Rising EV Adoption Will Erode Margins Despite Resilient Memberships

Key Takeaways

• Shifts toward electric vehicles, public transportation, and ride-sharing threaten subscription growth and reduce Mister Car Wash's core customer base.
  
• Competitive pressures, regulatory costs, and operational leverage may squeeze margins, making long-term profitability and returns more difficult to sustain.
  
• Strong recurring membership revenue, disciplined expansion, and industry advantages position Mister Car Wash for sustained growth, improved margins, and increased profitability through innovation and market leadership.

Catalysts

Provides conveyorized car wash services in the United States.

• Despite the growth in subscription members, Mister Car Wash faces a growing risk from rising adoption of electric vehicles, many of which require less frequent cleaning due to technologically advanced coatings. Over the long term, this trend is expected to reduce wash frequency and suppress same-store revenue growth across the company's footprint.
  
• Urbanization and the increasing move toward public transportation and ride-sharing in major metro areas threaten the total addressable market for car washes, as private vehicle ownership plateaus or declines. This shrinking pool of customers could drive down both top-line growth and the underlying baseline of subscription memberships needed to support future earnings.
  
• Mister Car Wash's heavy operational leverage and an increasing dependence on subscription revenue expose it to heightened volatility if consumer discretionary spending contracts or if there is a shift away from subscription-based services in a downturn. A rapid drop in member count or utilization rates would lead to outsized declines in EBITDA margins and overall profitability.
  
• Persistent competitive intensity from both local and national operators, especially those targeting eco-conscious consumers or leveraging new service models like mobile washes, is likely to drive price competition and force Mister Car Wash to invest more heavily in ESG-related upgrades and marketing just to maintain share, putting further pressure on net margins in the years ahead.
  
• Ongoing requirements for expensive upgrades to equipment, water systems, and chemicals in response to tightening environmental regulations could erode free cash flow and strain margins, especially if Mister Car Wash cannot innovate ahead of escalating regulatory demands. This, combined with the high capital intensity of their expansion model, may ultimately lead to structurally weaker return on invested capital and lower long-term earnings power.

Mister Car Wash Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Mister Car Wash compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Mister Car Wash's revenue will grow by 6.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 8.5% today to 12.1% in 3 years time.
• The bearish analysts expect earnings to reach $147.8 million (and earnings per share of $0.43) by about August 2028, up from $87.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 18.1x on those 2028 earnings, down from 21.5x today. This future PE is lower than the current PE for the US Consumer Services industry at 18.7x.
• Analysts expect the number of shares outstanding to grow by 1.69% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.98%, as per the Simply Wall St company report.

Mister Car Wash Future Earnings Per Share Growth

Risks

• The resilient and growing Unlimited Wash Club (UWC) membership base, which now accounts for approximately 75% of sales and has demonstrated high retention and strong response to price increases, creates predictable recurring revenue that supports long-term revenue and earnings growth for Mister Car Wash.
  
• Mister Car Wash's disciplined approach to capital deployment, healthy balance sheet, and consistent cash-generating ability enable ongoing expansion through both new greenfield stores and accretive M&A, positioning the company to increase market share and drive top-line and margin growth over time.
  
• Industry-wide trends of moderating new competitive store openings and increasing market rationalization favor established players like Mister Car Wash, allowing the company to benefit from reduced price wars, better unit economics, and improved operational leverage, which strengthens margins and future earnings potential.
  
• Effective marketing tests have shown that targeted investments in advertising can drive meaningful comp store sales growth, suggesting Mister Car Wash has untapped potential to accelerate retail and membership growth, which would positively impact revenue and net income in future quarters.
  
• Strategic investments in innovation, new product launches, and operational excellence have helped shift car washing into a recurring consumer habit, supporting both higher customer satisfaction and premium-tier adoption, which can increase revenue per member and improve overall profitability.

Valuation

• The assumed bearish price target for Mister Car Wash is $6.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Mister Car Wash's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $11.0, and the most bearish reporting a price target of just $6.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $1.2 billion, earnings will come to $147.8 million, and it would be trading on a PE ratio of 18.1x, assuming you use a discount rate of 9.0%.
  
• Given the current share price of $5.73, the bearish analyst price target of $6.0 is 4.5% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.