Pondside47 Posted August 17, 2018 Posted August 17, 2018 I'm surprised to see only one person mention autonomous in this thread. If autonomous driving comes to fruition, I suspect most auto manufacturers will look like Blackberry and Palm Pilot twenty years from now. GM is taking it seriously and Fiat Chrysler / Jaguar were smart to lock up partnerships with Waymo, but autonomy will benefit from network effects. And network effects means only a few winners, and only a few winners means a lot of bankruptcy / consolidation among the auto makers. None of the traditional auto makers are tech companies - it's not in their DNA. A few may be able to make the transition, but if autonomous driving is possible then this industry is on the verge of getting massively disrupted. And if so, a lot of these auto makers will be classic value traps even at these levels because their terminal value in 10-15 years is zero. I haven't mentioned autonomous driving in this thread because I don't think I can add any value other than what's being said in the media. What's the chance of full autonomous in 10 years? And what are the chance terminal value really be zero? At what rate of decline in earning will make auto makers trading a 6x FCF a value trap? If you do the calculation, the idea that auto makers are untouchable based on autonomous driving threat is crazy... of course you need someone who cares about shareholder value to control the company so we don't spend huge amount of money chasing something that may not be a 100% winner take all business model. I think FCA is one of those companies.
Gregmal Posted August 17, 2018 Posted August 17, 2018 I still like the auto's, with a preference towards GM, but at some point(like with FCAU) you either see the brilliance break through, or the incompetence rise to the surface. Bottom line, when you are trading at 5x for several years and your share price has gone nowhere, you are doing something wrong, most likely on the capital allocation front. Everyone highlights all of GM's investing in the future, and that's great, but there's also been a solid argument made that they are spending like crazy on all this during the good times, without much reward for shareholders, and should the cycle turn, there is a good chance we'll see that they've just pissed their money away. Hopefully this does not end up the way it has for many other companies who follow this path. IE Do it their way and piss away money on what they want to do, finally get enough pushback from investors to change their ways but unfortunately this is typically after SOOO much underperformance that the "cycle" is near a turning point, and then to appease neglected investors the company starts buying back stock at exactly the wrong time. Hopefully this isn't the case.
rb Posted August 17, 2018 Author Posted August 17, 2018 I'm surprised to see only one person mention autonomous in this thread. If autonomous driving comes to fruition, I suspect most auto manufacturers will look like Blackberry and Palm Pilot twenty years from now. GM is taking it seriously and Fiat Chrysler / Jaguar were smart to lock up partnerships with Waymo, but autonomy will benefit from network effects. And network effects means only a few winners, and only a few winners means a lot of bankruptcy / consolidation among the auto makers. None of the traditional auto makers are tech companies - it's not in their DNA. A few may be able to make the transition, but if autonomous driving is possible then this industry is on the verge of getting massively disrupted. And if so, a lot of these auto makers will be classic value traps even at these levels because their terminal value in 10-15 years is zero. I think that Blackberry/Palm is a horrible analogy. Those companies were in low capital/high margin business. Auto makers are in a high capital/low margin business. And it's a really complicated business to boot. Let's assume that Waymo nails the self driving technology. Who's gonna make the cars? Is Google gonna spend tens of billions to develop cars and build car factories to put them all together? Furthermore, the way that designing tech may not be in the car companies' DNA. Designing cars is not in the tech companies' DNA. Ask yourself, is a Silicon Valley engineer the right person to make a car for a redneck? I think it makes a lot more sense for Waymo to license out the tech to the car companies and let the car companies do the car stuff. Sort of like Microsoft did with Windows. Taking all of this in, I'd say that car companies are far from zeros 15 years out. And as pondside said, these are some probabilistic scenarios. So thinking about them, what's the risk at 5x PE? If these companies were trading at 15x I'd say that we wouldn't be having this conversation. But at 5x you get compensated for a lot of this risk.
abitofvalue Posted August 18, 2018 Posted August 18, 2018 I would think this is simply a case of cyclical industry trading at low multiples when at peak earnings. There are reasonable reasons to believe that the current cycle has peaked and vehicle sales will decline for the next 3-5 yrs. Auto bulls say bears are being too dramatic and sales will plateau.. or fall will be gradual not meaningful... Bears say no SAAR is going from 17M to 14M and the auto makers are ill prepared for such a drop in sales. Bear cases i have heard come down to the growth in leasing. Low interest rates and high used vehicle prices have driven a sharp increase in lease volumes over the past 5yrs. There will be a ton of leased vehicles coming up for lease renewals. Lease expiring vehicles have benefited from high used vehicle pricing as losses from lease return sales have been low and lessees have bought the leased vehicle. This will change when they can buy a comparable 2-3 yr old vehicle for less than the buy-out price in the lease contract. This will increase supply of used vehicles and lower prices. Lower used prices will reduce value of trade-ins impacting new vehicle sales. Which will drive inventories higher. You saw this playing out in 2017. the hurricanes helped clear out inventory, boost demand for replacement vehicles and as such delayed the cycle turning.. Keep in mind also playing out along these supply/demand dynamics is higher interest rates which can dampen how much investors are willing to pay (monthly payments) and impacts lease economics.
