Inside Automotive with Jim Fitzpatrick, powered by CBT News

Kevin Tynan on Why 2026 Is a Turning Point for Auto Retail

• Jim Fitzpatrick • Season 1 • Episode 62

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Electric vehicle adoption, pricing power, and distribution strategy are converging at a pivotal moment for automotive retail. On this episode of Inside Automotive, Kevin Tynan, director of research at The Presidio Group, breaks down how shifting supply discipline, EV economics, and direct-sales models are reshaping dealer and OEM priorities heading into 2026.

Tynan explains why disciplined production helped stabilize margins in 2025 and why automakers now face clear trade-offs between volume growth and pricing power. He also examines how fading EV subsidies have exposed weaknesses in EV business models, prompting OEMs to redirect capital toward higher-margin segments. The conversation explores emerging portfolio strategies for EV technology, the structural limits of direct-to-consumer sales at scale, and what these shifts mean for dealer profitability and inventory planning. As regulatory pressure eases, Tynan outlines why 2026 is shaping up as a reset year driven more by market forces than mandates.

Topics covered:

  • Production discipline and its impact on pricing and margins
  • EV demand trends following the loss of subsidies
  • OEM capital allocation and portfolio strategy
  • Affordability challenges and demand-led EV deployment
  • Direct-to-consumer sales models and scale limitations

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Jim Fitzpatrick:

Hey everyone, Jim Fitzpatrick. Thanks so much for joining me in another edition of Inside Automotive right here at cbtnews.com. What does the EV shakeup mean for dealers and OEMs in this new year? Joining us today is Kevin Tynan, Director of Research at Presidio Group, to talk about EVs and BYD and Tesla and where sales are with them. And so we appreciate you taking the time out of your schedule once again, Kevin, to join us on the show.

SPEAKER_01:

Jim, happy new year.

Jim Fitzpatrick:

Yeah, happy new year to you as well. So let's start off first of all before we dive into the EV situation. Tell us from your perspective how things looked for 2025 overall.

SPEAKER_01:

Looks like a reasonably good year from the sense of total volume, a little bit over 16 million. Supply not super out of control. And I think that the issue there is that what we've seen with production for the full year, and I don't have the final December numbers yet in terms of output, but probably down about 5% for US factories, 4% for North America overall, which tells me there's some constraint by the OEMs, some production discipline that it's not about dumping inventory into the system, which would eventually start to erode pricing power and margin integrity. And then we would be in this sort of pre-pandemic 2019 where it's all about scale and not about price and margin. And the problem with getting back into that kind of scenario today is that average transaction price is flirting with$50,000. So it's going to be very difficult to push volume at the current transaction price level that we're hovering at. So I think the the idea is that you can have one or the other. You can have volume growth every year, or you can have this uh average transaction price growth, but most likely we're at the point above 16 million units where you can't have both. And now it's an issue of you know, which do the OEMs want. I think for the past several years, if not decade plus, we've seen that shift to truck versus car indicate that they're going for price, not necessarily volume.

Jim Fitzpatrick:

Which can be a good thing for dealers in that we're not trying to shove so many vehicles down the throats of dealers, right, and fill up their lots with, I mean, that you know, that's that's the way that it was prior to COVID, and every dealer was saying that, you know, I don't I don't need, you know, hundreds and hundreds of cars sitting on my back lot if I sell 90, 100 new vehicles a month, right?

SPEAKER_01:

Right. And the difference now versus then also is that interest rates aren't zero anymore. Right. Right. In those days, when you were carrying a lot of inventory, there was not as much of a penalty, a financial penalty for carrying it. So you could take inventory and have it sit maybe a little bit longer than you would be comfortable with in an environment like this.

Jim Fitzpatrick:

Yeah.

SPEAKER_01:

Um so you know, I think the benefit for the benefit of tighter supply and demand helps the OEM, which certainly helps the dealerships. Now, again, you're not you don't have those exorbitant carrying costs, but also you do lose out on relationships as a dealership, right? You you're, you know, even if the the idea is not you're making all the money on the new vehicle or used vehicle transaction, you're creating a relationship. And that may make a transaction in uh finance and insurance and warranty, um, you know, a future parts and service customer down the road. So there's ancillary benefit to selling a vehicle, even if all the money isn't in that individual transaction. Right. A lot more of that money is in the transaction for the OEM, right? So that becomes, you know, you don't want to overproduce and start uh stuffing the retail channel and have them push back and not be able to take more because now you have to make adjustments to your production. That's very expensive for an OEM. So we're in this very tenuous supply-demand balance position where I think about 16 million units and three million units of inventory is just about perfect. Um, you know, and I and I think that the idea will be to maintain that and then try and push prices a little bit higher with new technology or services, and that's how the revenue pool will grow. I don't think the revenue pool can grow with more volume.

