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Susquehanna International Group, LLP (SIG) is comprised of affiliated entities, including Susquehanna Financial Group, LLLP (SFG).
SFG is a provider of research and execution services. SFG is a member of FINRA.
Please refer to page 27 for important disclosures and certifications.
CAR Management Briefing Seminars
“Rewired For Success: Is the Industry Sustainable for Capital
Creation?”August 2017
Matthew T. Stover
617.624.7353 | matthew.stover@sig.com
Brendon E. Mason
617.624.7330 | brendon.mason@sig.com
Andrew J. Crespo
617.624.7336 | andrew.crespo@sig.com
“Rewired For Success: Is the Industry Sustainable for Capital Creation?”
“Rewired For Success: Is the Industry Sustainable for Capital Creation?”
2
Section I. So much has changed (industry structure) but so much remains the
same (cycle, margins & valuation).
Section II. CAR.x is upon us. In aggregate terms, the inflection point has been neutral…but at
the stock level it has been a massive differentiator.
Section III. Parting thoughts from an investor – this seems an important time to balance
risk vs reward.
Today’s Agenda
“Rewired For Success: Is the Industry Sustainable for Capital Creation?”
The market is a Discounting Mechanism that Balances Across Three Axes
3
EFFORT
CAPITAL TIME
Returns
Growth
Valuation
Predictability
Source: SFG Research
“Rewired For Success: Is the Industry Sustainable for Capital Creation?”
We Think The Auto’s Are Getting Punished For Lack Of Predictability
4
Source: SFG Research, FactSet
6.0x
7.0x
8.0x
9.0x
10.0x
11.0x
12.0x
13.0x
14.0x
2 4 6 8 10 12 14
EV
/EB
ITD
A
ROIC %
Financials
Telecom
AUTOMOTIVE
Materials
Healthcare
Industrials
ConsumerDiscretionary
ConsumerStaples
Tech
Utilities
“Rewired For Success: Is the Industry Sustainable for Capital Creation?”
Despite Volume Growth and Shift East, Cyclical Concerns Loom
5
Source: SFG Research, AutoForecast Solutions LLC
-
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
2002 2007 2017
Un
its
, Millio
n
APAC Eurozone NA SA
“Rewired For Success: Is the Industry Sustainable for Capital Creation?”
In China, Investors Don’t Know What to Make of the Cycle…
6
Source: SFG Research, AutoForecast Solutions, LLC
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
201
8
201
9
202
0
China Production 2005-2020e
Source: SFG Research, AutoForecast Solutions, LLC
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
1 4 7
10
13
16
19
22
25
28
31
34
37
40
43
46
49
52
55
58
61
64
67
70
73
76
79
82
China 2016 Production by OE
“Rewired For Success: Is the Industry Sustainable for Capital Creation?”
Unfortunately, In The Key NA Market The Market Has Strong Opinions…
7
Source: SFG Research, Ward's Automotive
6
8
10
12
14
16
18
20
196
3
196
5
196
7
196
9
197
1
197
3
197
5
197
7
197
9
198
1
198
3
198
5
198
7
198
9
199
1
199
3
199
5
199
7
199
9
200
1
200
3
200
5
200
7
200
9
201
1
201
3
201
5
201
7
mil.
un
its
VolkerMoment
Source: SFG Research
8?
-10
-8
-6
-4
-2
0
2
4
6
8
10
Du
rati
on
-Y
ea
rs
???
UPTURN
DOWNTURN
“Rewired For Success: Is the Industry Sustainable for Capital Creation?”
OEM Margins Have “Peaked”…
8
Source: SFG Research, FactSet
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
197
4
197
6
197
8
198
0
198
2
198
4
198
6
198
8
199
0
199
2
199
4
199
6
199
8
200
0
200
2
200
4
200
6
200
8
201
0
201
2
201
4
201
6
Ford: Operating Margin - Auto
Source: SFG Research, FactSet
-20%
-15%
-10%
-5%
0%
5%
10%
15%
197
4
197
6
197
8
198
0
198
2
198
4
198
6
198
8
199
0
199
2
199
4
199
6
199
8
200
0
200
2
200
4
200
6
200
8
201
0
201
2
201
4
201
6
GM: Operating Margin - Auto
“Rewired For Success: Is the Industry Sustainable for Capital Creation?”
…and so, too, have the Supplier Margins.
9
Source: SFG Research, Company Reports, FactSet
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
14.0%
15.0%
16.0%Supplier EBITDA %
US '01-'16 EU '01-'16 JN '01-'16
“Rewired For Success: Is the Industry Sustainable for Capital Creation?”
Bottom Line…Market Sees Auto’s Through Historical Valuation
Crucible…Not Likely to Change Until a Recession
10
Source: SFG Research, FactSet
0%
20%
40%
60%
80%
100%
120%
Pre-Tech Bubble Pre-Crisis Current
Rela
tive
Va
lua
tio
n to
SP
50
0 %
Growth Value OEM
“Rewired For Success: Is the Industry Sustainable for Capital Creation?”
11
Section I. So much has changed (industry structure) but so much remains the
same (cycle, margins & valuation).
Section II. CAR.x is upon us. In aggregate terms, the inflection point has been
neutral…but at the stock level it has been a massive differentiator.
Section III. Parting thoughts from an investor – this seems an important time to balance
risk vs reward.
Today’s Agenda
“Rewired For Success: Is the Industry Sustainable for Capital Creation?”
CAR.x Is the Big Question Hanging Over the Future Outlook for Auto
12
Autonomy/Technology
TaaS/Behavioral
Electrification/Regulatory
“Rewired For Success: Is the Industry Sustainable for Capital Creation?”
