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In a report out today, we explore the level of cash burn while US facilities are not operating. Bottom-line is Tesla has plenty of liquidity to withstand a 6+ month shutdown…far beyond what we think is likely. We also take a stab at revised estimates, which assume that a weakened consumer leads to lower volumes, although we see several reasons that Tesla volumes will hold up better than most.
Survival is the first question to get out of the way in today’s environment. Our deep analysis of Tesla’s cost structure indicates that the cash burn would get ugly starting in week 4 (due to working capital unwind), but even if the US shutdown extended into mid-June (very unlikely in our view), the cash balance (ex-credit lines) would remain well-above $3bn (from $8.6bn at 2019YE, proforma for the February equity offering).
We’re updating estimates for Lyft and Uber to reflect COVID-19 (CV) disruptions, using data from Uber Hong Kong and Didi China as a rough guide on peak-to-trough volume. We assume that Rideshare trip volume in US and Europe runs 50%-70% below pre-CV levels from mid-March through mid-June and that it takes 6 months to get back to 90% of pre-CV volumes. We are not adjusting revenue for Uber Eats as indications from Asia are that Food Delivery has not been meaningfully impacted. We’ve undertaken detailed quarterly cost est’s and our independent work roughly validates Uber management’s comments that approx two-thirds of the cost structure is at least partially variable.
In our Game-Plan for a Downturn report we re-cast estimates to reflect a 10% Global Downturn (which would put global Auto Sales 16% below the 2017 peak), and then examined the multiples that companies are trading at against this number. Our finding was that ALV, BWA, DAN, LEA, and ST are trading below historical average multiples against these downturn numbers. TEL, APTV, and MGA are trading relatively close to historical average multiples but against downturn numbers. We use this metric as a guide for determining the level of downside that each stock is pricing in.
The most common question that our team has been getting… every day… is “Where do these Auto stocks typically bottom”... We wish that there was a compelling answer… but the reality is that in a deep downturn we’ve seen exceedingly low multiples applied to trough EBITDAs, earnings, or free cash flows, largely because in the midst of the decline, Investors lack confidence that numbers won’t get worse. The catalyst for an Autos inflection typically comes from a signal that a floor or an inflection is near.
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