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Legacy Automakers Have Stopped Growing

Even though legacy automakers report billions in profits every year, their revenue is stuck in a rut. And that’s a key reason why their stock prices stink.

Legacy automakers face a big problem. They’ve stopped growing. Some of them are actually shrinking. In fact, on an inflation-adjusted basis, they’re all shrinking.

The data tell the story. Over the past decade the top lines on their financial reports have plateaued. Even though these automakers report billions in profits every year, their revenue is stuck in a rut. And that’s a key reason why their stock prices stink.

Mercedes-Benz did the best of the legacy automakers that I looked at. It grew its revenue by €53 billion ($52 billion) over the past decade, which sounds pretty good, except that it was over a decade. In other words, Mercedes only grew its top line by an average of €5.3 billion ($5.2 billion) a year. That’s less than 4% a year. And after accounting for inflation, it really hasn’t grown much at all.

Toyota was the next best. It grew its top line by ¥3.2 trillion ($22.2 billion), which sounds impressive, except that it translates into a compounded annual growth rate of only 3.5% a year. And that’s not counting inflation. One other thing worth noting about Toyota is that it’s the only legacy automaker that had higher revenue last year than it did before the COVID pandemic. None of the others have recovered from their pre-pandemic levels.

Next on the list is Volkswagen. From 2012 to 2021 it grew its top line by €9.3 billion ($9 billion). But that’s a compounded annual growth rate of only 2.6%.

Honda grew by only 1.7% a year, BMW grew by only 1.4%.

And then it gets really bad. Ford and General Motors did not grow at all. They shrunk. In terms of how much money they bring in, they’re smaller than they were a decade ago. And that’s before you even account for inflation. Ford brings in $10 billion a year less than it did a decade ago. GM brings in $25 billion less a year. They had a negative growth rate for a full decade.

This is a key reason why GM and Ford’s stocks have the lowest price-to-earnings multiples on this list of legacy automakers. There is a bit of an excuse for GM as to why its revenue is lower; it got rid of Opel and dropped out of Europe and a bunch of world markets. So, it lost a lot of revenue that way. But even since then, GM’s revenue has been on a downward slope, though it did see a small upward blip last year.

Meanwhile, over the same decade, Tesla’s top line grew more than 60% a year, 62.7% to be exact. And that’s a key reason why its stock has been a darling of the market.

At some point Tesla’s growth rate will start to slow down, and in fact it already has. Over the past three years Tesla’s top line grew at a compounded average growth rate of 30% a year, or half its prior rate. That’s still pretty healthy and with the Cyber Truck and the Semi right around the corner, with the Berlin and Austin assembly plants still getting up to line speed and maybe with Full Self Driving really ready for prime time, Tesla will keep pushing its top line up far faster than any of the legacy automakers.

The importance of how a company’s growth rate affects its stock price was underlined when GM CEO Mary Barra laid out a detailed, public roadmap for how she plans to double the company’s revenue by the end of the decade – thanks to a full lineup of electric vehicles, subscription services, robotaxis, and OnStar, GM Defense and several other business ventures. All of them have specific dollar goals they have to hit.

Last year, GM did $127 billion in revenue, but Barra wants to grow that to somewhere between $275 billion to $315 billion by 2030. That’s a big increase, but to put it in perspective, it means GM’s top line would have to grow about 10% a year, which is pretty good. However, it’s still about one-third of Tesla’s current growth rate.

Even so, you’ve got to give Barra credit. At least she is publicly talking specifically about how she’s going to grow the top line. You don’t hear much of that kind of talk from her compadres.

Ford has talked about growing its commercial business, which it calls Ford Pro, from $27 billion a year today to $45 billion by 2025. But it hasn’t spelled out any specific growth targets for the whole company.

McElroy SQUARE.jpgAll the other legacy automakers are talking about how much they’re investing in electric cars, how they’re going to unlock more value from within their company and how they’re going to improve their margins. But you don’t hear them say much about top-line growth. Maybe as lofty goals perhaps, but not with any specifics.

And so, it seems obvious that the stock prices of these companies are bound to underperform the stock market for a long, long time to come. Because who wants to invest in companies that aren’t really growing at all?

John McElroy (pictured above, left) is editorial director of Blue Sky Productions and producer of “Autoline Detroit” for WTVS-Channel 56, Detroit.

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