Helping auto dealers learn to love EVs

U.S. auto dealerships don’t have a strong track record when it comes to promoting electric vehicles. But with automakers now shifting to EVs in a major way, they won’t have much choice but to take on the task of supporting an increasingly electric-powered fleet before long.

One big challenge is the cost and complexity of installing and operating the chargers to keep EVs ready to drive off the lot. That’s particularly tough in states where utility rates punish small businesses that add large new grid loads like EV chargers — and these happen to be some of the same states with the most aggressive policies to shift from fossil-fueled to zero-emissions passenger vehicles.

Last month, energy-management companies mCloud and JouleSmart Solutions unveiled their joint solution for this all-too-common auto-dealer conundrum. It’s a service that manages the costs and complexities of installing and operating EV chargers, as well as adding solar panels and batteries to help cushion the chargers’ grid impacts, and controlling air conditioners and other building loads.

Their first customer, the Vail Buick GMC Dealership in Bedford Hills, New York, has signed a 17-year agreement, set to start as soon as its first EV chargers are installed this summer. JouleSmart and mCloud have 15 other New York auto-dealer projects under development, with service contracts of up to 20 years representing a combined capital outlay of more than $14 million.

“We’ll take over the energy-management service — really, take over your utility bill,” Costantino Lanza, mCloud’s chief growth and revenue officer, explained in an interview. Then, mCloud’s asset-management system will orchestrate the right mix of building loads, solar, batteries and EV chargers to keep those utility costs low enough that it and JouleSmart can make money and pay off the costs of those investments over the contract’s term.

Over the coming year, mCloud and JouleSmart plan to target more than 2,000 auto dealerships in New York and California, the two states with the most aggressive EV growth targets and lucrative incentives for EV-charger deployments, he said.

These states also feature utility rate structures that include demand charges that impose high costs on businesses that have steep peaks in electricity demand — something that EV chargers often cause if they’re not carefully managed or offset. The mCloud AssetCare system helps reduce those peaks, as the following graphic indicates.

All in all, mCloud estimates it can save dealerships more than 50 percent in energy costs over the lifetime of an agreement, compared to the utility bills they’d otherwise pay if they installed chargers without actively controlling them.

This kind of ​“energy-as-a-service” model is becoming an increasingly common way to deploy solar, batteries and EV chargers at businesses that may be overwhelmed by the complexity and risks of trying to finance and coordinate them on their own. Global energy-services companies and infrastructure investors are targeting corporate and institutional properties with offerings like these.

It’s harder to set up the right combination of technology, services and financing to make these models work for small and midsize businesses than it is for larger companies, said Maria Fields, president and co-founder of JouleSmart. Her company has been working with partners including the New York State Energy Research and Development Authority (NYSERDA) and New York utility Con Edison to tap this underserved market.

Auto dealers fit into that ​“classic small and midsize businesses” framework, Fields said. Many are family-owned, and even those that are part of larger regional or nationwide chains don’t tend to invest a lot of time and effort into managing their relatively simple energy demands.

But the pressure to sell a widening range of EV models being rolled out by General Motors, Ford, Volkswagen, Mercedes Benz, Hyundai, Honda and other automakers is dramatically altering that traditional relationship to energy management, she said.

“These auto dealers are kind of three to five years ahead” of many other businesses in terms of needing to manage their energy more closely, she said. ​“They’re getting this inventory now, and they have to do it.”

Auto dealers and EVs: An uneasy relationship

But it’s not clear whether most U.S. auto dealers will welcome this influx of EVs. Surveys by market research firms indicate that many dealerships are far from consistent in offering shoppers the same support for choosing an EV as they offer for hybrid or gasoline-fueled models. A 2019 survey by the Sierra Club found that three-fourths of U.S. dealerships weren’t offering EVs for purchase at all, and that most of those that did weren’t displaying them prominently or offering significant sales support for them.

The enormous pivot by major automakers over the past two years has dramatically changed the landscape. Dealers will no longer be able to relegate EVs to their back lots. GM pledged last year to have 30 all-electric models by 2025 and move to an all-zero-emissions light-duty fleet by 2035. Ford followed suit with a promise to make EVs half of its vehicle production by 2030, and other automakers have similarly ambitious EV and zero-emissions goals.

A number of states are also setting mandates for phasing out fossil-fueled passenger vehicle sales over the coming decades. California is leading the pack after its 2020 executive order setting a 2035 deadline to end sales of new gasoline-fueled cars in the state. This week, the California Air Resources Board proposed rules that would require zero-emissions vehicles to make up 35 percent of new sales by 2026 and 68 percent by 2030.

And before EVs can gain meaningful traction in the U.S. consumer market, a nationwide network of readily available chargers will need to be built out. GM, Ford and other automakers are pressuring their certified dealerships to play a role in getting chargers deployed on their premises and beyond. In October, GM announced plans to install up to 40,000 Level 2 EV chargers at or near its dealerships in the U.S. and Canada. Ford now requires its certified dealers to install Level 2 chargers for use by the public and in its service bays in order to qualify to obtain certification to sell its electric models.

The National Automobile Dealers Association trade group has made preparations for selling EVs a big part of its agenda over the past year. Industry observers have noted that this push has come as EV makers including Tesla and Rivian have upped their efforts to convince state lawmakers to alter or eliminate the long-standing laws that require automakers to sell vehicles via independent dealerships. The legacy dealership industry has fought aggressively against lifting these restrictions.