Remember Amara’s Law When Opining On Future…
• “We tend to overestimate the
effect of technology in the short
run and underestimate the effect
in the long run”
-Roy Amara
13
“Rewired For Success: Is the Industry Sustainable for Capital Creation?”
The Market is Favoring Stock’s Leveraged to CAR.x
14
Source: SFG Research, FactSet
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
MB
LY
TS
LA
VC
DLP
H
FC
AU
DA
N
BW
A
TE
L
ST
LE
A
AD
NT
SP
50
MG
A
SH
LO
TH
RM
GM
SM
P
CP
S
AL
V
CT
B F
TE
N
TO
WR
GN
TX
AX
L
SU
PSto
ck P
rice Y
TD
Retu
rn
“Rewired For Success: Is the Industry Sustainable for Capital Creation?”
Investors & Executives Ask if it Has Gone Too Far?
15
Source: SFG Research, Factset
$-
$20
$40
$60
$80
$100
$120
Enterprise Value ($ bil.)
ContendersRegionalChamps
“Rewired For Success: Is the Industry Sustainable for Capital Creation?”
Maybe we need to change our perspective……
16
Source: SFG Research, Factset
$-
$200
$400
$600
$800
$1,000
$1,200
1 2
Enterprise Value ($ bil.)
TeslaOEM/Supplier
“Rewired For Success: Is the Industry Sustainable for Capital Creation?”
Autonomy: Investor Perception Positive
Current View
• Inevitable
• Vehicle Autonomy vs Autonomous
Vehicles?
• Suppliers: Content opportunity
• OEM’s: Revenue opportunity
• Non-Auto Players hunting for their
position
17
How could we be wrong?
• Non-Auto player could be the disruptor
• Delayed timing
– Regulatory delays
– Infrastructure build out
• Regulatory demand creates adverse
pricing environment
“Rewired For Success: Is the Industry Sustainable for Capital Creation?”
Electrification: Investor Perception Negative
Current View
• Growing Sense of Inevitability
• Fixed / Variable cost pressure
• Disruption of Current Industry Order –
By Company (TSLA) or Government
(China)
• Labor Risk
18
How could that “View” be wrong?
• Commonization
• Outsourcing opportunity for Suppliers
• Long term opportunity to improve
capital returns for OEM’s
“Rewired For Success: Is the Industry Sustainable for Capital Creation?”
TaaS (Transportation as a Service): Investor Perception Confused
Current View
• Inevitable
• Everyone wants to be a player:
– OEM, Supplier, Dealer & Rental,
– Tech, Government
• Data is Gold – What is the pick axe?
• Industry unit volume production will
decline but $ value likely to go higher
19
How could we be wrong?
• Heterogeneity of market could lead to
slower than anticipate adoption curve
• Business Models are Complex
• Slower than anticipated adoption curve
– some fundamental problems have not
been addressed
“Rewired For Success: Is the Industry Sustainable for Capital Creation?”
20
Section I. So much has changed (industry structure) but so much remains the
same (cycle, margins & valuation).
Section II. CAR.x is upon us. In aggregate terms, the inflection point has been neutral…but at
the stock level it has been a massive differentiator.
Section III. Parting thoughts from an investor – this seems an important time to balance
risk vs reward.
Today’s Agenda
“Rewired For Success: Is the Industry Sustainable for Capital Creation?”
Investment Rates are Climbing – Articulate the Magnitude of Growth
Spending…The Market Can Look Forward.
21
OEMs Suppliers
Source: SFG Research, FactSet
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
CEX % RDE %
Source: SFG Research, Company Documents
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
CEX % RDE %
“Rewired For Success: Is the Industry Sustainable for Capital Creation?”
If Stable Cycle Prevails, Growth Investment Can Be Funded
22
Source: SFG Research, FactSet
-2.0x
-1.0x
0.0x
1.0x
2.0x
3.0x
4.0x
AX
L
ST
TO
WR
AD
NT
DA
N
TE
N
TE
L
BW
A
DLP
H
CP
S
MG
A
LE
A
AL
V
TH
RM
SU
P
GN
TX
VC
Net Debt/EBITDA
Source: SFG Research, FactSet
0%
5%
10%
15%
20%
25%
30%
35%
40%
GN
TX
ST
TE
L
AX
L
DLP
H
BW
A
TH
RM
SU
P
AL
V
VC
CP
S
DA
N
LE
A
MG
A
TE
N
TO
WR
AD
NT
EB
ITD
A %
FCF% = EBITDA % - CEX %
FCF % CEX %
“Rewired For Success: Is the Industry Sustainable for Capital Creation?”
Think Through the Downside and Please Don’t Bet the Ranch Chasing
Unicorns…Consider Adoption of a PE Approach
23
Source: SFG Research, FactSet
0
50
100
150
200
250
300
350
400
199
5
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
YT
D
201
7P
F
Number of Transactions
Source: SFG Research, FactSet
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
199
5
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
YT
D
201
7P
F
Transaction Value ($ mil)
“Rewired For Success: Is the Industry Sustainable for Capital Creation?”
Closing Thoughts
• The industry cycle is shifting and the market sees the industry through a
historic valuation crucible.
• CAR.x is complex and will take time
• Manage capital with respect to risk…not just reward
• Industry may want to adopt PE model to access liquidity and manage
risk.
THANK YOU VERY MUCH
24
“Rewired For Success: Is the Industry Sustainable for Capital Creation?”
25
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