Our analysis suggests that the current version (v1.0) of Mobility on Demand (MOD) is more concentrated than investors think—8 cities account for more than 50% of all US revenue. Expanding beyond these areas requires the cost of MOD to become much more competitive (with private vehicle ownership) than it is today. We illustrate how difficult this will be… at least under the current, human operated model.
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U.S. sales have gotten off to a slow start—with 16.6 MM SAARs in both Jan and Feb (Note: 2018 was 17.2 MM). While this is consistent with our forecast (16.7 MM SAAR for this year), this prompted a flurry of calls regarding the state of industry inventories (which ended Feb at 77 days, 7% above “normal”), and potential risks to production (impacting OEMs/suppliers) and/or pricing (incentives from OEMs). We revisited our production assumptions and concluded that inventories can easily be brought back in-line with historical levels based on a normal seasonal uptick in sales, and very modest (100k) adjustments to production.
In April 2015 Fiat Chrysler’s then CEO Sergio Marchionne surprised the Street with an impromptu presentation calling for Auto Industry consolidation. The presentation focused on 2 points: 1) The Auto Industry had not earned its cost of capital over a cycle, and; 2) Consolidation is the key to remedying the problem. At the time Marchionne argued that achieving greater scale and eliminating duplicative investment could have meaningful benefits. Clearly, this call did not pan out.
Tenneco reported much weaker than expected 4Q18 EBITDA (significant earnings declines in each of the legacy Tenneco businesses) and weaker than expected 2019 guidance before the open on Thursday (2019 VA margin guidance of 10.4% corresponds with 2019 EBITDA in the $1.6 bn range compared with consensus of $1.7+ bn). The risk/reward for this stock was set up poorly heading into the print, as there was limited disclosure/transparency into quarterly pro formas for the Federal Mogul acquisition (this was the first quarter to include FMO), there were adverse trends within all three legacy TEN segments (margins were down materially), and TEN is now saddled with relatively high leverage (3x net debt/EBITDA). Tenneco’s shares fell 15% for the day.
General Motors disclosures should remind investors that GM has an interesting SOTP angle. While the 10K dropped language related to timing of Cruise Commercialization (we still expect this w/in the next 12-months), the company is clearly preparing for bigger things. Cruise employees and management are receiving Stock Options and RSUs that vest upon an IPO. On the negative side, GM also continues to disclose potential residual risks related to the bankruptcy of old GM (Plaintiffs want 30 MM additional shares for the GUC trust; GM will fight this at a March 11 hearing); The Takata recall could cost $1.2 bn (though GM is still seeking to avoid a recall).
Four factors converged to simulate recessionary conditions for LEA (starting 3Q18) - 1) Production of key Lear platforms in North America was dragged down by temporary downtime for major model changeovers; 2) European production was disrupted by an emissions certification logjam; 3) China experienced its first downturn in over 20 years; 4) Lear's net new business backlog had an unusual, but temporary gap.
Magna reported in-line 4Q18 EPS ($1.63 vs. consensus/WRe $1.60/$1.61) before the open on Friday. 2019 Revenue/EBIT guidance was unchanged ($40.2-$42.4 bn; EBIT 7.3%-7.6%), and the company’s 2019 free cash guide was raised to $1.9-$2.1 bn (from $1.7-$1.9 bn) due to working capital.
Thursday morning (02/22/19) that were operationally inline (EBIT/EPS of $125 MM / $1.06 was above our $118 / $0.83, mainly driven by lower incentive/compensation costs). 2019 Guidance from early Nov was lowered modestly based on lower global production and more conservative tariff assumptions.
Visteon reported 4Q18 Adjusted EBITDA of $74mln (10.0% margin) compared to WRe of $66mln (9.2% margin) as $20mln higher-than-expected revenue, plus cost efficiencies, converted well to the bottom-line. 2019 guidance was affirmed at $2,900-$3,000 revenue (approx. flat organic growth) and EBITDA margin of 10% (compared to FY2018 11.0% mid-10’s over last 3 quarters). Mgmt noted fairly significant revenue declines in the first half (tough comps and minimal launch activity) with a back-half of accelerating launch activity, much easier comps, and some customer-specific improvement (VC customer production down mid-singles in 1H and slightly growing in 2H).
Cooper Tire reported adjusted 4Q18 EBIT of $59 MM (EPS $0.66) compared with our estimate of $54 MM (EPS $0.62). The upside vs. our estimate this quarter was more than 100% driven by a slightly less negative raw material headwind (the headwind from raw materials was just $11 MM yoy vs. our -$25 MM estimate). Looking at the numbers another way… the yoy improvement (from $47 operating profit in 4Q17 to $59 MM in 4Q18) was more than 100% entirely driven by accounting ($9 MM Pension cost shifted out of EBIT, and a $6 MM product liability gain).
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