XPEL, the company known for its protective films and coatings for vehicles, just had a bumpy first quarter. Revenue growth slowed to a crawl, coming in at a mere 5%. The company attributed the disappointing performance to a combination of factors: a softening aftermarket, port delays for key luxury brands, and a dramatic drop in sales in China. While all of these explanations seem plausible on the surface, a deeper dive into the transcript reveals a hidden narrative, one that hints at a surprising strategic shift within XPEL: a growing skepticism of the electric vehicle revolution, particularly Tesla's dominance.

This hypothesis may sound outrageous at first, given the EV market's meteoric rise and XPEL's existing partnership with Rivian, a rising EV manufacturer. However, CEO Ryan Pape's remarks on the Q1 2024 earnings call offer intriguing clues. He specifically highlighted a curious correlation between EV adoption and XPEL's core aftermarket business. According to Pape, the initial surge in EV sales, fueled by enthusiast buyers eager to embrace the latest technology, provided an unexpected tailwind for XPEL. These early adopters, many of whom were new to the automotive aftermarket, readily invested in protective films and coatings for their prized EVs.

But then the narrative takes a turn. Pape argues that as the EV market has cooled, driven by price cuts from Tesla and other manufacturers, the profile of the average EV buyer has shifted. These newer buyers, enticed by affordability rather than cutting-edge tech, are less likely to engage with the aftermarket. This cooling effect, Pape claims, has impacted XPEL's business in a double whammy: first, by reducing the overall volume of EV sales, and second, by attracting a customer base less inclined towards aftermarket products.

This observation, seemingly a simple market analysis, reveals a subtle yet crucial implication: XPEL might be recognizing a diminishing return on its investment in the general EV market, particularly the Tesla-dominated segment. While the company continues its collaboration with Rivian, a brand targeting a more affluent and aftermarket-oriented customer, it's worth noting that Rivian's sales are dwarfed by Tesla's, representing a niche rather than a mainstream market.

Furthermore, Pape's remarks about declining attach rates for EVs across established global OEMs paint a worrisome picture for XPEL's growth in this segment. This data suggests that the initial enthusiasm surrounding new EV platforms eventually fades, leading to a normalization of paint protection film usage. This trend, if extrapolated to Tesla, implies a potential saturation point for XPEL's product within the Tesla ecosystem.

Tesla's Dominance and Declining EV Attach Rates

To understand the significance of this potential shift, consider the following: Tesla delivered over 1.3 million vehicles in 2023, a staggering number that dwarfs the combined sales of all other EV manufacturers. If XPEL's analysis about declining EV attach rates and changing buyer profiles holds true for Tesla, the company could be facing a future where its largest potential market becomes increasingly less lucrative.

This hypothesis is further bolstered by XPEL's renewed focus on its dealership services business, a segment experiencing robust growth. This business model, targeting new car buyers at dealerships, offers a more reliable avenue for reaching customers regardless of their EV or ICE vehicle preferences. The fact that XPEL is prioritizing acquisitions and investments within this segment speaks volumes about its strategic direction.

Adding fuel to the fire is XPEL's conservative revenue guidance for 2024, targeting a modest 10% organic growth. This projection, significantly lower than their previous target of 15%, signals a cautious approach, perhaps reflecting a degree of uncertainty surrounding the EV market's future impact on their core business.

XPEL's Strategic Shift: A Diversified Approach

While XPEL's leadership remains publicly optimistic about the long-term potential for its products across all vehicle segments, their actions and subtle hints suggest a recalibration of their strategy. The company may be subtly distancing itself from a Tesla-centric EV future, opting for a more balanced approach that leverages the reliable dealership channel and partnerships with niche EV manufacturers like Rivian. Whether this strategic shift proves successful in navigating the turbulent waters of the automotive industry remains to be seen. However, one thing is clear: XPEL is keenly aware of the changing tides, and its actions may be foreshadowing a future where the EV revolution doesn't play out exactly as predicted.

XPEL Q1 2024 Financial Highlights

Reference: Q1 2024 Earnings Call

"Fun Fact from the Q1 2024 Earnings Call XPEL announced an agreement with Tint World, an automotive accessory and window tinting franchise with over 100 locations, to supply their franchisees with co-branded products. This partnership is expected to significantly expand XPEL's reach and customer base."