Motorpoint hit by lower EV prices

Car dealer Motorpoint (MOTR) guided in its full-year trading update back in April that it expected “broadly break even” profits, so the company’s fall to a small statutory loss wasn’t a huge surprise. What this result did emphasise, however, was how the car market has become increasingly challenging as consumer demand is hit by higher interest rates, stock levels remain constrained, and the plummeting prices of electric vehicles (EVs) filter through.

While price inflation due to supply constraints drove revenues to a record annual high, struggling consumer sentiment was obvious in the 8.2 per cent fall in sales volumes to 89,700 vehicles. Retail volumes fell at a faster rate than wholesale. As the company pointed out, annual UK used car sales in its target market of zero to four-year-old vehicles have now fallen from a pre-pandemic high of 2.45mn to 1.55mn. 

The impact of higher rates was also seen in lower finance commissions and the doubling of interest payments to £7.1mn. And, as house broker Shore Capital noted, higher base rates “will do little to stimulate bigger ticket discretionary expenditure, such as motor vehicles”. Not a good sign for short-term demand. 

According to Auto Trader’s retail price index analysis, average used car prices rose for the 38th month in a row in May on an annual basis by 2.8 per cent to £17,815. But retail growth has been constrained by the fall in EV prices, which plummeted by 18.6 per cent in May, after price gains last year. Motorpoint noted that it had seen as much as a 30 per cent fall in EV stock values over just four months.

As a result of struggling finance commissions and the fall in EV prices, margins are under pressure. Its gross margin fell by around 200 basis points to 6 per cent, while gross profit per unit contracted by 10.1 per cent and 21.4 per cent for retail and wholesale, respectively.  

Numis analysts cut their earnings forecast for 2024 from a £2mn profit to a £3mn loss but argued that the company has “a well invested and differentiated model with proven resilience through downturns and while near term earnings visibility remains low, we continue to see strategic value”.

While there were certainly some positive signs here, such as market share growth of 40 basis points in the company’s target market, an improvement in the net debt position, and automation driving £2mn of annual cost savings, the outlook is uncertain. It is no surprise that the company is now focusing on cash conservation. Sell.

Last IC View: Sell, 151p, 24 Nov 2022