JRM Posted August 19, 2018 Posted August 19, 2018 I'm surprised to see only one person mention autonomous in this thread. If autonomous driving comes to fruition, I suspect most auto manufacturers will look like Blackberry and Palm Pilot twenty years from now. GM is taking it seriously and Fiat Chrysler / Jaguar were smart to lock up partnerships with Waymo, but autonomy will benefit from network effects. And network effects means only a few winners, and only a few winners means a lot of bankruptcy / consolidation among the auto makers. None of the traditional auto makers are tech companies - it's not in their DNA. A few may be able to make the transition, but if autonomous driving is possible then this industry is on the verge of getting massively disrupted. And if so, a lot of these auto makers will be classic value traps even at these levels because their terminal value in 10-15 years is zero. A few counterpoints: -If nobody owned a vehicle and everyone used an Uber-like service with AV technology, then automobile utilization would increase substantially. Maintenance intervals would shrink drastically, and useful life would shorten. -In liu of the shortened vehicle life due to increase utilization, ride sharing services require a newer vehicle. They could relax this standard, but this is a built in replacement interval. -I don't think its reasonable to expect car ownership to go away completely. I think there will still be a need for auto manufacturers. People will still like to virtue signal through the type of car they drive.
Spekulatius Posted August 19, 2018 Posted August 19, 2018 If cars can drive themselves, I would expect the numbers of miles driven to go up significantly. It is possible, that the self driving feature will increase the price of a car significantly. Driving up utilization is fine, but this doesn’t change the fact that most cars are used from 7-8AM and from 5-6PM weekdays for commuting. If you reduce the number of cars, it would mean shared drives or people would have to wait. I do agree that self driving cars will change the value proposition of a car. The key feature may be how well the self driving system works, not the mechanics of a car so much. However keep in mind that a self driving cars isn’t just software, it is and advanced sensor, electronics (radar, lidar (?) system where the software is part of the solution. The car makers have quite a bit of know how in system engineerinf using sensors and electronics, so I am guessing that the will take part of thr design of thr self driving feature. I don’t know how this plays out, but I do t think the self driving feature will make the cars itself a generic, like Windows did what PC’s. I don’t think that is likely the case.
alwaysinvert Posted August 19, 2018 Posted August 19, 2018 The AV disruption worry is super-silly with the multiples autos are trading at today. Not even the most wild bulls, who are still informed, think that mass-market AVs are imminent. It's emblematic of today's market environment that this is consistently front and center in people's minds even on a value forum. The potential AV R&D sinkhole would worry me much, much more and would be more in line with how the auto manufacturers have historically burned profits. But blue-eyed tech optimism is the name of the game at the moment and people love to discuss sci-fi scenarios more than anything.
Cardboard Posted August 20, 2018 Posted August 20, 2018 "The AV disruption worry is super-silly with the multiples autos are trading at today. Not even the most wild bulls, who are still informed, think that mass-market AVs are imminent. It's emblematic of today's market environment that this is consistently front and center in people's minds even on a value forum. The potential AV R&D sinkhole would worry me much, much more and would be more in line with how the auto manufacturers have historically burned profits. But blue-eyed tech optimism is the name of the game at the moment and people love to discuss sci-fi scenarios more than anything." +100 Alwaysinvert! It is as bad as it was in 1998-2000. Back then, I could buy companies like Sigma-Aldrich and Autozone that were buying back 20% of their shares and trading very cheaply because people envisioned them disappear with the Internet. Then made a few baggers on each. Interestingly, 20 years later, they are still there... Cardboard
rb Posted August 20, 2018 Author Posted August 20, 2018 "The AV disruption worry is super-silly with the multiples autos are trading at today. Not even the most wild bulls, who are still informed, think that mass-market AVs are imminent. It's emblematic of today's market environment that this is consistently front and center in people's minds even on a value forum. The potential AV R&D sinkhole would worry me much, much more and would be more in line with how the auto manufacturers have historically burned profits. But blue-eyed tech optimism is the name of the game at the moment and people love to discuss sci-fi scenarios more than anything." +100 Alwaysinvert! It is as bad as it was in 1998-2000. Back then, I could buy companies like Sigma-Aldrich and Autozone that were buying back 20% of their shares and trading very cheaply because people envisioned them disappear with the Internet. Then made a few baggers on each. Interestingly, 20 years later, they are still there... Cardboard AV is a weird one. If it's true Av then it has value. True AV I mean like I can go out have a fun night at the bar with my buddies and then my car legally brings me home. Something like the Autopilot in Tesla for $10k where you have to ready to drive the car is a joke meant for people with more money than brains. I don't need Autopilot, I know how to drive. For what it's worth I think we'll have true AV at some point. It just looks like it could work and there's lots of money going into it. So I think they'll get there eventually. But I just don't see how it takes the automakers out of the picture. At the very least someone has to be making the cars. As we get to see with Tesla, cars are not easy to make. And they can't be a joke because it's an expensive product. Furthermore, I don't see how AV is a winner take all business. It's not a product like Google where it gets better everyday - once it knows how to drive, it knows how to drive. So even if a player is late to the party it can catch up. I also don't get the skepticism that only silicone valley can do this and automakers can't. Daimler has been putting AV-ish things in their cars as part of their safety package and they actually worked pretty well. Is it really that much of a stretch to think that if you give that team a few billion they're gonna come up with some pretty cool stuff?
