Morgan Stanley’s lead auto analyst, Adam Jonas, is now also being described the bank as a “shared mobility” researcher — a clear signal that among Wall Streeters, he’s continuing his campaign to be the most out-there student of the disruption currently going on in the transportation business.
Jonas and his team cover General Motors, Ford, Fiat Chrysler Automobiles, Tesla, and rental car companies, among others. If Uber ever undertakes an IPO (perhaps with Morgan Stanley playing a role in, if not leading, the underwriting), then Jonas and his team will likely initiate coverage.
In the past few weeks, Jonas has unleashed a flurry of research, on Ford and FCA. He’s also shared some comments on Intel’s stunning $US15-billion acquisition of Mobileye. It’s important to see these
It’s important not to see these notes in isolation, but rather as a part of an overall thesis that Jonas has been developing about the future of mobility. And while Jonas has focused a lot on how Tesla will change mobility, he more recently has honed in on the original equipment manufacturers or OEMs, which is the auto-industry term for the big car companies.
For the record, Jonas is bullish on Tesla (although not as bullish as he was about a year and a half year ago), cautious on Ford, and relatively bullish on FCA.
All about the data
On Intel’s acquisition of Mobileye, Jonas argued that the deal “highlights the strategic value of the global auto sector at a time of unprecedented disruption.”
He added that “Tech firms are hunting for ever more data. Miles = data. The world’s cars travel 10 trillion miles per year. First Harman… now MBLY? Who’s next?”
Data derived from the operation of networked automobiles — driven by humans or driving themselves — has become an immense area of exploration for both traditional automakers and upstarts. Ford CEO Mark Fields, for example, has begun to describe the 100-plus-year-old firm as an information company.
The nexus has been sudden to develop and is currently not well understood, but no one wants to get left out. That’s why Intel’s move to buy Mobileye, an Israeli company that specialises in self-driving tech, and the Samsung-Harman deal that Jonas alluded to are noteworthy. Tech companies with zero transportation expertise are diving into the space so they can profit from large amounts of data.
Jonas’ view here represents an expansion of a theme he’s developed around Tesla and its efforts to participate in the massive, Uber-powered evolution of ride-hailing and “de-owned” shared mobility. Repeatedly, he and his team have stressed that miles driven could be a superior metric when it comes to transportation investment, overruling legacy measures such as vehicle sales: sell the car once, harvest the data for the life of the vehicle.
Ford’s good-bad bet?
In terms of the old-fashioned car business, Jonas is more worried about Ford than about FCA. His assessment is contradictory to the consensus of the industry itself, where FCA is considered most vulnerable to a downturn, encouraging CEO Sergio Marchionne to seek a merger partner (more on that later).
Jonas is concerned about Ford’s finance operations, specifically as they relate to the changing dynamics of what consumers have been buying. This is from his note on the topic:
To Ford’s credit, the company made extraordinary cost reduction and global platform engineering efforts (“One Ford”) beginning in 2006 that we believe enabled the firm to generate significant positive margins, possibly generating profit per unit in excess of $US1,000 per passenger car in the US in the 2011 to 2014 time frame … Cost reduction and engineering excellence made this possible, aided by a favourable balance of supply and demand for small and midsized cars during a time of $US100 oil and $US4 gasoline. As these conditions changed, we believe so did the desirability and profitability of these segments. Due to the sale of vehicles via financial instrument, we believe the full extent of this change may take several quarters to play out.
For many observers, Ford’s performance over the past two years has been impressive, as it has sold a huge number of pickups and SUVs in the booming US market. However, Jonas may be onto something by reminding investors that Ford might have created a problem for itself back before and during the financial crisis, when its financing operations continued while competitors such as GM went bankrupt.
The bottom line is that the Ford bet on smaller cars was smart, but only for a short period of time. Fortunately for the automaker, when the market swung back to SUVs and gas got cheap again, the carmaker had trucks to sell. But smaller, more fuel-efficient cars might not play the same role in the automaker’s future.
When it comes to the ongoing circus of speculation around a possible FCA-Volkswagen merger, Jonas thinks the deal would greatly assist FCA in getting into the high-tech game:
VW has expanded its technological capability as quickly as possible, and has now officially embraced an [electric vehicle] strategy for 2025 … FCA seems to have made fewer such investments, and has been the only OEM to date to sign a data-sharing agreement with Google — when other OEMs remain wary of giving away that future control over automotive content. Although the potential slow-down in the application of stringent US CAFE standards could give FCA breathing room, we think it would not put FCA in a better position globally.
Jonas has basically crossed the Rubicon when it comes to the future of transportation: he and his team see disruptive investments as not just potentially lucrative, but as an opportunity to join a radical change in the way we get around. Other analysts on Wall Street have begun to explore Jonas’ themes, largely through Tesla and with an eye toward an Uber IPO and what GM is up to with its $US500-million investment in Lyft.
But Jonas continues to put himself pretty far out there — without over-committing. For example, he isn’t optimistic that Tesla can move beyond being a niche carmaker (he probably now sees greater potential for Tesla as a mobility provider and data aggregator/manager).
It’s a fascinating process to observe, and proof that although it’s easy to be sceptical of sell-side analysts’ motives, their arguments can be well worth following and following closely, as they construct themes about the future using companies as building blocks.