Bloomberg Intelligence recently released its 2023 North American Auto Manufacturing Midyear Outlook. On today’s Inside Automotive, we’re joined by Kevin Tynan, Senior Automotive Analyst for Bloomberg Intelligence, to walk us through the findings.
According to Tynan, Tesla’s sales are set to be a direct gross margin crusher. “We’ve always looked at that. But, It’s more about what’s included in accounting for costs of goods and what’s not included in revenue,” states Tynan.
He explains that if you’re Tesla, you would include revenue and regulatory credit sales deferred from full-self driving (FSD). Meaning they’ve collected the profits but haven’t “booked it” since it remains on the balance sheet. Then you could pull in what’s needed along the way. “It’s challenging to get a clean, smooth revenue number.” In addition, Tynan says, “On the costs side, they don’t include things like R&D, where GM will, for example.” Therefore, Tynan believes some smoothing is needed to achieve real gross margin profit.
Key findings from Bloomberg’s Outlook
Tynan explains that when you don’t have a retail channel, you won’t book it until it’s delivered to customers. Whereas every automaker with a retail network can produce and move served units to its retail channel and book its revenue. Tynan states, “It’s a shift in working capital, but for now, it’s to the dealerships.” This has been important with Lucid and Rivian, where they may build 4,000 units per quarter but only deliver 1,000 of them. Your cost of goods is times 4,000 units, and your revenue collected is only four 1,000 units.
When you look at it on a per-unit basis, someone like Rivian produces vehicles at $250,000 per unit but is only collecting 81,000 per unit. “This is a working capital shift, but with those results, they aren’t even profitable at the gross line,” believes Tynan.
It’s essential to note that Tynan outlines that when you look at 2022, there was a 13.8 million units market at an 18% lease penetration rate of 2.4 million units. So, Tynan believes the used car supply will fall off between 2022 and 2025. Ultimately, as a dealership, the idea of the used vehicle supply remaining thin for another three years may lead to higher gross profits on the used cars they already have.