Specialist
Former senior executive at Audi of America LLC
Agenda
- North America automotive OEM (original equipment manufacturer) industry trends and developments
- Comparison of key domestic OEMs, including Ford (NYSE: F), General Motors (GM; NYSE: GM), Stellantis (NYSE: STLA) and Tesla (NASDAQ: TSLA)
- New vehicle supply and demand dynamics amid continued production bottlenecks
- 2022 mid-year outlook
Questions
1.
Could you share 2-3 key trends or developments you’ve been following in the North America automotive OEM [original equipment manufacturer] industry?
2.
What pace has the market been growing at and what are your growth expectations over H2 2022, 2023 and the next 3-5 years?
3.
Could you outline the competitive landscape, how you see each player’s relative market share in North America, how that’s evolved and where we stand today? You highlighted Tesla compared to the rest of the industry.
4.
How would you force rank the North America operators, based on the criteria of managing supply chain procurement, getting cars out to dealers faster and vertical integration?
5.
OEMs are really into EVs [electric vehicles] and there’s a shift into and focus on electrification. You highlighted early models that are starting to be rolled out. How do you think OEMs can overcome some of the cost, supply chain and infrastructure issues and make a profit in terms of the EV transition?
6.
You mentioned the benefit and strength of vertical integration, and also – perhaps from the more traditional OEMs – having to trust the suppliers. How much do you expect EV manufacturing will be brought in-house under the transition?
7.
How might OEMs’ models change with the shift to BEVs [battery electric vehicles], including autonomous vehicles? I know BEV construction is clearly different, with much more compute and software. How could supply chain challenges change? Which OEMs might use internal resources for the software or hardware, and why? I believe Volkswagen has developed a BEV that’s licensed to others including Ford, but I’m not sure on the supply chain implications there. Are tier 1 suppliers engaged in supplying components for both VW and Ford?
8.
What are your expectations for 2023 BEV penetration in the market? There are widely discussed targets.
9.
Tesla has picked giga locations based on government subsidy. I know the Berlin gigafactory was well-subsidised, as were the Asia and US ones. At least in the US, how might the government be thinking about international vs domestic OEMs? Will it all play into the hands of the domestic manufacturers or will they try to assist and subsidise the international OEMs to the same extent to try and meet the goals?
10.
You mentioned the margins and prices by OEMs and probably dealers, and it seems tier 1s haven’t really been in a good position over the past two years. How do you assess the dynamic between the OEMs and tier 1s? You highlighted the need for OEMs to trust the tier 1s, and I think we’ve seen the trouble tier 1s have in trying to negotiate cost recoveries, and that they’ve been hurting in a period where OEMs have done particularly well. How do you see those relationships evolving? Will the tier 1s allow themselves to be in this position in the future or will this dynamic change? Will there be any recovery or perhaps an update in terms of the negotiations with the tier 1 suppliers around inflationary cost recoveries and other issues?
11.
Tesla and some newer start-up EV OEMs are taking the path of owning the distribution and owning the service after the fact. We’ve heard about franchise dealership laws preventing some OEMs from doing the same. What do you think are the prospects of this channel shift going D2C? What is OEMs’ willingness and ability to pursue this approach? Who’s going to be taking profits over time with the dealer relations – the OEMs or dealers?
12.
You mentioned the order backlog at OEMs. Could you elaborate on that?
13.
Is there a risk of the orders being cancelled?
14.
The order backlog is a number we can track to gauge consumer demand for new autos. What other KPIs do you monitor to gauge this demand? Have you seen any warning signs given the recession discussion?
15.
My understanding and what I’m hearing is the pricing environment may be plateauing. It may be a peak-ish pricing environment for new cars, given the tight inventory, and it’s probably a matter of time until it comes down, when inventory is normalised and production can ramp up. Do you think car pricing will completely return to the pre-pandemic baseline or will it gradually decrease while permanently sitting above a floor? Some OEMs say they will keep inventory tight for longer now that they have better demand forecast capability compared to pre-pandemic.
16.
We’ve discussed supply chain issues and disruptions. I think we might be seeing a recent decline in consumer electronics – whether that’s across mobile phones, TVs or white goods – that should free up potential semiconductor capacity to help OEMs ramp up production. What’s stopping the semiconductor shortage from being resolved? I was surprised when GM [General Motors] announced it couldn’t ship out around 90,000 cars in Q2 2022 due to semiconductor unavailability and pushed out wholesale delivery timing. GM was the most ambitious about improving the semiconductor supply chain originally, and I think it highlighted 25-30% wholesale volume growth in 2022 vs 2021, but is now very back-end loaded given the slower-than-expected ramp up. What are your thoughts here around the semiconductor shortage?
17.
How are OEMs viewing auto chips and software vendors for next-generation autos – the EVs and autonomous vehicles? Does the chip selection become much more important? To what extent is third-party software from chip suppliers important?
18.
Labour is a big issue for OEMs, or perhaps small compared to everything else, but an issue nonetheless. I think record low unemployment was posted a week or so ago. What’s your labour outlook? How much of this can we offset from automation, and do you expect more labour participation to return to the auto industry?
19.
You’ve highlighted vertical integration. What are your thoughts on the M&A market? Do you see any industry consolidation on the horizon? Would you highlight any obvious or attractive tie-ups?
20.
Although I appreciate the theme is the North America auto OEMs market, it is a global industry and we’ve discussed global issues. What’s your global auto market recovery timeline?
21.
What are the best- and worst-case scenarios for the industry over the next 12-18 months?
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