Auto Industry Performance After Economic Crisis

𝗜𝗻 𝘁𝗵𝗶𝘀 𝗶𝗻𝗱𝘂𝘀𝘁𝗿𝘆, 𝘂𝗻𝗰𝗲𝗿𝘁𝗮𝗶𝗻𝘁𝘆 𝗶𝘀 𝘁𝗵𝗲 𝗰𝗼𝘀𝘁𝗹𝗶𝗲𝘀𝘁 𝗱𝗿𝗶𝘃𝗲𝘁𝗿𝗮𝗶𝗻. In a previous post, I brought up the auto industry's post-COVID shift through the lens of revenue. Now I want to show a more brutal scoreboard: market cap. The story it tells about the crisis of confidence for some, and the radical optimism for others, is even more dramatic. 𝗥𝗲𝘃𝗲𝗻𝘂𝗲 𝘁𝗲𝗹𝗹𝘀 𝘆𝗼𝘂 𝗵𝗼𝘄 𝗮 𝗰𝗼𝗺𝗽𝗮𝗻𝘆 𝗽𝗲𝗿𝗳𝗼𝗿𝗺𝗲𝗱 𝘆𝗲𝘀𝘁𝗲𝗿𝗱𝗮𝘆. 𝗠𝗮𝗿𝗸𝗲𝘁 𝗰𝗮𝗽 𝘁𝗲𝗹𝗹𝘀 𝘆𝗼𝘂 𝘄𝗵𝗮𝘁 𝗶𝗻𝘃𝗲𝘀𝘁𝗼𝗿𝘀 𝗯𝗲𝗹𝗶𝗲𝘃𝗲 𝗶𝘁 𝘄𝗶𝗹𝗹 𝗯𝗲 𝘄𝗼𝗿𝘁𝗵 𝘁𝗼𝗺𝗼𝗿𝗿𝗼𝘄. This chart reveals a profound divergence in how the market is valuing the future of major automakers, creating three distinct camps. 𝟭. 𝗧𝗵𝗲 𝗧𝗲𝗰𝗵 𝗗𝗶𝘀𝗿𝘂𝗽𝘁𝗼𝗿𝘀 (Tesla & BYD) Their revenue and market cap growth (＋𝟮𝟵𝟯%／＋𝟭𝟳𝟯𝟬% for Tesla, ＋𝟱𝟱𝟬%／＋𝟱𝟰𝟵% for BYD) exist in another dimension. They aren't valued as car companies; they're valued on their software, battery ecosystems, and potential for exponential scale. 𝟮. 𝗧𝗵𝗲 𝗣𝗿𝗮𝗴𝗺𝗮𝘁𝗶𝗰 𝗪𝗶𝗻𝗻𝗲𝗿𝘀 (Toyota Motor Corporation & Hyundai Motor Company ) This is the new power duo among legacy OEMs. Toyota's market cap has soared ＋35%, and Hyundai's is up a strong ＋𝟱𝟲%. Their story is about profitable execution. A strong hybrid game, appealing designs, and a clear, believable path to an electric future have earned them immense investor confidence. 𝟯. 𝗧𝗵𝗲 𝗖𝗿𝗶𝘀𝗶𝘀 𝗼𝗳 𝗖𝗼𝗻𝗳𝗶𝗱𝗲𝗻𝗰𝗲 (Volkswagen , Stellantis ) Despite solid revenue at VW (＋𝟮𝟯%), its market cap has been halved (−𝟱𝟮%). Stellantis declined on both revenue and value. The market has lost faith in their ability to master software and compete effectively on a global scale. The biggest risk in the auto industry today is not choosing the "wrong" technology, but having an unclear, unprofitable, or poorly executed strategy. The market is rewarding conviction and execution—whether it's disruptive or pragmatic—and brutally punishing uncertainty. #AutomotiveIndustry #Investing #BusinessStrategy #Disruption #Tesla #Toyota #Volkswagen #ENERGYDM Matt Damasceno 𝗠𝗲𝘁𝗵𝗼𝗱𝗼𝗹𝗼𝗴𝘆: *EOY USD market caps (CompaniesMarketCap/Macrotrends); revenues are full-company totals (not auto-only), USD via Fed G.5A avg FX; FY for Toyota/Honda; Stellantis 2019=FCA+PSA; Hyundai+Kia summed; rounded. Mercedes note: 2019 is Daimler AG incl. Trucks & Buses, 2024 is Mercedes-Benz Group post 2021 truck spin-off (Vans remain included); rounded. *

One of the cylinders in the U.S. economic engine is causing some sputtering. Since the pandemic, buyers on auto-dealer lots have encountered surging sticker prices and smaller incentives from automakers to lessen the blow. To afford an automobile, more consumers, especially lower-income families, have resorted to buying used cars and taking out longer loans. Now, more are falling behind on their loans, signaling that lower-income consumers are struggling to afford payments as wages stagnate and unemployment ticks higher. While the economy has remained strong, and Wall Street has kept buying subprime auto loans, the auto market is evidence that not all is well under the hood. The percentage of new-car buyers with credit scores below 650 was nearly 14% in September, roughly one in seven people, J.D. Power said last month. That is the highest for the comparable period since 2016. And the portion of subprime auto loans that are 60 days or more overdue on their payments hit a record of more than 6% this year, according to Fitch Ratings, while delinquency rates for other borrowers have remained relatively steady. https://lnkd.in/eqJtrebF

