Vermont, Virginia, and Washington.
The impact of this change – clean air and several climate benefits.
The California Air Resources Board has implemented a groundbreaking regulation aimed at reducing emissions from cars and light trucks. This has made the transportation sector the primary contributor to global warming emissions and air pollution in the state. By 2037, the regulation is expected to achieve a 25% decrease in smog-forming pollution from light-duty vehicles, benefiting all residents, especially those in communities facing environmental and economic challenges. The projected cumulative health impacts avoided between 2026 and 2040 are valued at nearly $13 billion, including outcomes such as fewer cardiopulmonary deaths, hospital admissions, and emergency room visits related to asthma.
EV Tax
Other states are creating a separate and, in some cases, “double tax” on EVs, creating additional expenses for EV drivers. Kentucky is one example of a state that began implementing new fees for owners of electric and hybrid vehicles on January 1, 2024. The fees contribute to the upkeep of roads and infrastructure in the state, usually funded through a gas tax. Introducing fees for EVs and hybrids is intended to compensate for the absence of contributions from those not purchasing gasoline.
Impact On Tire & Auto Repair Operators
Tire sales have experienced an upswing due to EVs, as they wear approximately 20% faster than their gasoline counterparts. This discrepancy is chiefly attributable
to the substantial weight differential between EVs and internal combustion engine (ICE) vehicles. EVs typically weigh around 30% more than ICE vehicles, with battery weights ranging from 1,000 to 2,000 lbs. compared to the ICE standard of 30 to 60 lbs. Some tire companies, including Goodyear Tire & Rubber Co., are currently developing ‘smart’ tires to create higher levels of safety and slower wear, given the weight difference in the EV space. Goodyear anticipates the tires to be commercially available in North America beginning in May 2024. Simultaneously, the conventional oil change guideline of “every 3,000 miles or every three months” has become outdated.
Advances in engine and oil technologies have prompted automakers to recommend oil-change intervals at 7,500 to 10,000 miles. Many operators assert that this shift has impacted their business significantly more than EVs’ current 2.2% market share. However, it is essential to note that EVs often require more expensive repairs, and reprocessing/recycling lithium-ion batteries from electric cars is difficult and costly due to the buildup and careful handling of hazardous battery waste.
What Does This Mean For The Environment?
EVs and their batteries play a vital role in advancing a more sustainable future for transportation. They provide a cleaner and environmentally friendly alternative to traditional combustion engine cars, contributing to significantly reduced greenhouse gas emissions during on-road operation and producing zero tailpipe emissions. However, the manufacturing of batteries for EVs poses some environmental challenges. Research indicates that producing a standard EV battery can lead to more significant carbon emissions than gasoline cars. This is attributed to the substantial energy needed for raw material extraction and manufacturing.
According to EV Box, EV batteries are intricate components that include numerous rare earth elements (REE), such as lithium, nickel, cobalt, and graphite. These materials, known for their scarcity, demand extensive mining and, in some cases, polluting processes to extract them from the soil. This complexity contributes to the environmental challenges associated with the production of EV batteries. These environmental risks are continued in the disposal of EV batteries, as the recycling process requires the battery to be heated to very high temperatures to melt the metals into an alloy. This recycling process requires additional off-gas treatment due to the toxic gases created in this process.
Market Trends and Business Impact
In 2022, 14% of all new car sales constituted electric vehicles, reflecting a 5% increase from the previous year. However, considering the average age of vehicles serviced at local quick lube shops is around 11 to 12 years old, it implies that the substantial impact on business might take a few more years to materialize. For investors in the automotive sector, this suggests a buffer period before tenants seek adjustments beyond the monthly rent, oftentimes due to other economic and environmental conditions.
In light of the significant transformations in the auto industry, the importance of real estate location has become more pronounced. Some markets require additional operators, while others witness the closure of sites with long-term histories.
Passive investors deem a rent-to-sales ratio exceeding 10% to 15% as risky. The environmental risks associated with traditional oil pose a considerable concern. Balancing these risks against the stability of an ever-changing market becomes a critical consideration.
Takeaways
The surge in EVs and the associated transformations in the automotive sector carry substantial implications for the CRE industry. The auto space needs to embrace flexibility and innovation while also understanding the negative consequences of this new adoption. In this changing landscape, those developers and investors who actively anticipate the evolving needs of the automotive market will strategically position themselves to prosper. Always base investment decisions on accurate market information and data.
