Alien Invader flourishes under pressure - Tesla and Car Manufacturer Inventories
Traditional car companies had gone from 45-days of car-sales in distribution and dealers to an estimated low of 5-days in some brands (Subaru). Traditional industry car inventories of 70-90 days of sales fell to as low as 34 days by some estimates. Car inventories were 90 days in pre-pandemic 2019. “Hot vehicles” in demand had inventories in 18-23 days. Tesla, with an order backlog, knows the future owner for every car being built and has historically had very few cars “in transit or inventory” at the end of a fiscal reporting period.
The financial advantages for Tesla are to cut the costs out of inventory (in transit or finished goods) in vehicles (at USD$56,000 average price). Suburu’s average transaction point price of USD$34,195 implies an inventory (45-50 days) of USD$1.75-2B. Even at good financing rates this lowers earnings and requires capital (even as Subaru has a 40-45 day backlog of sales deliveries they are struggling to make up).
A lesson of prior high-inflation periods says car manufacturers will suffer quickly for depending on larger inventories and higher pricing market power. The manufacturers are now benefiting from large price increases pushing a US passenger vehicle average transaction past USD$48,000. Tesla has not been immune to these pricing trends having also increased effective transaction prices.
Car manufacturers will see falling financial results from higher inflation, increased costs of production, and increased costs of financing a vehicle. Tesla has expanded production capacity to 1.9M vehicles against deliveries in calendar 2021 of about 1M vehicles. Tesla is likely to see better competitive results as other manufacturers results fall.
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This is the third and final installment of the Show Me the Money series about tactics changes forced by Inflation, conflict, supply chain disruption, and rising interest rates. The series explores changes by retailers, changes in inventory approach, and the effect on automotive dealer inventories. If you are looking for ways to thrive in this situation, EkaLore has a few staff centuries of experience to help you.
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