Earnings season is always hectic, fun, and full of information from all angles of any given industry. This time around, the automotive industry had quite an interesting first quarter: There were some wild comments from Tesla (NASDAQ:TSLA) CEO Elon Musk, as well as a bold decision from Ford Motor Company (NYSE:F), and an intriguing partnership deal from Aptiv (NYSE: APTV). Here's what investors need to know.
A not-so-boring call
Tesla's conference calls are never boring, and are generally full of information, hype, and intrigue. This one was no exception, albeit a little more bizarre than analysts expected.
Musk expressed annoyance with the discussion of accounting figures and what he deemed myopic questions -- exactly what Wall Street cares about from quarter to quarter. It's not difficult to understand his frustration, given his ambitions are much grander. Unfortunately, Musk became fed up, telling the operator that "Boring, bonehead questions are not cool. Next?" Musk later replied to another question with: "I'm not here to convince you to buy our stock. Do not buy it if volatility is scary. There you go."
That's just a small sample from the unique conference call.
But don't let those comments overshadow Tesla -- a company that has the potential to become an electric-vehicle empire -- and some of its interesting figures from the quarter. Among them, Tesla revealed it had more than 450,000 Model 3 reservations at the end of the first quarter, and that it hoped to reach production of 5,000 per week in roughly two months (production hit 2,270 per week during April). And the company said it could begin production of the Model Y small crossover in early 2020.
On the downside, while the future could be incredibly bright, Tesla reported a net loss of $784.6 million and its cash flow was negative $1 billion for the third time in the past four quarters.
What we learned: Musk and Tesla will continue to think big, Wall Street will remain myopic, and the electric-vehicle maker's conference calls will never be boring.
What's a Detroit automaker without a passenger-car lineup? In 2008, then-CEO of Ford Alan Mulally might have said "shortsighted." Today, CEO Jim Hackett would say something along the lines of... "a healthier Detroit automaker." It sounds crazy, and it's at least risky, but Ford announced it would soon stop selling most of its passenger-car lineup in the U.S. market, which is craving more SUVs, crossovers, and trucks. Only Ford's Mustang will remain, along with the Focus Active, which will arrive in 2019 as a wagon version in lower volumes.
Ford anticipates that by the end of 2020, light trucks will generate 90% of its North American sales -- that's certainly one way to boost margins. The decision is part of Ford's strategy to get "fit," which essentially means to feed the healthy parts of the business and cut costs. On the latter point, last October Ford was aiming at cutting $14 billion in costs; it then updated that by targeting $25.5 billion in savings by 2022.
It's a high-risk, high-reward strategy. UBS analyst Colin Langan estimates Ford loses $800 million annually selling light cars, according to Automotive News, and that would filter down nicely to Ford's bottom line. However, the company also risks losing a customer base looking for an entry-level-priced vehicle, and of course there's the risk of consumer demand switching away from larger vehicles. We'll see how it shakes out.
It's possible Ford could bend on this strategy. But the decision is certainly the wildest move under Hackett so far, and one of the most interesting takeaways from this earnings season.
The future is now
Many investors haven't heard of Aptiv yet -- formerly Delphi Automotive -- but almost certainly will in the decades ahead. Aptiv is uniquely positioned to deliver end-to-end smart-mobility and driverless-vehicle technology solutions. We don't yet know which service providers (think Uber and Lyft) will win market share, or which automakers (think Ford and General Motors) will develop the best electric fleets or driverless vehicles, or how Silicon Valley will play its angle. But Aptiv will be involved in many aspects as a supplier.
That became even more clear Wednesday when it announced a small project with Lyft. The company said it would launch a fleet of 30 autonomous vehicles in Las Vegas on the Lyft network; passengers will have the ability to hail a self-driving vehicle equipped with Aptiv technology to go between high-demand locations.
It's projects like this that will enable companies to figure out exactly how they can monetize big data, services, and driverless technology, as those all intersect in the evolving automotive industry. It's unclear how it will all shake out, how soon this market will become lucrative, and which companies will rise to the top to the benefit of their investors. But this small project between Aptiv and Lyft makes it clear that the future of driverless cars is on its way, soon.
Earnings season is always crazy, and always exciting, and the first quarter of 2018 was no different. When you have a CEO losing patience with financial questions, Detroit's second-largest automaker giving up on cars in the U.S., and driverless-car projects getting underway, you know it's going to be an interesting year and decade. The industry is likely to evolve more over the next two decades than it has over the past century -- and that could be very lucrative to savvy investors.