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Lear meaningfully cut its FY19 guidance, with the midpoint on revs down over 5% vs the prior outlook ($19.8bn-$20.3bn vs $20.9bn-$21.7bn) and op income down 13% (op income $1.35-$1.45 bn vs $1.60-$1.70 bn previously). Importantly, compared to our estimates the cut was almost exclusively related to 2nd Half 2019, with implied 2H19 revenue / op income down 9% / 23%.
We wanted to flag a few highlights in today's (07/15/19) Wolfe Research Auto Daily....
Thoughts on the Ford/VW partnership in AV and EV
This mitigates development cost for Ford (Argo will likely be de-consolidated). And it may signal a strategic shift.
Ford/VW Partnership has implications for Uber and Lyft
Initial deployments of AMOD are fairly near-term (12-24 months). This realization has forced a decision point for many automakers. Also worth noting… since AMOD doesn’t promise much value for the vehicle assembler (fairly low volume, low brand value of the car itself), they need to either own the network or own the self-driving hardware / software themselves to derive value.
Another Daimler profit warning…. but this one is different
Daimler issued another profit warning this week, citing worse market growth and slower new product launches. Veoneer, Magna, Lear, and Delphi could have some exposure.
Does Tenneco have strategic options?
The Auto Industry Outlook has deteriorated since Tenneco’s current strategy was unveiled in the Spring of 2018. And while it may be difficult for the Company to change direction, we believe that this needs to be considered. The current plan does not look like it will work. But we believe that TEN may have options that the Street is not actively contemplating.
Why are OEM’s adding EV’s into the lowest-priced vehicle segments?
FCA’s $788mln investment for a Fiat 500 EV production line is another data point that highlights the economic challenges of Europe CO2 regulations. But more fundamentally, why do OEMs think consumers are going to pay a €10k-€12k premium for car types that typically cost €20k or less?
Tire update… Natural Rubber continues to decline; And Q2 replacement demand was decent (despite a pullback in June)
Overall, industry trends suggest CTB is increasingly well positioned.
Tenneco’s shares have declined by 66% YTD, as Investors have grown concerned that the company’s strategy may not work. The problems: 1) TEN overpaid for the Federal Mogul acquisition (7.5x EBITDA for Federal Mogul); 2) They took on too much leverage (Net debt was at 3.4x trailing EBITDA as of March 31 and covenants set the max at 3.5x by 9/30/2020); 3) They appear to have overestimated the multiples the Street would pay for each asset, and; 4) If there is a split into two levered companies, as is currently planned, the cyclical Tenneco Remainco could be at risk.
We wanted to flag a few highlights in today's (07/09/19) Wolfe Research Auto Daily....
Reuters battery article highlights disconnect between CO2 commentary and reality
VW Purchasing Chief clarifies that co-investing will be required to secure battery supply. And another data point that makes 7%-8% EV adoption targets for 2020 / 2021 seem almost impossible.
Geely guidance cut highlights concerns about China
Geely cut 2019 delivery guidance by 10% and issued a profit warning, underscoring concerns about the China market.
Manheim Q2 Call: Used Pricing Remains Strong in June, and Used Retail Sales Outlook More Positive than Expected
Generally strong used pricing, modest retail used vehicle sales growth in 2019 and 2020, and plateauing off-lease were our key takes from Manheim’s quarterly call.
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