In many cases, it was another winning quarter for the OEMS. On today’s episode of Inside Automotive, Kevin Tynan, senior automotive analyst for Bloomberg Intelligence, joins us to talk about the recap of the earrings and the woe’s Carvana is currently facing.
Recap of Earnings
the other unexpected feature in both cases, according to Tynan, was that the production output was much higher than the deliveries. Tynan believes, “is a prime example that if your production and demand are there and you’re ramping up, then you have a problem as a retailer and delivering product to the consumers.”
In retrospect, it wasn’t that long ago that Tesla was not profitable. But as a first mover and the technology company they put onto themselves, they ultimately were able to get funding and market themselves with access to capital. Therefore, Tynan doesn’t believe the small startups like Rivian and Lucid are not getting the same consideration. He claims, “this is going to ramp quickly and try to generate some scale by trying to become profitable at least at the operating line.” But the issue shows, these companies won’t have as much time to become profitable unlike Tesla. Unfortunately, for Rivian and Lucid, they are attempting to scale profit, but the demand is going away.
On the other hand, Tesla has once again reduced its prices. There may be consumer fatigue from the previous era of great sales or high pricing in the U.s, which makes the consumer apprehensive. Interest rates are also high, and recalls on high demand vehicles are frequent. Of all of these conditions, the demand level has the strongest correlation to how manufacturers will set prices. This is why Tynan returns to Tesla and notes that “Tesla’s first price decrease prompted a price war, but that’s not how it works. As an automaker, you manage your business based on supply and demand and make adjustments as necessary. You’re not going to react just because Tesla does something.”
"The price war to me is really only fighting yourself.” — Kevin Tynan
This year, the pendulum swung way too under supply. Which in Tynan’s words means, “expensive or above MSRP pricing, but it was at the expense of lost volume.” Tynan now thinks that we are going back, not back to pre-pandemic levels. But, there is a more agreeable balance between price and volume.
Carvana continues to struggle, as a company that needs to scale and scale quickly. They have the problem of lower volume and higher pricing. Tynan claims, “the part of the market that highlights the leasing of smaller pre-owned vehicles has gone away.” Adding, “it will continue to be that way through 2025.” Even after acquiring ADESA, a wholesale auction solution, Carvana still faces the challenges of inflation, tentative consumers, and low supply. With everything going up at a time when they require volume, has simply exacerbated their issues.