James Di Filippo, a senior policy analyst at Atlas Public Policy, has been studying the relationship between the level of EV sales and service support from auto dealers and the trajectory of EV uptake among U.S. consumers. While ​“it’s very hard to say conclusively what role dealers have played in this, there’s pretty good evidence that they aren’t the best partners to electrification,” he said in an interview.

One big disincentive for dealerships is that they earn higher profit margins on servicing the cars they sell than on actually selling them, he pointed out. EVs tend to require far less ongoing maintenance than internal-combustion vehicles, which could erode that revenue stream.

“It’s also been the case that dealers have been slow to get charging infrastructure in place and provide [EV] test drives,” he said. ​“If you’re going to be stocking electric vehicles, you have to have the charging equipment.”

Many dealers have expressed shock and frustration about the costs and challenges of installing charging equipment to support what is still a relatively small share of their overall vehicle sales, at least for now. Even a couple of Level 2 chargers can equal the total electricity use of a typical dealership property, potentially doubling a facility’s draw on the grid.

Direct-current fast chargers can add hundreds of kilowatts of new peak load, often requiring utility grid upgrades that can cost hundreds of thousands of dollars and take months or years to complete, particularly in crowded urban environments such as New York City.

What’s the true value of managed EV charging for customers, investors and the grid?

JouleSmart and mCloud learned a lot about the EV challenges facing auto dealers while working together on a NYSERDA- and Con Edison–backed energy-efficiency program along with energy consulting service Lime Energy. The program used a similar no-money-down, managed-service structure that put the onus on mCloud and JouleSmart to ensure that their customers continued to meet efficiency targets over time.

“The dealerships…said, ​‘We like what you’re selling there, but our real challenge is EVs,’” Lanza said. “‘How are we going to put in these chargers and manage the energy draw, and what will that do to our utility bills?’”

JouleSmart and mCloud worked with the Greater New York Automobile Dealers Association on technical consulting and webinars to prepare dealerships for the coming challenges. Those start with navigating the complex array of incentives, rebates, laws and regulations that affect the value of different combinations of equipment and controls available, which ​“tend to be fairly complicated and require some specialization in even how to apply for them,” he said.

More active energy control also allows participating dealerships to tap into opportunities to generate revenue through utility demand-response or load-shifting programs, Lanza pointed out. ​“These [programs] are fairly dynamic and change over time,” he said, making them hard for individual dealerships to monetize.

These streams of utility and grid revenue can also be worth more when aggregated into larger blocks, which is what mCloud and JouleSmart plan to do. At scale, these kinds of aggregations could also help Con Edison and New York state grid operator NYISO better manage the grid stresses likely to emerge as EVs come to account for a much larger portion of the region’s electricity demand.

Local grid constraints and demand-charge costs are already pushing a growing number of EV-charging deployments to add solar and batteries. But much of a typical site’s energy use remains tied to a building’s air conditioning, lighting and other controllable loads, Lanza said, which ​“drove us to put together a solution that looks at the entire energy picture.”

The value of integrating EV chargers, solar and batteries with building controls isn’t lost on mCloud and JouleSmart’s competitors. International energy companies such as Shell, BP, EDF, Enel and Engie have acquired startups in these technology categories to capture that value across a broad range of customers. BP has bought two, Blueprint Power and Amply, in just the past six months, and EDF has made the ​“adaptive load management” technology of a company it acquired in 2019, PowerFlex Systems, the center of its distributed energy strategy beyond EVs.

Taking on the upfront investments and long-term operating risks of a managed-energy service in this way requires deep pockets, JouleSmart’s Fields acknowledged. But there’s opportunity for investors in EV charging and distributed solar and battery systems to earn money for those assets’ carbon-reduction capacity on top of their energy management value, she noted.

“There’s value in measurement and control,” she said. ​“You can create that greenhouse-gas and carbon-reduction measurement, and then monetize it” through offset and incentive programs. 

That’s the goal of Carbon Royalty, the Canada-based firm that last month pledged capital to help fund mCloud and JouleSmart’s first 30 auto-dealer projects. Under the terms of the agreement, Carbon Royalty will receive half of the ​“tax incentives, carbon credits, and other accretive financial benefits” available from the projects.

Local dealerships are also looking at the benefits of installing solar and batteries that go beyond supporting their need for affordable EV charging, Fields said. Bedford Hills, the city where mCloud and JouleSmart are overseeing their first project, happens to have a target of reducing communitywide greenhouse gas emissions by 80 percent by 2030, and Vail Buick, their first customer, is a family-owned business with deep roots in the community, Fields said, so it has even more incentive to shift to clean energy.

GM’s plan to expand public access to EV chargers at dealerships opens up opportunities ​“to draw in new customers,” Lanza added. The dealerships ​“also like showcasing solar because that appeals to a [typical] EV buyer.”

As for how and when those kinds of business and community benefits will begin to outweigh the costs and complexities of installing EV chargers. ​“I can’t begin to predict,” he said. ​“But all the major [automakers] are predicting by 2030 they’ll be largely in the…passenger [electric] vehicle market.”

Atlas Public Policy’s Di Filippo emphasized that not all dealerships face the same costly utility rate structures as those in New York and California, which means that not all of them will necessarily be in the market for the kind of managed service package that mCloud and JouleSmart are providing.

Still, given that dealerships account for the vast majority of new car sales in the U.S., ​“it’s encouraging to see dealers starting down this path because it’s a signal of getting serious around their EV offerings,” he said. ​“They’re seeing the writing on the wall.”