This guide highlights the key performance indicators for the auto manufacturing industry and where investors should look to find an investment edge. While this guide is not a fully integrated auto manufacturing industry primer, as the market leader in granular consensus estimates data, Visible Alpha works with partners and clients to determine the key performance indicators in the industry. This guide will aid market participants in identifying industry trends and the potential future performance of auto manufacturing companies.
Traditionally, auto manufacturers generate the majority of their revenue and profits from selling vehicles and services that are directly related to the automotive business such as maintenance services. Some manufacturers may also generate revenue through financing or leasing options for their vehicles. Revenue generated by auto manufacturing companies can be divided into three segments, namely automotive, parts and services, and financial services. The automotive segment is the largest revenue-generating segment for companies within the industry. This segment generates revenue from the sale of three types of vehicles: passenger, light commercial, and commercial vehicles. Passenger vehicles are designed primarily for the transportation of people rather than goods. These vehicles include compact cars, sedans, SUVs, MPVs (multi-purpose vehicles), and luxury vehicles. On the other hand, commercial vehicles consist of LCVs (light commercial vehicles) such as minivans, vans, mini trucks, pickup trucks, and M&HCVs (medium and heavy commercial vehicles) such as buses and trucks, which cater to a wide range of cargo-market loads such as agriculture, cement, iron and steel, vehicle carrier, petroleum, FMCG, and other applications with options of load bodies, tankers, bulkers, and trailers.
Total revenue for companies in the industry can be simply calculated as the sum of revenue generated from the three segments mentioned above; i.e., automotive, parts and services, and financial services. The automotive segment’s revenue can be determined by multiplying the average selling price (ASP) by the number of units or vehicles sold. Alternatively, the revenue generated from passenger, light commercial, and commercial vehicles can be added together to calculate the automotive segment’s revenue. Both passenger vehicle revenue and commercial vehicle revenue are determined by multiplying ASP by the number of units sold. ASP is an important metric for auto manufacturers as it provides insight into the pricing strategy of an auto manufacturer and the demand for its products. ASP measures the average price at which vehicles are sold to customers during a given period. Units sold measures the number of vehicles sold during a given period. It is a direct measure of a company’s performance in terms of its ability to sell vehicles and generate revenue. Tracking both ASP and units sold helps auto manufacturing companies analyze their revenue trends over time and make decisions on pricing, production, and marketing to improve revenue and profitability.
Production volume or units sold can also be determined using production capacity and capacity utilization rate. Production capacity refers to the maximum number of vehicles that an auto manufacturer can produce within a specific time frame when operating at full capacity. Capacity utilization rate measures how effectively a manufacturer utilizes its production capacity to manufacture vehicles. It is calculated by dividing the current output of vehicles by the potential output within a given period. A high capacity utilization rate indicates that the auto manufacturer is operating close to its maximum production capacity, demonstrating efficient resource utilization and high productivity.
Production volume is calculated by multiplying production capacity by the capacity utilization rate. It is important to note that production volume, which represents the actual number of vehicles produced during a specific period, may not always align perfectly with the number of units sold. Although there can be a slight difference between the two, it is typically negligible.
Financial services is another important revenue segment for companies in the industry. Auto manufacturers offer financing to customers for the purchase of vehicles, either through traditional loans or lease agreements. This provides a significant source of revenue for auto manufacturers, as they earn interest and fees on the financing provided. This also allows auto manufacturers to offer special promotions and incentives to customers to boost sales. In addition to financing, the financial services segment may also offer insurance products, such as vehicle warranties, GAP (guaranteed asset protection) insurance, and liability insurance. This provides additional revenue streams and allows auto manufacturers to offer a one-stop-shop experience for their customers. The finance services segment is highly regulated and subject to various laws and regulations that auto manufacturers must comply with, depending on where they operate.
