Eagers Automotive, Australia’s largest car dealer group, reckons rising demand for electric vehicles – especially the Chinese BYD brand – will help it offset an expected softening in sales over the next two years.
The company said in a trading update given to Wednesday’s annual meeting, that back orders for customers still waiting for delivery of their purchases will also help underpin sales.
It sees what it calls a ‘generational shift to EVs’ helping, especially with its retail rights to Chinese brand BYD which is the biggest maker and seller of new energy vehicles in China and the second placed pure battery-EV maker globally after Tesla.
The meeting heard that the company’s full year performance could very well depend on how many vehicles it sells this month and in June which are the traditional big selling months for new cars for tax reasons ahead of the end of the financial year on June 30.
Eagers runs 200 showrooms around Australia for a long list of brands and told the ASX on Wednesday that revenue had risen 9% since the start of the year, while underlying profit for the four months ended April 30 was in line with last year.
CEO Keith Thornton told the meeting that demand continues to exceed supply and Eagers’ order book has grown further through to the end of April 2023.
“This dynamic has been accentuated by the widely reported port delays and bio-security issues that have materially impacted supply and Australian vehicle deliveries in the first four months of 2023.
“The current top 10 brands by volume in the Australian market, excluding Tesla, are down 10.2% year to date in 2023 (in a total market that is up 2.2% on the prior period) evidencing these unprecedented disruptions.”
(Industry analysts say much of the reason for the fall has been the shortfall of hybrid vehicles from Toyota especially and several other Japanese companies since the start of the year).
“In addition, our business in New Zealand was impacted by two major weather events, centred in Auckland, where we exclusively operate. This has contributed to the New Zealand market being down 15% year to date which has in turn directly impacted 2023 YTD profitability in this region.”
He said Eagers is not immune to the cost pressures that exist across the broader economy. “Upward pressure in all key expense categories, the most notable being interest costs on inventory, continue to challenge our business.”
“Despite the myriad of headwinds that existed in the first four months of 2023, we are pleased to report that underlying net profit before tax for the period to April 2023 is in line with 2022 levels.
“The trading performance reflects stronger gross margins, supported by deliberate and structural cost out initiatives, with the strategic growth initiatives completed in 2022 providing a hedge against the like for like new vehicle supply impacts thus far in 2023.
“These initiatives implemented in 2022 have delivered revenue growth of 9.0% year to date. While this incremental turnover has been dampened by the supply disruptions mentioned earlier, the company’s forecast increase of circa $1 billion in revenue for 2023 remains unchanged,” Mr Thornton told the meeting.
Mr Thornton added that trading in May and June will be crucial for the company as they are usually the two biggest months for new car sales ahead of the June 30 end of financial year. The sales have to be made and delivered from available stocks by June 30.
“In the current environment, our performance in May and June is likely to be more influenced by the number of vehicle arrivals and associated ability for ports to process sold cars in a timely manner.
“It is also worth highlighting however, that June 2023 does represent the end of the current elevated Instant Asset Write Off which requires buyers to have a vehicle delivered by June 30 to qualify.
“This will likely add considerable further impetus to end of financial year sales from unsold stock available for delivery prior to June 30,” he said.
“Given the uncertainty and variability around both these factors it would be inappropriate to provide specific guidance at this stage on our expectations for the first half of 2023, however both factors appear to be favourable to our near-term performance,” Mr Thornton added.
Eagers’ shares eased 4.9% to $12.85 as investors worried about the lack of first half guidance, higher costs and the pressures to try and maximise car sales over the next six weeks, and whether it will have enough stock.
