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Why Magna Expects Sales to Dip in 2020

By John Rosevear - Jan 17, 2020 at 6:05AM

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And why it's giving up on developing self-driving cars with Lyft.

Canadian auto-industry supplier Magna International (MGA 0.48%) said that it's ending its two-year self-driving collaboration with Lyft (LYFT -2.75%) as it braces for a potential sales decline in 2020. 

Magna's 2020 outlook, released on Thursday, reiterated the company's prior forecast of revenue growth and profit-margin improvements between now and 2022. But the company said that economic headwinds could contribute to a decline in sales in 2020 versus 2019, and that it's calling off its deal with the ride-sharing upstart. 

The Magna logo is shown in white, on the side of a red vehicle.

Image source: Magna International.

The raw numbers: Magna's guidance for 2020 and 2022

Here are Magna's new forecasts for 2020 and the three-year period through 2022. As Magna hasn't yet reported its full-year 2019 results, its most recent guidance (last updated in early November) is included for reference.

Metric 2019 Guidance Range 2020 Forecast Range 2022 Forecast Range
Revenue $38.7 billion to $39.8 billion $38.0 billion to $40.0 billion $40.5 billion to $43.5 billion
EBIT margin 6.3% to 6.5% 6.7% to 7% 7.6% to 8%
Net income $1.8 billion to $1.9 billion $1.8 billion to $2.0 billion No forecast provided

Data source: Magna International. EBIT is earnings before interest and tax, including equity income from Magna's joint ventures with other companies. 

Why Magna thinks its sales could decline in 2020

In a statement, Magna said that the strengthening U.S. dollar and production cuts by automakers in Europe would put pressure on its top-line results in 2020. Chief Financial Officer Vince Galifi said that he expects unfavorable exchange-rate movements will cost Magna about $700 million over the course of the year. The company will try to offset those headwinds with ongoing profitability improvements. 

Magna also reminded investors that it sold its fluid-pressure and controls business in 2019, and that will affect the year-over-year revenue comparison.

What's happening between Magna and Lyft? 

Magna has had its fingers in a number of self-driving research and development pies for several years now. Among other relationships, the company is working with an ongoing self-driving effort led by BMWAptiv, and Intel's Mobileye unit, and has agreed to help Alphabet subsidiary Waymo build a factory for self-driving cars. When it signed on to help Lyft develop a self-driving taxi in early 2018, that seemed like a natural extension of its existing efforts.

A white BMW sedan with Lyft and Aptiv logos and visible self-driving sensor hardware.

Magna and Lyft have ended a partnership aimed at developing and manufacturing a self-driving taxi. Image source: Aptiv.

But now, Magna says its relationship with Lyft is "evolving." After almost two years of work, the companies have ended their agreement to "co-develop self-driving technology." Magna will continue to collaborate with Lyft on development work related to hardware for self-driving vehicles, it said, and it's open to jointly manufacturing hardware and software components with Lyft in the future. 

What does this all mean for investors?

The auto industry is cyclical: Sales rise and fall with consumer confidence, and the profits of automakers -- and major auto-industry suppliers like Magna -- follow the same pattern. Auto sales in the U.S. have been strong for several years, but sales in China have slumped, and there are signs of a slowing market in Europe as well.

Given all that, and given the added costs of developing new technologies for electric vehicles and autonomous driving, Magna seems to be navigating well. While 2020 might turn out to be a modest bump on the road, the company remains confident that it's still on course for bottom-line growth over the next three years. 

The upshot: Assuming the world's major economies don't throw wrenches into the works, Magna's intermediate-term future looks reasonably bright.

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Magna International Inc. Stock Quote
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MGA
$58.15 (0.48%) $0.28
Lyft, Inc. Stock Quote
Lyft, Inc.
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