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Autos: Sales Improve, Tesla Stalls, but the Outlook for Auto Part Retail is Still Great

Thomas Paulson
Oct 6, 2023
Autos: Sales Improve, Tesla Stalls, but the Outlook for Auto Part Retail is Still Great

New auto sales were modestly better on a month-over-month basis and versus expectations as higher dealership inventory levels (+50% year-over-year) and incentives (up +130% to $2,371 per vehicle) got people into the dealerships ready to buy. Another related driver is the strong recovery that Japanese original equipment manufacturers (OEMs) are driving as production and inventory finally stage a late recovery from the pandemic-era supply chain hurdles. For example, Honda’s market share for September was 8.6% versus 8.4% in August and 7.1% last year. In response, European OEMs are especially ramping their incentives, now at $3,669 versus $1,276 last year.

Retail sales (on a seasonally adjusted annual rate, or SAAR) was up 20% year-over-year. Battery electric vehicles (BEVs) were up 53% year-over-year--similar to August’s rate--but Tesla was up only 11%. Tesla’s 51,451 estimated unit sales in the U.S. compares to the rest of the industry's BEV unit sales of 56,470. The rest of the OEMs appear to be outselling Tesla in BEVs by 1.1x.

In other words, our hunch about Tesla’s slower production was accurate. In that report, we speculated that Tesla was touching on the production breaks due to the slower overall pace and ramping electric vehicle production. For Q3 2023, Tesla only produced 430,000 vehicles, which was down from Q2’s level of 480,000 despite increased capacity at all four plants. The company said the reason was “planned downtimes for factory upgrades.” Most industry observers didn’t accept that reason, suggesting that competition and Musk-stoked controversy as the cause. Of note, deliveries also fell short of expectations despite price cuts. We suspect that the production shortfall stems from waning demand, which likely reflects the state of the consumer: “more considered and wanting lower prices.”

We see this dynamic as also prevalent in the used car market as well. Carmax reported August-quarter results which were meaningfully below expectations with unit sales down -9% and loan losses ramping. CEO Bill Nash described the environment as “persistent widespread pressures across the used car industry”. Nash also noted that, “Vehicle affordability challenges continued to impact our second quarter unit sales performance, as headwinds remained due to widespread inflationary pressures, higher interest rates, tightened lending standards and prolonged low consumer confidence.” Placer shows traffic to Carmax’s locations as just consistently down.

We wouldn’t expect an improvement until there was a meaningful break in used car prices. Used prices, as measured by CPI, remain ridiculously high at +43% vs their pre-pandemic level. As readers should know by now, we expect the auto part retail industry to enjoy good growth for years to come, as a consequence of these new / used car dynamics.

Source: U.S. Bureau of Labor Statistics

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Thomas Paulson

Director of Research and Business Development,

Thomas Paulson spent 20 years as a Wall Street analyst and a member of asset management teams at AllianceBernstein and Cornerstone Capital, representing top-50 ownership positions including Target, Home Depot, Nike, Amazon, Google, and many more. He brings consumer related expertise and knowledge of enterprises in retail, CPG, financial services, telecom, and entertainment.

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