We wanted to flag a few highlights in today's (11/13/19) Wolfe Research Auto Daily....
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Q3-2019 Mining the Filings
We’re publishing our quarterly “Mining the Filings” report today (linked here). There were a number of interesting takeaways on Fiat Chrysler (capitalizing R&D), BorgWarner (LV organic growth accelerating), APTV and LEA (Europe organic growth diverging). But we felt that the most interesting datapoints came from Tesla (Q3 margins were strong—Is this sustainable?) and Ford (We combed through historical data on Warranty, and concluded that this year’s expenses may be aberrational—A reversion to historical levels could provide a significant earnings tailwind).
MGA: More than just a bump in the road
MGA’s Q3 repeated a story that we’ve seen quite a few times in recent years. Revenue was quite a bit stronger than expected but margins were quite a bit lower. Some of this has been due to external factors, but many other factors were unique to MGA.
Q3 was a “throwaway” quarter for many in the U. S. The GM Strike shaved up to 15% off of Supplier earnings for Q3, and it’s expected to shave up to 50% off of Q4. Investors largely ignored these downward revisions.
DOJ Investigating Ford Transmissions; We Continue to Look at Ford’s $2 bn Warranty Problem
Detroit Free Press reported that DOJ investigators are looking into Ford’s DPS6 transmissions. The implications are not yet clear. But we note that Warranty expenses have become a massive problem for this company. They’re already up $900 MM YTD. Expenses are now running $2 bn above long term average levels.
Mobileye Analyst Day (Part 2): This could be a game changer for AVs and Mobility as a Service
Want to know what was so impressive (and differentiated) about Mobileye’s Autonomous Vehicle demonstration in Jerusalem? This vehicle did everything that we have seen from the best in the business… Cruise, Argo, Waymo, Aptiv… and in a very complex environment. But this vehicle was merely equipped with cameras! There were no spinning lidars, radars, or other expensive devices mounted on the car’s exterior. The vehicle’s software was run on very inexpensive hardware (EyeQ4 chips).
Uber: Q3 showed solid growth, margin progression, but margins taking a step back in Q4
Q3 revenue growth and EBITDA results were better-than-expected. Based on guidance, top-line remains strong in Q4 but margins take a step back. Improved segment and regional disclosure indicates there is a big gap between good markets and bad ones (particularly in Eats). We’d expect Uber to make some changes to the geographic portfolio that could help to achieve their newly-stated goal of full-year EBITDA profitability by 2021.
Mining the Filings: Our Q3 post-mortem on Tesla indicates most of the margin expansion was sustainable
We took a hard look at the reasons for the 360bp’s of gross margin expansion in Q3 (vs Q2) and see all but 100bp’s as sustainable. Overall very impressive as margins have now returned to 2nd Half 2018 levels even though overall ASP has fallen from around $70k to $57k.
We’ve spent time on a post-mortem of Tesla’s Q3 results and updated our bridge of margin progression from Q2 to Q3. The most impressive thing in our mind was that EBITDA in Q3 ($990mln / 15.7% margin) nearly matched 2nd Half 2018 levels despite Avg Selling Prices (including S/X/3) falling to $57k from $70k over that timeframe. The question back then was “what will happen when the M3 reservation list is depleted and ASP’s fall?” The jury is probably still out, but Q3 was a positive data-point.
We’ve long believed that TSLA needs to demonstrate margins significantly better than traditional OEMs to drive major valuation upside. The stock peaked at about $360 when that happened in 3Q18. It happened again in 3Q19 but at a lower Revenue per Unit ($57k vs $70k) and with 37% lower Model S / Model X volumes. Shares were up 20% in the aftermarket.
We wanted to flag a few highlights in today's (10/24/19) Wolfe Research Auto Daily....
GM-UAW Voting Update: Some early optimism, but now come the riskier parts
After the first day of voting we sensed some cautious optimism that a deal will pass. GM’s Tech Center, Saginaw Castings, Toledo Transmission, Warren Transmission, and Martinsburg Parts Distribution all voted in favor of the deal. But now come much larger locals representing assembly plants, and these tend to be more militant. The first assembly plant, Spring Hill, very narrowly voted No on Monday. Flint votes today. If the contract is ratified Friday, we’d expect GM to discuss the impact when they report on 10/29 (we’ve estimated the impact at $200-$300 MM next year, which is manageable).
Ford Preview – Ford set the bar low for Q3. Investors seek comfort in the bridge to 2020 and beyond.
Ford reports Q3 after the close on Wednesday. We’d note that expectations have been relatively low since Ford guided to a surprisingly weak 2H (on their 2Q19 conference call).
We wanted to flag a few highlights in today's (10/16/19) Wolfe Research Auto Daily....
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