John Hjorth Posted August 20, 2018 Posted August 20, 2018 One thing is Uber, another thing is car pooling / car sharing - what are your thoughts, gents?: Bloomberg - Hyperdrive - By Stefan Nicola & Elisabeth Behrmann [August 17th 2018]: 'Peak Car' and the End of an Industry - In Germany - The birthplace of the modern automobile - carmakers are anticipating the day when people stop owning cars. [Article outlined here.]
rb Posted August 21, 2018 Author Posted August 21, 2018 One thing is Uber, another thing is car pooling / car sharing - what are your thoughts, gents?: Bloomberg - Hyperdrive - By Stefan Nicola & Elisabeth Behrmann [August 17th 2018]: 'Peak Car' and the End of an Industry - In Germany - The birthplace of the modern automobile - carmakers are anticipating the day when people stop owning cars. [Article outlined here.] I think that it would have an impact but it will be fairly marginal. One way to look at it is London. It has pretty low car ownership. It is structurally anti car: lots of public transit, bike lanes, congestion charges, etc. I was able to get around with no problem without a car. It also had a Uber before the was Uber. It was called Addison Lee. I left before Uber came. From what I understand Uber is somewhat cheaper. But Addison Lee was pretty cheap. Whoever was gonna give up their cars did it already. London has 330 cars per 1,000 population. But even there 90% of households that are not dirt poor and have a kid also have at least one car. Berlin which featured in the article has 342 cars per 1,000. So they're not that far behind. Then you have the sprawled out cities of North America. Cars are not optional. Take Toronto, it's big, and it has 2.7 million people. But the suburbs around Toronto are GIANT and have more population than Toronto itself. Toronto proper itself has about 410 cars per 1,000. It really doesn't have the infrastructure to go much lower than that. Uber is not actually cheap. I live a northern suburb but I'm close to the city boundary. An uber ride from my house downtown costs $70 each way. A ride to the grocery store is $10 each way. That's really expensive compared to having a car. Take another example. Mississauga is a western suburb. It's canada's 6th largest city with a population of about 800,000 - it's not small. Let's say you're a young buck, live downtown and don't have a car cause you would uber everywhere. Now let's say that you're dating a girl from Mississauga. To pick her up in Mississauga, take her to dinner in the city, take her home, and come back will cost you at least $250 in Uber fees. This would be typical for a big city in North America. As much as Silicon Valley would preach, services like Uber don't really compete with the car. They compete more with cabs and public transit. Urban planning policies have much more to do with car usage. And in North America we're not doing much on that front. So at least in North America I don't think we're anywhere close to peak car.
John Hjorth Posted August 21, 2018 Posted August 21, 2018 Thank you for shedding some light on Uber for the large North American and European metropoles, rb, I was actually thinking about London conditions myself. Somehow, I'm thinking about Uber as a competitor to taxi businesses - the difference between Uber and "real" car sharing / pooling being the driver: Uber: A chauffeur - "real" car sharing / pooling: You're the driver. - - - o 0 o - - - Some local anecdotal Uber stuff here: Uber got thrown out of Denmark - last year, I think. Here, taxi businesses are regulated businesses, where taxi permits are managed by the municipalities. The number of permits in a city are basically based on judgements about demand. Uber was operating here without such permits. It ended with huge fines in a limited number of trial cases for taxi business activity without permit, fines based on income from the activity for each Uber driver. Then the Danish IRS got interested, and started up audits on some of those Uber drivers. A high pertage haden't declared anything about that income in their tax returns - then the Danish IRS got really interested, and took them all out for audit! - - - o 0 o - - - Here is a "real" Danish car sharing / pooling project/business : Green Mobility A/S. It got listed on NasdaQ First North Copenhagen last year, actually. It's operating in Copenhagen, Frederiksberg and Gentofte municipalities, with 400 Renault Zoes, and is getting traction, from what I have read. The company has got Copenhagen Municipality and the real estate company Jeudan A/S [JDAN.CPH] as customers, among others. It's rolling out now in Oslo. The ambitious business plan is to break even in Copenhagen by 2019 and to be present in 20 major European cities by 2021. From the miniscule I have read about it, it's based on cooperation with German E.ON, which has provided the charging infrastructure [and most likely also is the vendor of the 100% renewable energy - thus "Green" in the company name etc.]. Not investable by now for persons here on CoBF [start up], I think, but the perspective is interesting and has some appeal to me. It will certainly be interesting to follow going forward. - - - o 0 o - - - Are there something similar going on / in the works other places?
