The key metrics of the automotive industry, in plain language: what they mean, how they are calculated and when they mislead. Compiled by Philipp Raasch, 10 years at Mercedes-Benz, today an independent analyst. The current figures are in the Insights ranking.
Size & valuation
What is market capitalization?
Market capitalization is the stock market value of a company. It shows what all of its shares are worth together right now. That is how the market prices what the company is worth from an investor's point of view. The figure moves every day with the share price and says nothing about revenue or profit.
FormulaShare price multiplied by the number of shares.
Example
If a share trades at 100 euros and there are 1 billion shares, market capitalization is 100 billion euros. If the price rises to 120 euros, the market value grows to 120 billion, even though nothing has changed in the business.
When it misleads
Many automakers have several share classes or are listed on several exchanges. Adding both classes or both listings together counts the same value twice. In London, shares are quoted in pence, not pounds. Before converting to euros you therefore have to divide by 100, otherwise the value is a hundred times too high.
Revenue is the sum of all of a company's sales over a period, usually a year. It shows how much money comes in from cars and services sold, before any costs are deducted. Revenue is not profit. Materials, wages, taxes and much more still have to come out of it.
Example
If a manufacturer sells cars worth 50 billion euros and makes another 10 billion with spare parts and financing, revenue is 60 billion. How much of that remains as profit is an entirely different question.
When it misleads
Large automotive groups often run their own bank for leasing and financing. Its earnings are included in group revenue. Pure automotive revenue is therefore usually smaller than the total figure. Anyone comparing manufacturers should check whether they are looking at group revenue or automotive revenue.
Vehicle sales are the number of vehicles a manufacturer sells or delivers. They are measured in units, not in money. That sets them apart from revenue. Two manufacturers can have the same vehicle sales and still generate completely different revenue, depending on the price of their cars.
Example
A volume manufacturer sells millions of affordable cars and has huge vehicle sales. A luxury manufacturer sells far fewer vehicles but earns many times as much revenue per car. On vehicle sales one leads, on profit per car often the other.
When it misleads
Deliveries, sales and production are three different things. Some manufacturers report delivered vehicles, others vehicles sold to end customers. In addition, a pure truck maker is not comparable to a passenger-car manufacturer, because a single truck carries a very different weight from a small car.
Car production is the number of vehicles actually built over a period. What is meant is factory output, that is, what comes off the line. That is something different from vehicle sales. Built does not yet mean sold; a finished car can sit in inventory first.
Example
A country or a plant can build more cars in a year than are sold in the same year. The extra vehicles then move into inventory and are delivered only later. Production and sales therefore do not move in lockstep.
When it misleads
Production is not the same as sales. Between building and selling lie inventory and a time lag. In weak years, manufacturers sometimes build more than they sell, and inventory grows. Equating production with demand overlooks this buffer.
The employee count shows how many people a group employs. It is a simple measure of the size and weight of a company. What is usually meant is the entire consolidated group at a given reporting date, that is, across all brands, plants and countries.
Example
A large automotive group quickly employs several hundred thousand people worldwide. A pure sports car maker gets by with a few thousand. The employee count therefore also says something about the business model, not just about size.
When it misleads
Temporary staff appear in the figure sometimes and not others, depending on the definition. Employees of joint ventures are often counted only proportionally. In addition, a reporting-date figure is something different from an annual average. Anyone comparing two manufacturers should check for the same counting method.
Net profit is what actually remains at the end of a year. It is also called net income. It is what is left once all costs, interest and taxes are subtracted from revenue. Revenue shows the size of the business, net profit shows how much of it sticks.
Example
A manufacturer makes 60 billion euros in revenue and has 56 billion in costs and taxes. That leaves 4 billion as net profit. Setting this profit in relation to revenue gives the net profit margin.
When it misleads
A single year can deceive. If a group sells a stake or books a one-off special effect, profit shoots up without the core business running any better. Conversely, one-off burdens such as recalls or fines push profit down. A look across several years shows the true picture.
The operating margin shows how much of revenue remains as operating profit. EBIT stands for earnings before interest and taxes. Operating margin and EBIT margin therefore mean the same thing. The metric measures how profitable the actual business is, independent of financing and tax burden.
FormulaEBIT divided by revenue, times 100. The result is a percentage.
Example
A premium manufacturer with high prices often reaches a double-digit operating margin. A volume manufacturer frequently sits in the low single digits, because it earns far less per car. The gap shows how differently profitable the business models are.
When it misleads
At diversified conglomerates, business beyond cars dilutes the margin. What matters is the reported margin of the automotive segment, not that of the whole group. Figures pulled automatically from databases are often unusable. They wrongly include government subsidies, results from stakes and special charges, and so distort the picture.
Free cash flow is the money a company has freely available after all ongoing spending and investments. It arises from operating cash flow minus investments. Unlike profit on paper, it shows how much real money remains at the end and is enough, say, for dividends or paying down debt.
FormulaOperating cash flow minus investments, that is, minus so-called capex (capital expenditures, the spending on plants and machinery).
Example
If a manufacturer generates 12 billion euros of operating cash flow and invests 9 billion in plants and technology, 3 billion of free cash flow remain. From that the company can pay down debt or distribute money to shareholders.