Jim Fitzpatrick:

Yeah, yeah, very good point. Very good point. All right, so let's uh jump into the EV situation, obviously, uh since the new uh, or I should say the new rule, the but uh you know they took away the tax incentives back in September. That really changed the landscape for EVs for all models, whether it be um, you know, Tesla's or Rivians or Ford or you know, whoever was building EVs, it just changed the whole landscape. So talk to us about that. Obviously, Tesla has also lost some ground in a big way. BYD is not doing as well. So I know I threw a lot on your plate just now, but uh I'll let you take it from there.

SPEAKER_01:

Yeah, and it's interesting because look, at the end of the day, um, if you're gonna use Tesla as the bellwether, you know, it wasn't just, oh, well, well, the the subsidies went away at the end of the third quarter in the US. Like sales are struggling for them globally, right? Uh, you know, overall in China, Europe, you know, so there's a volume problem there. And I know the narrative is they're not just an automaker, they're a technology company and all these things, but that should be concerning, right? Because I think there's implications all across the auto industry. One of them is when you look at the competition, you take a company like Ford, for example. Ford was losing in its Model E business unit five billion dollars a year annually, right? Like that's a significant amount of losses that you're booking every single year. So if you lift that sort of regulatory overhang and let them go where they make money, which obviously is full-size trucks, pickups, and SUVs, um, you know, that's some money that goes from the loss column, you know, into the profit column, and it's a and it's a lot.

Jim Fitzpatrick:

Yeah.

SPEAKER_01:

You know, the other thing that's interesting too, J Jim, and I think um this is gonna be a big issue, obviously, in 2026 is the direct sales question. Right? And now what you're seeing is it's it, and not that direct sales is solely came in with electric vehicles. Uh it it certainly was an idea and a concept before then, I think that perpet perpetuated it, you know, with companies like Tesla, Lucid, Rivian. But now when you and now Scout, obviously like Colorado, we see that decision. But it's interesting to me to say, like, okay, if we take this subsidy away from the EV companies and we see where their total volume is, and now you're you're you've hitched your wagon to this direct sales model, and now the entire business model isn't making a whole lot of sense because you can't achieve scale. I wonder what the implications are across some of these other issues that dealers are facing. You know, like um almost almost a okay, you want to do direct sales scout, you're not gonna sell anything anyway, right? So it's almost like the threat takes care of itself. Yeah. And the other thing, too, is this when you think about some of the uh pressure off or the risk off on the EV question for both OEMs and dealers, you wonder if in 2026 there can be more focus given to some of those other issues, direct sales being one of them. Right? That that issue is taken care of. Now let's let's put our resources and our focus to this other one. And I think that's what you'll start to see, you know, as we get through NADA and and uh some of the associations have their conventions, we'll start to see some of that push to focus against the direct sales question.

Jim Fitzpatrick:

Yeah, yeah. So it's so at the end of the day, um this has got to be troubling, right, for these these EV um makers, right? I mean, we just don't know where this is all gonna settle, right? Where the market's gonna go.

SPEAKER_01:

Yeah, I mean look, yeah, and look, and it was it was difficult to begin with, right? You really the only automaker that really got there to scale was Tesla. Obviously the Chinese manufacturers have also, but there was a level of government support and subsidy that is unmatched globally.

Jim Fitzpatrick:

That's right.

SPEAKER_01:

