Mistrust of valuation forecasts, more vehicle recalls and the challenge of closing an ‘EV servicing gap’ will define Britain’s struggling automotive market in 2025, according to ADS.

ADS has identified three major areas where profit and efficiency for OEMs, dealers and fleet operators are under mounting threat

The specialised automotive data business has identified three major areas where profit and efficiency for OEMs, dealers and fleet operators are under mounting threat in the year ahead.

All three are a direct result of forcing the transition to electric faster than the market can handle without major disruption – but they also represent strategic opportunities for the smartest players, according to the data experts.

Taken together, collapsing confidence in EV future residual values, a loss of traditional car servicing revenues and technological ‘growing pains’ causing an increase in vehicle recalls will disrupt an already difficult market even further by increasing costs, reducing revenue and threatening fragile consumer confidence.

ADS says that last year’s collapse in confidence around future residual values for EVs will now result in increased leasing costs and higher retail car prices as leasing firms and manufacturers are forced to evolve pricing strategies to minimise future losses.

The firm’s experts describe contract and retail pricing this year as ‘a balancing act’ that may leave leasing or buying an EV even less affordable for many consumers without ever-higher subsidies from already hard-pressed manufacturers.

The problem of product pricing will come to a head in 2025 due to the Zero Emission Vehicle (ZEV) mandate, which requires an increasingly high proportion of EV sales and complex trading deals to avoid massive fines for failing to achieve government targets.

Profitable ICE (internal combustion engine) cars have historically subsidised sluggish EV sales. Now manufacturers, facing an EV sales proportion target of 28% in 2025, are likely to further increase petrol and diesel car prices to enable further EV discounts.

Because EV values have consistently undershot forecasts, causing millions in losses for leasing companies, customer contracts will almost certainly rise.

“Disruption of this kind – especially during a cost-of-living crisis – will make the market very difficult for everyone, including consumers, in 2025,” said Jon Sheard, operations director of ADS.

“Pricing will become a balancing act and data insights will be more important than ever in restoring confidence as new approaches to forecasting residual values become necessary.

“The resilience of the industry will be tested in a way we haven’t seen since the 2008 financial crisis.”

Increasing EV safety recalls

ADS also warns of increasing EV safety recalls due to the pace of EV development, linked with such advanced engineering, new battery technologies and increasingly sophisticated software.

This will challenge those dealers that fail to keep track of customers – but also represent a major opportunity for those that maintain the most accurate customer databases and will be able to sell additional services or even secure a further sale.

The ‘EV servicing gap’

ADS also warns that car dealer face a revenue threat from the ‘EV servicing gap’. As EV sales mount, servicing revenue will decline.

The simplified mechanics and advanced onboard diagnostics of EVs mean cars often requiring little more than tyre replacements or brake checks in their first three years, leaving a hole in dealer profits.

For many dealers, the lion’s share of profit comes from aftersales and service work, so the reduced servicing needs of EVs present a serious challenge to business viability.

ADS says that this ‘servicing gap’ will have to be plugged by focusing on customer retention and more focused engagement than the usual MOT and service reminders.

Workshops which explore new revenue streams, such as EV diagnostics, battery health checks and software updates, will also help to bridge the ‘service gap’ while also positioning dealerships that do it right as leaders in the EV revolution.

ADS gives ‘tyre rotation’ as an example of innovative ways to improve customer engagement, citing the US market as an example where preserving the integrity of tyres by regularly swapping between front and rear has become standard practice. Such regular customer contact also opens the door to providing other services and bolsters client-dealer relationships.

Jon Sheard said: “The challenges and threats we have identified for 2025 are not insurmountable, but they make it clear that business as usual is no longer an option.

“While dealers typically prefer to focus on the exciting work of selling products the reality is that concentrating on disciplined customer data management to maintain relationships will be more important than ever before if dealers are to survive this period of transition.”

ADS stresses that as well as identifying genuine threats, every problem it highlights for 2025 also represents an opportunity to innovate and grow.

Sheard added: “The leasing sector will certainly learn the lessons from the failure in residual value forecasting that has rocked the industry and will develop new data-led tools for mitigating future shocks.

“And those dealers that finally confront the quality of their customer records and relationships now have an opportunity to open their lead over the competition and become leaders in the transition to a lower-carbon world.”