Cigarbutt Posted August 22, 2018 Posted August 22, 2018 Thank you for shedding some light on Uber for the large North American and European metropoles, rb, I was actually thinking about London conditions myself. Somehow, I'm thinking about Uber as a competitor to taxi businesses - the difference between Uber and "real" car sharing / pooling being the driver: Uber: A chauffeur - "real" car sharing / pooling: You're the driver. - - - o 0 o - - - … Are there something similar going on / in the works other places? Don't want to clogg the thread but since you're asking about "local" initiatives that may be relevant for perspective. In the Montreal area, Uber has met resistance mostly due to regulations. There is a private start-up (indirectly supported by government) called Téo Taxi which is an interesting intermediate disrupter: focus on technology (client interface, taxi fleet management), electric vehicles and salaried drivers and which is led by a dynamic character. The firm is expanding and appears to gain market share (within taxi industry and car "sharing" in a durable way). Interesting that it may benefit from the car disaffection that seems to characterize the younger generations. https://electrek.co/2017/09/29/montreal-fleet-of-electric-taxis-and-trucks-teo/ http://www.ccmm.ca/en/news/blog_three_things_to_take_from_alexandre_taillefer_visit/ http://chairelogistique.hec.ca/wp-content/uploads/2017/11/infor_article.pdf At some point, these new trends are bound to impact, somehow, traditional auto makers.
rb Posted August 22, 2018 Author Posted August 22, 2018 - - - o 0 o - - - Here is a "real" Danish car sharing / pooling project/business : Green Mobility A/S. It got listed on NasdaQ First North Copenhagen last year, actually. It's operating in Copenhagen, Frederiksberg and Gentofte municipalities, with 400 Renault Zoes, and is getting traction, from what I have read. The company has got Copenhagen Municipality and the real estate company Jeudan A/S [JDAN.CPH] as customers, among others. - - - o 0 o - - - Are there something similar going on / in the works other places? There are a bunch of car sharing companies in Toronto. The biggest ones being ZipCar and Car2go. They've been around for a while. ZipCar for more than 10 years. They're also not that cheap. But make sense if you're a downtown dweller and just need to venture out of the city core every now and then. If you need to use them more than occasionally you're better off owning a car. Zip car is nice because it has a variety of car, whereas car2go (owned by daimler) mostly has Smarts. Speaking of which, who was the genius in Denmark that decided to stuff people in a bunch of Zoes? That's a horrible car!
Cigarbutt Posted August 22, 2018 Posted August 22, 2018 Zip car is nice because it has a variety of car, whereas car2go (owned by daimler) mostly has Smarts. Speaking of which, who was the genius in Denmark that decided to stuff people in a bunch of Zoes? That's a horrible car! Why do you think it is a horrible car? https://www.telegraph.co.uk/cars/renault/renault-zoe-review/ Want to hear about your perspective but please remember that a segment of the population (growing?) may see a car as a commodity to go from point A to point B.
rb Posted August 22, 2018 Author Posted August 22, 2018 Well it basically has no trunk. I mean you can out a toothbrush in there, but not much more. And while you may be able to put an adult behind a 6 foot driver, that adult better be pretty small. Maybe there is some segment that doesn't care about any of that. But if you're deploying a sizeable fleet to service a market, why would you only focus on that segment. That seems like a pretty boneheaded decision in this case. Why go with Zoes when you can spend a little bit more for a more versatile car that can address a bigger market? Why go after a segment instead of market dominance? Let me put it another way. The first gen Nissan Leaf is one of the ugliest cars I've ever seen. I'd rather look at a guy's bare ass than look at that thing. But it has a pretty big trunk. Do you think that's an accident, or do you think it was done on purpose because Nissan figured it was gonna be used a lot as a cab?
John Hjorth Posted August 22, 2018 Posted August 22, 2018 rb, Cigarbutt answered your question. +1 from me on that. It's enjoyable to read your posts saturated with car passion, by the way. [ : - ) ]
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