So now as you as you pull that sort of safety net or that that you know tailwind of demand by subsidizing it, when you pull that away, I think those business models are much more difficult. I think what you're gonna see, and and an opportunity perhaps for some of the legacy automakers, not the EV Pure Plays, but if you take a company like Ford, right, GM, who already developed the electric vehicle technology, right? Now they couldn't make it profitable, but if you look, their products were much higher in the in the price range, right? You had six-figure Hummer EVs, and and and it was still unprofitable for them. I think what you can get is this affordability question is to take some of that EV technology, put it in smaller, more affordable vehicles. And again, you say affordable, I say unprofitable, but you know that's what the situation is, right? So you say we're gonna do this in an affordable vehicle slash unprofitable, we're gonna control the output, but we will it we can use that as an introduction to a younger or different customer base that we can get people into our affordable slash unprofitable vehicles and then move them up through the portfolio over the years, right? You've already made that investment in the technology, you have some of the capacity to do it, but the risk is off in you having to do it to the level that uh the government wanted you to do it previously, like phasing out by 2035. And it can be a little bit more organic in how you use that technology. Won't be about profitability, won't be even as much about hitting some compliance target that the government set. It'll be about something else. And that may be an introduction to a younger customer base looking for that specific technology. But the pressure, the financial pressure, isn't on you to do that at 50% of your output or and growing. Uh, it can be where you want it to be. And that's why I think 2026 winds up being the most sort of organic, free market that we've seen probably since before the pandemic. But even then, right, in those years, from the time Tesla really started to ramp and reach scale, it might not have been government pressure to do EV, but it was that market cap and the markets pressure and media pressure to say, like, well, look what they're doing, and they're growing so fast and they're so profitable, and they're worth a trillion dollars, that there was this sort of you know, secondary kind of pressure to do it, even though it they knew it wasn't gonna make a ton of sense and it wasn't gonna be profitable right off the bat.

Jim Fitzpatrick:

That's right, that's right. From your perspective, and you've been you've been uh now studying the auto industry and and been in the thick of things for quite some time. Why do you think a company like uh like Scout decides to go into a direct-to-consumer? Is it just to mirror what they saw with a Tesla to say, hey, maybe we can garner some of that some of that limelight in terms of the stock and the valuation and what have you? I mean, why do they want to even do that? Why do they want to take on that last mile rather than building the cars and saying, hey, dealer, we're gonna, you know, we've got an incredible dealer body among Volkswagen, or even if they want to set up another franchise with Scout, uh it's so easy to click a button and go, boom, we just moved, you know, 10,000 units.

SPEAKER_01:

I I agree. I, you know, and I think Tesla was a lot of that influence on companies. And again, these decisions are made years ago. Yeah, and you're you're either gonna follow through or you're not. Right. Um but but I but I I agree. Look, I I think at the end of the day, and I was thinking about this earlier, is that you know, what what I think you're appealing to the consumer to say, look how easy this can be for you, yeah uh consumer, but you know, down the the other parts of the process, you're just complicating it with a system that is already in place and made to do exactly that. So I I think you're you're focused on, and and this happens all the time, right? You focus on one problem and solving that one problem. Well, people don't like spending a lot of time in the dealership. We can make a system that goes click, click, buy, and we've solved that problem. Simple. It's like, yeah, but there's a hundred other implications to this and unintended consequences that you're not thinking about, right? And uh, and we've talked about it, right? I to me, it doesn't make a ton of sense. I, you know, in a weird way, the scout question might be a little bit different to me, and I don't want to speak out of turn here, but it's like because it is part of Volkswagen, and they would say it's not, but it is. So it's I feel like that's the one brand that can be sort of playing both sides of the fence, which is we're part of a bigger manufacturer, which means you're not supposed to be able to sell direct, right? But it's this new brand and it's electric, so we can. So, so maybe you know, there's a feeling that if anything is gonna work like this, it would be something like that, which is a foot in sort of both worlds, which is we can sell direct, but we're we have this protection of a bigger partner or you know, a bigger manufacturer like Volkswagen. So that would that's the only difference I see from you know another pure play EV company without that kind of backing coming out and saying we're gonna go direct also. It's like, you know, there's there's years of evidence that this isn't necessarily working. Like you see, you know, Lucid and Rivian's full year numbers, not great, you know, and certainly not great if you're trying to scale, where you know, I think the franchise base takes up a lot of that, you know, we've talked about it, right? You're you're paying your cost of goods, but you're not booking offsetting revenue because you don't, you know, you're not you're not booking revenue on the wholesale to the dealership. So, you know, 2026 could be one of those years where a lot of these head-scratching questions that we've seen over the past couple years from EV, from direct sales, you know, start and and the valuation of those companies start to write themselves a little bit because a lot of that outside influence and support is taken away.

Jim Fitzpatrick:

Yeah, yeah, this will be this will be interesting for sure. Do you think obviously the other OEMs are are keeping a close watch on how uh Volkswagen threads this needle with its dealers, with its consumers and such? Uh do you think there's conversation in in the boardrooms of other OEMs to say this might be a way that we go with you know either acquiring a brand that's out there, setting it as a separate, complete separate other entity and another company that's wholly owned by Ford or Toyota or the others. Because I mean that's really the way it is with Scout. I mean, it's owned by it's a wholly owned subsidiary of Volkswagen, right?