With the UAW strike having resolved itself (assuming union ratification of course), I thought it was useful to take a look at profitability in the motor vehicle and parts sector as well as cumulative retained earnings that these firms have amassed. Data below are from the Quarterly Financial Report. Thoughts: •Top plot shows the ratio of income (loss) from operations over net sales. There is no other way to put it: the 2004-2009 were a brutal period in this sector, especially during the worst of the Global Financial Crisis (see also industrial production data at https://lnkd.in/gv_YhUr8). On the other side of the GFC, the industry quickly returned to profitability. We then saw a negative Q2 2020 due to COVID-19 lockdowns and a very weak Q4 2021 due to the worst of the chip shortage coupled with very sharp increases in input prices. Q1 and Q2 2023 were good quarters, with profit from operations relative to sales near 2017 – 2018 levels. •Bottom chart shows retained earnings. As can be seen, retained earnings have been steadily advancing since about 2015 and amount to almost $200 billion. This will be important as firms invest to make the transition to EVs. •The key question is how sales continue to advance as we move through the rest of 2023 and into 2024. I wouldn’t be surprised to see 2024’s sales come in below 2023 levels due to higher costs of financing, coupled with the fact I don’t see the FOMC reducing interest rates anytime soon. Implication: the motor vehicle and parts sector, a key part of the U.S. economy, has largely powered through the worst of material shortages that plagued 2021 and much of 2022. The question now is how sales perform in 2024. Here’s hoping the shortfall of sales in 2021 and 2022 keeps spending for motor vehicle sales strong until we can start to see interest rates decline. #supplychain #supplychainmanagement #shipsandshipping #manufacturing #freight #trucking  

From Crisis Management to Strategic Resilience: Key Lessons for Automotive Leaders - Interesting article from McKinsey & Company The past few years have tested the resilience of the automotive industry like never before. Supply chain disruptions, shifting consumer expectations, and the race toward electrification, AI, and digitalization have forced companies to rethink their strategies. How have industry leaders turned crisis into long-term strategic resilience? A recent analysis highlights five key areas where top-performing organizations have made the shift: - From Short-Term Fixes to Long-Term Resilience Companies that prioritized operational agility, digital transformation, and supply chain flexibility outperformed those relying solely on reactive crisis management. - Supply Chain Reinvention & Nearshoring Global supply chain disruptions exposed vulnerabilities. Companies leveraging regional manufacturing, alternative sourcing, and digital visibility tools improved efficiency and mitigated risk. - AI, Automation & Data-Driven Decision Making Industry leaders are using predictive analytics, machine learning, and process automation to optimize production, inventory management, and pricing strategies. - EV Acceleration & Sustainability as a Competitive Edge The electric vehicle (EV) revolution, carbon neutrality, and circular economy practices are reshaping the industry. ESG (Environmental, Social, and Governance) leadership is now critical for long-term profitability. - Agile Leadership & Workforce Transformation Future-ready companies are investing in digital upskilling, cross-functional collaboration, and AI-driven operations to drive innovation and adaptability. The Road Ahead for Automotive Executives: ✔ AI-driven manufacturing and automated supply chain management will define the next decade. ✔ Smart factories, digital twins, and IoT adoption will revolutionize production efficiency. ✔ Diversification of supply chains through nearshoring and localization will reduce disruptions. ✔ Sustainability, EV innovation, and regulatory compliance will be key drivers of success. How is your company navigating these industry shifts? Let’s discuss in the comments. #AutomotiveIndustry #EV #AI #DigitalTransformation #SupplyChainResilience #FutureOfMobility #SmartManufacturing #Sustainability #MachineLearning #Leadership #Innovation #ManufacturingExcellence #AutoTech #Electrification

In the wake of recent events, the Auto Industry, particularly in Europe, has been experiencing significant turmoil. Companies like VW are closing factories in Europe and shifting operations to Mexico, while Stellantis faces challenges. The rise of Chinese vehicles and collaborations between Japanese giants like Toyota, Mazda, Honda, Nissan, and Mitsubishi signal a shift in the industry dynamics. The root cause seems to stem from a departure from fundamental principles like Deming's teachings on Quality, process improvement, Lean methodologies, and customer-centricity. Instead of striving for excellence, many companies have rushed products to market, neglected thorough testing, lacked innovation, and failed to prioritize customer needs. This shortsighted approach has led to a vicious cycle of repeated failures and missed opportunities for growth. Numerous companies have been bailed out by governments multiple times, leading to a lack of motivation for improvement. Some European companies relied on government protectionism through taxes and regulations, hindering competition and stifling innovation. This complacency has pushed these companies into a necessary phase of reinvention or face the risk of obsolescence—a common occurrence in the business landscape since the industrial revolution. Data underscores the severity of the situation, with over 34 million vehicles recalled in 2023 and 8.65 million in 2024 first quarter, a trend exacerbated by increased scrutiny from regulatory bodies like the National Highway Traffic Safety Administration. The failure to learn from past mistakes is evident in the continuous recalls plaguing certain companies, highlighting a critical need for change. The 2025 recalls are expected to double. To navigate this challenging landscape, a reset is imperative. Companies must refocus on customer satisfaction, quality assurance, Lean principles, continuous improvement, cost efficiency, safety standards, and innovation. Embracing new technologies like electric vehicles and hybrids is crucial, as the market evolves towards eco-friendly solutions. By prioritizing these areas, companies can steer themselves towards a sustainable and competitive future. https://lnkd.in/ePFnDrbM