When it misleads
Free cash flow swings sharply, often only through timing. If bills are paid earlier or later, or larger investments fall into one year, the figure jumps. Leasing business also distorts the picture. For automakers with their high investments the metric is central, but a single year easily deceives.
EBIT is earnings before interest and taxes. EBITDA is earnings before interest, taxes, depreciation and amortization. The difference is exactly the depreciation and amortization, that is, the loss in value of machinery, plants and other assets. EBITDA is therefore always higher than EBIT, because this item has not yet been subtracted.
Example
A manufacturer has 8 billion euros of EBITDA. Subtracting 3 billion for depreciation on plants and machinery leaves 5 billion of EBIT. At automakers with expensive factories this gap is especially large.
When it misleads
EBITDA hides depreciation and makes a capital-intensive business look more profitable than it is. Automakers in particular pour a lot of money into plants and machinery, whose loss in value is real. For the automotive industry, EBIT is usually the more honest figure, because it factors in this expense.
Profit per employee shows how much profit a company generates per person employed. The metric measures productivity and efficiency. It reveals how well a manufacturer creates value from its workforce, and makes groups of different sizes more comparable than the raw profit total.
FormulaProfit divided by the employee count.
Example
If a group makes 4 billion euros in profit with 200,000 employees, that is 20,000 euros per head. A smaller, highly profitable manufacturer can sit far higher here, even though its total profit is much smaller.
When it misleads
Business models are not directly comparable. A manufacturer that produces a lot in-house needs more people than one that relies heavily on suppliers. Capital-intensive and labor-intensive models therefore lead to very different values, without one automatically being better than the other. It also matters which profit figure sits in the numerator. Our ranking uses the operating result of the automotive segment, not group net profit. That keeps taxes, the financial arm and special effects out, and makes pure automotive profitability visible.
Profit per car shows how much a manufacturer earns on every vehicle sold. It is also called profit per vehicle. The metric makes large and small manufacturers comparable, because it does not measure the total profit but profitability broken down to a single car.
FormulaProfit divided by vehicle sales, that is, by the number of vehicles sold.
Example
A luxury manufacturer often earns several thousand euros on a single car. A volume manufacturer sometimes makes only a few hundred euros per vehicle and has to make up the difference on volume. The metric shows this difference at a glance.
When it misleads
At diversified conglomerates, profit does not come from the car business alone. Dividing the entire group profit by vehicle sales attributes profit from trucks, financial services or other divisions to the single car as well. It also matters which profit is meant. Our ranking uses the operating result of the automotive segment, not group net profit. That removes taxes, the financial arm and special effects, and shows pure automotive profitability.
The export ratio shows what share of the vehicles built goes abroad. It measures how strongly a country or a manufacturer depends on exports. A high ratio means that the largest part of production does not stay in the home market but is sold to other countries.
FormulaExported vehicles divided by total production, times 100.
Example
If a country builds 5 million cars and exports 4 million of them, the export ratio is 80 percent. Such a country sells most of its vehicles abroad and reacts sensitively to tariffs and trade disputes.
When it misleads
Exports by unit count and exports by value produce very different rankings. A country that exports many affordable small cars ranks far up by units. By value, a country with few but expensive vehicles can move ahead. Which ratio is meant should always be clarified.
The EV share shows what part of newly registered cars runs purely on electricity. The technical term for it is BEV, short for battery electric vehicle, a pure battery-electric car. The metric measures how quickly the switch to electric cars is actually progressing in a market, and counts as an important gauge of the shift to electric mobility.
Example
If, out of 100 new cars in a market, 20 are pure electric cars, the EV share is 20 percent. The value is rising in many countries, but differs sharply from market to market.
When it misleads
BEV is not the same as electrified. Counting plug-in hybrids gives a much higher value, even though these cars also have a combustion engine. In China the term NEV is also common, which includes hybrids. Anyone comparing markets has to check whether only pure electric cars are really meant.
The R&D ratio is the research and development ratio. It shows what share of revenue a manufacturer puts into new technology, for example into electric drivetrains, software and driver assistance. A high ratio suggests that a company is investing heavily in its future, rather than living off its existing business alone.
FormulaR&D spending divided by revenue, times 100.
Example
If a manufacturer with 60 billion euros in revenue spends around 6 billion on research and development, the R&D ratio is 10 percent. Premium and technology leaders usually sit higher here than pure volume manufacturers.
When it misleads
Manufacturers may book part of their development costs as an asset instead of deducting them immediately as an expense. Capitalized costs then do not appear fully in the ratio, which looks lower than the amount actually spent on research. How much each one capitalizes varies. That distorts the direct comparison of reported ratios. Two manufacturers can research equally and still report very different ratios.
This glossary explains the metrics that appear in the rankings of Der Autopreneur. Deliberately in plain language, without jargon, but without oversimplifying where it matters. Every metric comes with a definition, a formula, an example from the automotive industry and a note on when it misleads.
All information is for information purposes only and is not investment advice. Definitions are simplified; in individual cases, accounting standards and group definitions may differ.
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