SPEAKER_01:

So And I I think I think to me, Jim, the question comes down to scope and scale, right? Like, so if you're lucid and you're selling 15,000 units a year, you know, even if you're Tesla selling whatever they're selling in the US, 500,000, you know, 400,000, 600,000, whatever the number is, like, even that is a little bit of pressure. If you're Chevrolet, you know, GM Chevrolet or Ford's Ford brand, you know, like you can't be doing 2.2 million units direct.

Jim Fitzpatrick:

Yeah.

SPEAKER_01:

So I I I think the only way that that becomes a question is for more niche automakers. Um and and I, you know, I think that that tipping point of it being you know worth it or or beneficial to anybody, the customer through the OEM, is very low, right? Like, you know, I think if you're doing any kind of volume, you know, anywhere even where Tesla is, it doesn't make a ton of sense because you can't you can't scale. And the other issue that Tesla or benefit that Tesla had that nobody else has been able to do is they basically have been able to throughput you know very close to 100% of their output.

Jim Fitzpatrick:

Yeah.

SPEAKER_01:

So those those cost of goods that they're paying for, they're not really carrying them on their balance sheet, at least not for very long. Right now, when you have a situation, and it remains to be seen with Scout, but if you have a situation like Lucid Orrivian, where your throughput is only about 60% of your output, that you know, those costs stay on your balance sheet.

Jim Fitzpatrick:

Right.

SPEAKER_01:

Right. So now scale that to a million units, right? And if you're doing 60% and you have 600,000 units that you collected revenue on and 400,000 that are on your balance, it's on it's not sustainable. No. Never mind the the fundamentals, the logistics of not having a franchise dealer base. Uh just from that financial perspective, those those margins are so tight. That's razor's edge that you're, you know, that you can put out or put to the public a hundred percent of your output every quarter. It's not, it's, you know, it's not that it's not easy, it's been proven that it it's difficult to be done, and only one company's done it.

Jim Fitzpatrick:

That's right. That's right. It it's all it's all very interesting. It's gonna be interesting to see how this uh Scout Motors thing plays itself out. Obviously, I've done a number of shows um with uh a number of dealers, VW dealers in Colorado, and the Colorado Auto Dealers Association president and others in the industry that have chimed in on this. And uh it's troubling to say the least. I mean, everybody's looking at this and uh they're concerned with it. Obviously, Volkswagen and Audi dealers are not lighting the world on fire right now. And as every one of us said, we'd love to have a great product like this coming into our showroom. Give us give us some innovation like this. We could we could retail these cars.

SPEAKER_01:

Well, yep. And and uh I I think though, you know, obviously these things take time, but I think 2026 is a very Pivotal year. I think we get a lot of answers in 2026 that we've sort of been waiting a while for. And again, because a lot of that other overhang is removed, and I think there can be increased focus on this issue specifically this year. I'm not saying it's all wrapped up in 2026, but but I think things move faster now than uh than they were previously because there was a lot of different issues, right? And and and that goes back to uh you know a new administration coming in and what were they gonna do and and about this, that, and the other thing, everything from tariffs to EVs and that. And and a lot of that, a lot of that uncertainty is past. And I think the focus can be on something like this. So I I I would think that these issues move faster now than we had seen in the past.

Jim Fitzpatrick:

Yeah, I agree. It's gonna be interesting to watch. Uh, otherwise, uh pretty decent year for dealers in 2026, right?

SPEAKER_01:

Yeah, I think I think it will be, you know, and again, I think the the removal of that uncertainty and that sort of organic automakers are gonna make what makes them money, right? And now, now, again, we're not gonna get any kind of affordability back, but I think that the pressure is a little bit off that says, hey, you want to do trucks because that's where the money is, that's where it's gonna be. And again, so uh, you know, and then if you're gonna lump in a little bit of tariff uh cost that was absorbed in 2025, it's all the more reason that prices probably go a little bit higher in in 2026, which just naturally will mute demand. But but I think that that sort of transparent, more transparent, more organic market is a good thing for the industry in 2026. Uh, you know, the the the product, uh the the amount of product, not only the type of product that comes out, there's a great there's a great deal more visibility on what that's gonna be, and I think that helps dealers plan and prepare for what the market's gonna look like in 2026 and probably even in 2027.

Jim Fitzpatrick:

That's right, that's right. Kevin Tynan, director of research at the Presidio Group. Thank you so much for stopping by. Very much appreciate it. I know our viewers get a lot out of uh your visit with us each time you come on, so thank you so much.

SPEAKER_01:

My pleasure, Jim, always. Thanks.

Jim Fitzpatrick:

Thanks for watching Inside Automotive with Jim Fitzpatrick.