Carasso Motors in the First Quarter: Inventory Fell, Cash Has Not Yet Been Released

The first quarter of Carasso Motors gives only a partial answer to the question left open after the previous annual analysis: the company can sell a lot of vehicles, but it has not yet proven that growth releases cash for the group. Revenue jumped 35% to NIS 2.61 billion and vehicle inventory fell by NIS 618 million versus the end of 2025, a real improvement against the earlier inventory concern. But operating cash flow was negative NIS 578 million in the same quarter, short-term customers increased by NIS 430 million, suppliers and customer advances fell by more than NIS 860 million together, and financial debt rose to about NIS 8.1 billion. Part of the cash moved out of inventory, but it moved into other layers of working capital, the leasing fleet and customer credit. Chery and plug-in hybrids made the quarter commercially strong, which is exactly why the direct import license, valid until the end of July 2026, still matters. The next quarters need to show inventory reduction that also reaches cash flow, margin stability after gross margin erosion, and a regulatory decision around the brand that carries most of the delivery jump.

Sales Are Strong, but Profit Did Not Get the Full Lift

The group is no longer only a vehicle importer. It sells new and used vehicles, operates service and spare parts, holds leasing and rental through Pacific, provides credit through Prisbey Finance, and has held Metro Motor since March 2025. This creates a broad commercial platform around the customer, but it is also balance-sheet heavy: inventory, customer credit, a leasing fleet and rolling funding are part of the business, not accounting noise.

The sales side worked in the first quarter. Consolidated revenue reached NIS 2.61 billion, compared with NIS 1.93 billion in the parallel quarter. The vehicle segment alone recorded external revenue of NIS 1.98 billion, compared with NIS 1.35 billion, and service grew to NIS 134.8 million. But profit did not move at the same pace: gross profit rose 22% to NIS 422.2 million, gross margin fell to 16% from 18%, operating profit declined to NIS 227.4 million, and net profit was almost unchanged at NIS 108.1 million.

Chery explains the quarter. Of 17,996 vehicles sold on the accounting sales basis, including internal sales to Pacific, 10,426 were Chery vehicles, about 58% of reported volume. Delivery data show 13,479 deliveries and a 14.2% market share in the quarter, slightly above 13.3% in the parallel quarter but below the 16.2% share for 2025. The Israeli EV market fell to an 11.1% share in the quarter, and the company says the decline was mainly due to stronger demand for hybrids and plug-in hybrids. Chery sits exactly on that shift, with plug-in models and combined range of about 1,200 kilometers, while the company recorded 5,859 plug-in deliveries in the quarter.

That is a strength, but it keeps open the issue raised in the previous Chery analysis. On February 26, 2026, the Competition Authority recommended extending the Chery direct import license by one year, but as of the report date no update had been received from the Ministry of Transport. The current license is valid until July 31, 2026. Because Chery holds such a large share of the quarter's sales, this uncertainty is not a regulatory footnote. It sits at the center of the quarter's delivery engine.

Inventory Fell, Cash Moved Into Working Capital and Leasing

The best figure in the report is the inventory decline. Group inventory fell from NIS 4.17 billion at the end of 2025 to NIS 3.55 billion at the end of March. After a year in which inventory was one of the key constraints in understanding the company, as also shown in the inventory, cash flow and debt analysis, this is important progress. The company attributes the decline to higher new-vehicle sales and lower new-vehicle purchases, and the report indeed shows that inventory did not keep expanding at the earlier concerning pace.

But the inventory decline did not become positive cash flow. Short-term customers rose by NIS 430 million to NIS 1.79 billion. Suppliers and service providers fell by NIS 648 million to NIS 779 million. Customer advances and deferred income fell by NIS 216 million to NIS 229 million. Operating lease vehicles increased by NIS 122 million to NIS 3.81 billion. The quarter replaced higher inventory with uncollected sales, less supplier credit, fewer advances and continued investment in the leasing fleet.

Operating cash flow was negative NIS 578.5 million, compared with positive NIS 67.3 million in the parallel quarter. Investing activity consumed another NIS 41.8 million. Against that, financing activity brought in NIS 630.1 million, mainly through Series G, higher short-term credit and partial repayments of loans and bonds. On an all-in cash flexibility basis, after actual cash uses, the quarter was funded through the balance sheet. This is not a sign of immediate liquidity stress, because the group complies with its financial covenants and retains access to the debt market, but it does mean that the inventory decline has not yet solved the profit-to-cash conversion problem.

Debt, the Dividend and New Activities Still Need Proof

Debt is structurally part of the model for a company that holds importing, leasing and customer financing. The question is not whether there is debt, but whether the debt works for growth or merely holds working capital in place. At the end of March, the group's financial debt, including bank credit, commercial paper and bonds, totaled about NIS 8.1 billion, compared with about NIS 7.43 billion at the end of 2025. Finance expenses rose 33% to NIS 103.3 million, and net prime-linked liabilities stood at about NIS 3.5 billion. A 0.25% change in the prime rate is expected to change annual interest expenses by about NIS 8.7 million before tax.

Series G improves maturity structure and proves that funding access remains open. In February 2026, the company completed a NIS 500 million par bond issuance, with net proceeds of about NIS 496.1 million, an annual CPI-linked interest rate of 2.41%, an ilAA- rating and stable outlook. At the end of March, adjusted net financial debt to net CAP was 62.92%, versus a 79% threshold, and equity totaled NIS 2.40 billion. After a dividend distribution, Series G sets a stricter threshold of equity not below NIS 1.35 billion and debt to CAP of no more than 77%.

The dividend approved on May 26, 2026, NIS 113 million or NIS 1.20 per share, does not look exceptional relative to equity or covenants. Still, it sharpens the gap between the standalone parent layer and the consolidated group. At the parent-company level, transactions with held companies including dividends brought in NIS 285 million in the quarter, and the company's share of dividends distributed by held companies was about NIS 220 million. The distribution therefore relies on cash moving up from held companies and on an open debt market, not on consolidated free cash flow in the quarter.

Metro and Prisbey add business breadth, but they do not settle the argument yet. Metro contributed 2,103 two-wheel vehicles and 998 off-road, marine and utility vehicles in the quarter, but on March 12, 2026 a Supreme Court judgment required it to comply with the Ministry of Transport's requirement, and it subsequently chose not to renew the direct importer license for Kawasaki. Prisbey Finance showed a NIS 1.364 billion loan portfolio at the end of March, almost unchanged from the end of 2025, and after the balance-sheet date expanded into real estate-backed loans and complementary mortgages. These may become engines, but in the current quarter they still require proof of profit, underwriting and capital, not only broader activity.

What the Next Quarters Need to Prove

The first quarter improves the group's commercial story, but it does not end the discussion about growth quality. The positive side is that inventory fell, profit returned to a stronger quarterly level, the debt market remained open, and Chery found exactly the demand point where the Israeli market shifted from full EVs to plug-in hybrids and hybrids. The weak side is that the quarter still consumed cash, margins eroded, and too much of the commercial improvement relied on a brand whose direct import license has not been settled beyond the end of July.

Short-interest data before the report show that skepticism had not disappeared: on May 20, 2026, SIR stood at 3.47, above a sector average of 0.98, although the short position had fallen from early May. This is not evidence about the share price direction, but it reflects a market that still wants cash proof, not only deliveries. If inventory keeps falling without renewed growth in customers and without further margin erosion, and if the Ministry of Transport provides a clearer Chery horizon, the first quarter will look like the start of a shift from a platform growing through the balance sheet to one that starts releasing cash. If not, the sales improvement will remain real, but growth quality will remain the central issue around the company.