Every year around March, the Israeli automobile industry gives a minor but fascinating glimpse into what is really going on behind the scenes of the large car importers, and the direct impact that car manufacturers have on the overall Israeli car industry. This sneak peek is provided courtesy of the annual reports released by companies that are traded on the Tel Aviv Stock Exchange.
Unlike the leasing sector, where the constant need to raise capital pushes most companies to become public, car importers are mainly old money businesses, despite the fact that several of them are already publicly traded. Their reports show that despite the coronavirus (Covid-19) pandemic, car importers didn't suffer: their sales didn't significantly decline nor did their profitability, due in part to some creative solutions on behalf of the Israel Tax Authority.
But the most fascinating tidbit in these reports - far more than the dry numbers - is reading what car importers really think about the upcoming revolution in the Israeli car industry, primarily the entry of electric vehicles and Tesla, the transition to cooperative vehicles, and more. Car importers are the ones expected to supply the public with electric vehicles, so their view on the matter is particularly fascinating, and especially when it comes to public companies who need to make a simple decision as to whether or not to import electric vehicles and risk losing money.
Delek Automotive Systems
A report by Delek Automotive Systems Ltd., which imports Mazda, Ford, and BMW vehicles, raises many interesting points in regard to electric cars. The company represents car manufacturers who invest great resources in the arena: Ford chose to go in the direction of sports cars with its Mustang Mach-E and also manufactures an electric transit; Mazda chose the popular MX-30; while BMW has its feet in the deep end with its i-line, not to mention its electric offroad offerings, where the iX3 is king.
But Delek's report shows that excitement for electric vehicles at the company has cooled off. "The volume of import on these vehicles and their use is still limited," the company's report reads, "mainly due to the fact that the technology hasn't fully matured due to travel limitations in terms of charging range. Imports are minimal compared to vehicles that run on traditional fuels, and the company doesn't expect them to have a quintessential impact in the short term."
Delek added that "while the above may have a future impact on the group's business results, the extent of the impact, if at all, is dependent on the development of other reliable alternative sources of motorization." One needn't be an expert in reading financial reports to understand that Delek's expectations for electric vehicles isn't high - at least not in the near term.
With that said, the company's reports reveal two interesting facts which will impact the car industry. First, in regard to competition, Delek has almost completely refrained from citing Tesla in its reports, aside from a few mentions. But the luxury Israeli car market is small, counting only a few thousands vehicles, and Delek imports BMW, which last year delivered 2,047 cars.
However, 1,000 hot electric vehicles entering Israel could harm BMW's standing or as the report states: "In the event that new competitors enter the market, who will sell vehicles to different market segments where the group operates, and/or enter their new vehicles models where the company operates, this will spur competition for the models the company sells, and/or in the event where such models will be marketed at competitive prices compared to those sold by the group, then such competition may adversely affect the group's performance results and its market share."
The second point is one that car importers don't like to discuss, and concerns the impact that electric vehicles will have on profitable market segments, specifically garages. Naturally, when it comes to the car industry, many tend to focus on the flashiest part, mainly new car sales. However, for certain car importers the repairs and replacement parts industry is just as profitable as new car sales.
To illustrate, during 2020 the State of Israel earned NIS 441 million ($132 million) from replacement parts imports - not including the expenses of labor prices at garages, and in 2019 that figure stood at NIS 448 million ($134 million). But in reality, electric vehicles require fewer replacement parts, and the reason is technical. Gasoline and diesel cars have oils, lighters or incendiary lighters, straps, belts, and more. In electric cars, the number of replacement parts is lower, the engine is compact and less worn out, the battery lasts for years, and the amount of parts required for maintenance upkeep is oftentimes a new set of brakes and a coffee to go.
This loss in revenues is barely mentioned in these reports, but Delek notes the dry facts: "Electric vehicles, which have less wear and tear, minimize the need to purchase replacement parts." The company defines the change as "considerable."
The Carasso Group
In the case of the Carasso Group, which imports Renault, Nissan and its luxury brand Infiniti, their report on electric vehicles is much more detailed and in-depth. The group presents two automakers, who address the future of electric cars with utmost seriousness - Renault and Nissan each have electric flagship models. The Carasso Group notes the penetration of Tesla into Israel as a factor that has increased interest in the electric vehicle market, in addition to the import of Chinese options, although their volume may be limited.
But Carasso has revealed quite a bit of information that notes restrictions on importing electric vehicles to Israel. The Carasso Group notes that among the diversity of sales among different models the Renault Zoe and the Nissan Leaf are mostly sold to private customers - meaning, they haven't been sold as car fleets. The Nissan Ariya, the Japanese company's flagship electric offering, also appears in the group's report as a model that is sold mainly to private customers.
An additional interesting point concerns cooperative vehicles. Carasso is an importer of what is considered to be the largest cooperative vehicle electric fleet in Israel or CAR2GO, which is used by Tel Aviv residents. However, in its report the group raises doubts over its entry into the arena, or as the group claims: "Lately, cooperative vehicle models have begun entering the transportation arena. At the date of this report, to the best of the company's knowledge, the use of cooperative vehicle models in Israel isn't substantial and is in line with existing regulations, but will require changes for their implementation."
In regard to leasing companies, who are in fact the largest new car owners in Israel with a market share of over 40%, their mention of electric vehicles is even more reserved, and anyone who takes an in-depth look at their financial reports will see that leasing companies are hinting between the lines that they don't necessarily want to see electric vehicles on the road. Considering the fact that they are the largest customers in Israel, that is certainly a problem.
The Shlomo Group's report emphasized that the company's activity has shifted over the past few years, to the sale of "firsthand cars with zero-kilometer mileage," and the massive entry of electric vehicles into Israel could significantly harm demand for regular cars, which are an important source of income for the group.
Eldan and Albar are barely involved with the electric vehicle sector, and it seems as if they don't plan on being so in the next few years, and that is worrying. While leasing companies don't import cars, it's safe to say that end customers will want such cars, and will persuade leasing companies to acquire them.
Moreover, the Carasso Group which holds a handsome offering of electric vehicle models, emphasized that most are for private customers, something that isn't exactly good news for the business sector's demands for such vehicles.
The bottom line from the reports from the car importers and leasing companies doesn't bode well for the electric car industry, with doubts over losses from lack of garage expenses, fear over price depreciation, as well as the understanding that electric vehicles will only reach a small number of customers over the next few years. This should be setting off alarm bells at government offices, who have pledged that by 2030 the majority of vehicles sold in Israel will be electric. Without substantial encouragement, which will address the difficulties that large market players are facing, it is difficult to see how that will come to fruition.