Many auto manufacturers also have a separate division or subsidiary that specializes in producing and selling auto parts and offering maintenance services for their vehicles. The income generated from the sale of these parts and services is categorized as parts and services revenue for auto manufacturers. This segment forms an important part of the revenue stream for many auto manufacturers as customers tend to go to the dealership or authorized service centers for routine maintenance and repairs. In addition, the parts and services business provides an opportunity to sell additional products and services, such as extended warranties and accessories. Auto manufacturers may produce parts for their own vehicles or supply parts to other manufacturers, as well as to independent repair shops and distributors. Some auto parts are made in-house, while others may be outsourced to third-party suppliers.
Other important metrics for auto manufacturers include days inventory outstanding (DIO) and inventory turnover ratio. These metrics provide a slightly different perspective. DIO is the average number of days it takes for a company to sell its inventory. To calculate DIO, divide the average inventory by the cost of goods sold (COGS), and then multiply the result by the number of days in a given period. A high DIO indicates that a company is holding too much inventory, which can result in higher costs associated with storage, handling, and depreciation. On the other hand, a low DIO suggests that a company is selling its inventory quickly, which can improve cash flow and reduce the risk of inventory becoming obsolete.
Inventory turnover ratio measures how many times a company sells and replaces its inventory in a given period. It focuses on the relationship between the cost of goods sold (COGS) and the average inventory value. A high turnover ratio indicates that the company is efficiently managing its inventory, as it suggests that goods are being sold rapidly.
A major expense for auto manufacturers is COGS or the cost of goods sold. This encompasses all direct expenses associated with producing vehicles, including raw materials, components, labor, and overhead costs directly related to the production process. Auto manufacturers must also stay competitive in terms of product design, quality, and price. This entails significant investment in research and development to stay ahead of emerging technologies and consumer trends, such as electric vehicles and autonomous driving. Some major expenses for auto manufacturers include:
These expenses vary by company, and may also depend on the company’s size, revenue, and target market.
To evaluate the profitability of companies in this industry, analysts focus on margins, including; EBITDA margin, operating margin, and gross margin.
Other ratios that are key to this industry include:
CLICK DIAGRAM TO EXPAND
Note: In the schematic diagram, the terms “production volume” and “units sold” are used interchangeably. However, for auto manufacturers, production volume may not always be equal to the number of units sold. There could be a negligible difference between the two.
Key performance indicators (KPIs) are an industry’s most important business metrics. When understanding market expectations for the auto manufacturing industry, whether at a company or industry level, some KPIs to consider include:
To understand market expectations for the auto manufacturing industry, a key information source is sell-side analyst estimates and consensus forecast data. The buy-side, sell-side, and public companies leverage this type of data to conduct competitive analysis, a type of analysis conducted by professional analysts that involves comparing standardized metrics of one company with those of similar companies. Because companies report metrics differently – and sometimes report on different metrics altogether – standardizing the key metrics for each company can be a cumbersome process.
Visible Alpha Insights includes analyst data, company data, and industry data at a level of granularity unparalleled in the market. Our industry data – Standardized Industry Metrics – enables market participants to quantify and compare market expectations for companies across 150+ industries.
Data as of June 2023
Visible Alpha offers six auto manufacturer-related comp tables, comparing forecasts for key financial and operating metrics, to make it easy to quickly conduct relative analysis, whether you are interested in looking at key values for global companies, Americas, or Europe. Every pre-built, customizable comp table is based on region, sub-industry, or key operating metrics.
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EBITDA – Automotives
EBITDA (earnings before interest, taxes, depreciation, and amortization) measures a company’s operating performance by subtracting operating expenses from revenue, without taking into account interest, taxes, depreciation, and amortization expenses. For auto manufacturers, EBITDA is often used as a key performance indicator because it provides a more focused view of a company’s operating performance, by removing the effects of non-operating and non-cash expenses.
Operating Income/(Loss) – Automotives
Operating income/(loss) – Automotive provides a measure of the profitability of an automotive business, which includes the production, distribution, and sale of vehicles. Operating income provides a measure of a company’s profitability from its core operations.
EBITDA Margin
EBITDA margin helps assess the profitability and operational efficiency of auto manufacturers. It measures the proportion of a company’s revenue that is converted into earnings before interest, taxes, depreciation, and amortization (EBITDA). EBITDA margin is calculated by dividing EBITDA by total revenue and expressing the result as a percentage.
