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.
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A tool for assessing the impact of global production on earnings
Given the risk to Global Economic Growth and Global Auto Production in 2020, we thought it would be helpful to provide a sensitivity model that allows our clients to input their own regional assumptions and assess the impact to Earnings and FCF across our U.S. coverage universe. Click here to download.
The risk to Fiat Chrysler from Italy’s escalating Coronavirus crisis
Italy announced over the weekend that it is applying new quarantine measures in response to the coronavirus outbreak. Italy is a 2.1 MM unit market (12% of EU sales), with the areas under quarantine accounting for 20% of the country’s sales. FCA has 25% market share in Italy. We assessed the implications for FCA of more negative assumptions for this particular market, while acknowledging that the implications are likely broader (i.e. macro impact across multiple markets).
Investor concerns about Coronavirus clearly extend well beyond China. With that in mind, we thought it would be instructive to re-visit what earnings (and FCF) would look like if all key markets (i.e. China, North America, and Europe) experienced 10% drops. Our analysis is detailed within.
The big question heading into Thursday results was when revenue growth/EBIT metrics would start to inflect meaningfully higher. We see sizable potential tailwinds in the 2022-2025+ timeframe (especially as BWA integrates DLPH power electronics into its existing motor/electric drivetrain offerings). But we don’t see these propelling growth in 2020 or 2021. BWA’s strong FCF (10% FCF yield on 2020 numbers) should provide support at current levels. But we don’t yet see a near-term catalyst to support a re-rating of the shares.
We continue to believe that core US ride-share markets (dense, urban cities) will become saturated faster than investors expect. Lyft is over-exposed and revenue growth is slowing to low-to-mid 20% in 2H20 (based on guidance)…which seems too slow too soon. We also believe autonomous vehicle-based ride-share services will be strong competitors in the core cities sooner than expected.
Fiat Chrysler – Plenty of risks priced-in, but tough to find a catalyst given high CO2 concerns
FCA’s Q4 results were largely in-line with Mgmt’s prior guidance, with FCF slightly better on favorable working capital. 2020 guidance was left unchanged, and we were aware of most of the major headwinds and tailwinds (i.e. tailwinds from the non-repeat of inventory corrections, UAW bonus, and diesel fines in NA; Europe CO2, higher capex, UAW labor costs, Warren Truck downtime, etc). Surging palladium and rhodium prices are a new risk, as is the coronavirus. But these appear to be in the stock (FCA mkt cap less dividends is €13.3 bn). The key question is whether there is a catalyst on the horizon… We don’t see one at the moment, as near (and long-term) concerns around Europe remain (FCA/PSA business will be 46% Europe).
We wanted to flag a few highlights in today's (01/23/20) Wolfe Research Auto Daily....
Negative regulatory news-flow has died down, lock-up expirations are history, and a more rational competitive landscape appears to be holding. We believe this has re-focused investors on the meaningfully better than expected results in Q2 and Q3 and what that portends for 2020.
We wanted to flag a few highlights in today's (01/22/20) Wolfe Research Auto Daily....
Auto Predictions for 2020 and the Next Decade
With the turn of the decade, we took a different approach for our Auto Outlook Report, looking back at the last 10 years and looking ahead to the next 10… a period that for Autos, may be characterized by the most disruptive technological changes of the past 50+ years. Until now these changes were viewed as “down the road” developments that had limited relevance for stock picking. We sense that this is now changing.
So what about our view for 2020? And what will inspire confidence at YE2020, looking out to 2021?
Investors looking at this space need to consider the long term trends, as well as short term risks (e.g. Europe CO2 regs). Overall, we conclude that shares of GM and Ford are both set up well. Profitability/free cash flow for both is likely to inflect (we are upgrading Ford today). Amongst Suppliers we believe that Aptiv and Visteon are arguably best positioned to achieve long term growth.
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