California’s AB5 bill implements a more difficult “test” to justify classifying workers as contractors. But keep in mind that drivers would need to argue in court / arbitration that Lyft / Uber does not pass the “test”. This could take a long time to play out. In the meantime, discussions are ongoing to maintain contractor status for drivers but provide higher minimum earnings levels and some benefits. We see this as the most likely outcome.
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We wanted to flag a few highlights in today's (09/04/19) Wolfe Research Auto Daily....
China demand remains sluggish, but major auto stimulus still not on the horizon
Industry demand in China remains weak, with August retail sales tracking down >10% y/y and the China SAAR stuck in the 20.0-21.0 MM range. And while the govt’s recent proposal to loosen purchase restrictions in major cities is encouraging, meaningful auto stimulus remains unlikely.
Will the decline in interest rates support demand?
Based on the decline in benchmark rates we expect Auto loan rates to decline by 75 bps, driving lower monthly payments. If US economic growth merely slows, and does not enter recession, this could serve as a significant support for demand.
Tesla China purchase tax exemption more evidence of strong relationship with gov’t
For the first time, imported Tesla’s can take advantage of one of China’s policies to spur EV adoption, helping to partially offset the import duty hike scheduled for Dec 15.
We wanted to flag a few highlights in today's (08/15/19) Wolfe Research Auto Daily....
Lyft: Good performance with the trees, but what about the forest?
Performance is Q2 was quite good, as a focus on better pricing and share gains for business travelers and other “high-value” routes led to better-than-expected margins. But we believe that growth in these segments is finite. Enough revenue growth to get to breakeven (from -25% EBITDA margin currently) will require Lyft to tap into the broader market, in our view. And, for that, pricing needs to go down, not up.
Takeaways from Continental earnings call
Continental is a bellwether. In our view, anyone following US suppliers should take a closer look at what they said (which we summarized in this Daily). Conti’s auto business experienced similar 1st half margin compression as suppliers we cover but they are not expecting a similar recovery in the 2nd half.
On a revenue / EBITDA basis, Q2 results outperformed consensus by 7% / 26% and FY19 guidance was raised by 6% / 26%. While rev growth looks modestly higher than expected over the course of 2019, the big surprise was EBITDA margin, now expected at around -25%, 10 points better than prior guidance. This is largely attributed to lower Sales & Marketing expense which indicates a significantly better competitive dynamic in the industry. Shares were volatile after-hours but settled around +5%, which we’d expect to hold.
What to Watch for Ahead of Lyft’s 2Q Earnings
Lyft reports 2Q results after the close Wednesday. Wolfe and consensus are estimating Q2 and FY19 within the guidance range. Based on our conversations, investors are unsurprisingly focused on incremental data points that will help to clarify the medium-term trajectory of revenue growth and operating leverage. Full-year guidance is for a steep deterioration of revenue growth over the course of 2019 and negative operating leverage. While there seems to be a broad view that guidance is conservative, we believe it’s the direction of these metrics, not the magnitude, that’s important. And we see little reason to believe that confidence will improve in the near-term.
De-levering needs to become the priority for Tenneco
Tenneco reports 2Q19 earnings later today and based on TEN's light vehicle assumptions a miss should not surprise. That said, the numbers here may not be quite as important as the Strategy.
China cash crunch?
A number of investors have recently asked us about our 2020 expectations for China and at this point we don’t have a high conviction answer. We note several interesting developments within.
What’s the biggest risk for US OEMs?
We’ve been asked what could potentially set back our relatively bullish thesis on the U.S. OEMs (and GM in particular). In our minds the biggest risk is increasing capacity in the pickup truck market. The large pickup truck market still looks ok but we see risk to mid-size trucks.
McDonald’s – DoorDash partnership highlights competitive risks but we still see strong US growth for Uber Eats
We analyze what McDonald’s announced partnership with DoorDash means for Uber, and why we still see strong growth potential for Eats in the US.
GPC – Another EU blow up
Genuine Parts Company reported yesterday AM and missed on both Revenue (by 140bps) and EPS (by 4%), Europe was largely responsible.
We wanted to flag a few highlights in today's (07/15/19) Wolfe Research Auto Daily....
Thoughts on the Ford/VW partnership in AV and EV
This mitigates development cost for Ford (Argo will likely be de-consolidated). And it may signal a strategic shift.
Ford/VW Partnership has implications for Uber and Lyft
Initial deployments of AMOD are fairly near-term (12-24 months). This realization has forced a decision point for many automakers. Also worth noting… since AMOD doesn’t promise much value for the vehicle assembler (fairly low volume, low brand value of the car itself), they need to either own the network or own the self-driving hardware / software themselves to derive value.
Another Daimler profit warning…. but this one is different
Daimler issued another profit warning this week, citing worse market growth and slower new product launches. Veoneer, Magna, Lear, and Delphi could have some exposure.
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