Gross Margin
Gross margin measures the profitability of auto manufacturers in the initial stage of production. It represents the proportion of revenue remaining after deducting the direct costs associated with producing vehicles.
Operating Margin
Operating margin or EBIT margin measures the profitability of auto manufacturers’ core operations, after deducting operating expenses.
Debt / Equity
Debt / Equity is used to assess the relative proportion of debt and equity financing used by auto manufacturers. It is calculated by dividing the total debt of a company by its total equity. A higher debt-to-equity ratio indicates a higher proportion of debt, which may imply higher financial leverage and risk. While a lower debt-to-equity ratio suggests a larger proportion of equity financing, which may indicate a more conservative financial position.
Days Inventory Outstanding (DIO)
Days inventory outstanding (DIO) is the average number of days it takes for a company to sell its inventory. To calculate DIO, you divide the average inventory by the cost of goods sold (COGS), and then multiply the result by the number of days in a given period.
Inventory Turnover Ratio
Inventory turnover ratio measures how many times a company sells and replaces its inventory in a given period. It is calculated by dividing the cost of goods sold (COGS) by the average inventory in a given period. It is used to measure the efficiency of a company’s inventory management.
Return On Equity
Return on equity (ROE) is calculated by dividing the net income of the company by its average shareholders’ equity. ROE measures the profitability and efficiency of a company in generating profits from the shareholders’ equity investment.
Capacity Utilization
Capacity utilization refers to the extent to which an auto manufacturing company utilizes its production capacity to produce vehicles.
Production Volume
Production volume refers to the total quantity or number of vehicles manufactured or produced by an auto manufacturing company within a specific period.
Units Solds – Automotives, Passenger Vehicles
Units sold – Automotives, Passenger Vehicles are the number of passenger vehicles sold within a given period. Passenger vehicles include hatchbacks, sedans, and SUVs.
Units Solds – Automotives, Commercial Vehicles
Units sold – Automotives, Commercial Vehicles are the number of commercial vehicles sold within a given period. Commercial vehicles include mini-trucks, minivans, and cargo trucks, among others.
Units Solds – Automotives
Units sold – Automotives, is the number of passenger and commercial vehicles sold within a given period. This metric is used to track the performance of automotive manufacturers and dealerships in terms of their sales volume.
ASP – Automotives, Passenger Vehicles
ASP – Automotives, Passenger vehicles refers to the average selling prices of passenger vehicles. ASP is calculated by dividing the total revenue generated by the sales of passenger vehicles by the total number of passenger vehicles sold during a given period.
ASP – Automotives, Commercial Vehicles
ASP – Automotives, Commercial vehicles refers to the average selling prices of commercial vehicles. ASP is calculated by dividing the total revenue generated by the sales of commercial vehicles by the total number of commercial vehicles sold during a given period.
ASP – Automotives
ASP – Automotives refers to the average selling prices of passenger and commercial vehicles. ASP is calculated by dividing the total revenue generated by the sales of passenger and commercial vehicles by the total number of passenger and commercial vehicles sold during a given period.
Total Revenue – Automotives, Passenger Vehicles
Total revenue – Automotives, Passenger vehicles refer to the total revenue generated from the sales of passenger vehicles during a given period. This includes the revenue generated from selling all types of passenger vehicles, such as hatchbacks, sedans, and SUVs.
Total Revenue – Automotives, Commercial Vehicles
Total revenue – Automotives, Commercial vehicles refer to the total revenue generated from the sales of commercial vehicles during a given period. This includes the revenue generated from selling all types of commercial vehicles, such as minivans and trucks.
Total Revenue – Automotives
Total revenue – Automotives refers to the total revenue generated from the sales of both passenger and commercial vehicles during a given period. This metric helps compare the performance of different auto manufacturers and analyze their market share, as well as identify trends in the industry.
Total Revenue – Financial Services
Total revenue – Financial services refer to the revenue generated from providing financing, leasing, and other financial services related to the sale of vehicles. This revenue is often reported separately from the revenue generated from the sale of vehicles themselves.
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This guide highlights the key performance indicators for the auto manufacturing industry and where investors should look to find an investment edge, including:
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