CVNA priced its 2nd ABS deal, 2019-2, which closes 6/27. With the benefit of the pre-sale reports and pricing, we estimate that Financing profit per unit will be $823/Unit in Q2, which is 31% sequentially higher than Q1 and 17% higher than we had been anticipating. Keep in mind, unlike other captive finance companies, CVNA sells the residual and recognizes all the profit up-front, which means that it benefits immediately when rates drop.
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We wanted to flag a few highlights in today's (06/10/19) Wolfe Research Auto Daily....
Europe SAAR has been holding up, but underlying trends point to risks
The Western Europe SAAR came in at 14.4 MM in May, which was in-line with year-ago levels. We noted heavy fleet, and continued high CO2 levels (which poses risks starting next year).
The U.S. pulled the threat of Mexico tariffs
While we felt that across the board tariffs on Mexico imports were unlikely, the potential implications, even from short term tariffs, nonetheless caused concerns about GM, APTV, and AXL. We therefore believe that the elimination of this overhang should lead to some relief.
Despite growth in the U.S. Vehicle Parc we’re still seeing strong used vehicle pricing trends
The ratio of vehicles per licensed driver is approaching all time highs... but we don’t yet see evidence of oversupply of vehicles in the U.S. market.
Yesterday (5/8/2019), after market close, CVNA reported Q1 results. Retail units grew 99% beating consensus by 9pts, while total $GP/unit of $2,429 beat consensus of $2,399. EBITDA margins were roughly in-line at -7.4%. As for the full-year guide, EBITDA margin guidance was held and Unit guidance was barely increased (+3%), which we expected.
We wanted to flag a few highlights in today's Wolfe Research Auto Daily...
Delphi – A Rare Clean Quarter in Supplier Land
We were encouraged by Q1, and we took a closer look at how this company can improve significantly in 2020.
Aptiv – Secular Growth Remains Strong, Overshadowed by Short-term Costs
Aptiv’s Q1 was fine… but their full year 2019 outlook was not (Downward revision due to: 1) China and Europe; 2) A large resin cost spike). We still see this company as an impressive secular grower (9 ppts GoM this year). But the multiple reflects this.
Dana – A solid quarter; focus on the incrementals
Dana’s Q4 was solid (though we point out that the full year expectation will require significantly better incremental margins in 2H). The bigger focus of investors, however, is cyclicality. We see this debate continuing (despite our view that downside risk is less than perceived). And this could cap upside.
CVNA reports after close on 5/8. We raised Retail units for Q1 in-line with buyside scrape bar and took up annual units for 19/20 but made only minor adjustments to EBITDA. Retail $GP/U is likely biggest risk given used car pricing/reconditioning center launches (Clev/Nashville), and competition for trade-ins. Big picture: Online adoption is rapidly accelerating throughout the industry and we see CVNA as best positioned due to a combination of technology, customer experience, branding, and affordability.
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