Stellantis N.v. · EURONEXT:STLAP
Stellantis — Fiat Chrysler Automobiles — Investor Presentation (April 2015)
26 slides from Stellantis's investor presentation, Apr 29, 2015
Slide 1: Confessions of a Capital Junkie
Confessions of a Capital Junkie An insider perspective on the cure for the industry's value-destroying addiction to capital April 29, 2015
Slide 2: Safe Harbor Statement
Safe Harbor Statement This document contains forward-looking statements. These to vehicle and powertrain development and compliance statements may include terms such as “may”, “will”, “expect”, with regulations; exchange rate fluctuations, interest rate “could”, “should”, “intend”, “estimate”, “anti
Slide 3: Purpose of the pitch
Purpose of the pitch Goal is to provide clarity on two issues that have been raised publicly by FCA ● Industry has not earned its cost of capital over a cycle ● Consolidation is the key to remedying the problem What this is not about ● An excuse for FCA’s current ranking in the automotive food c
Slide 4: Everyone is entitled to his own facts
Before we get into this, we should be reminded that … “Everyone is entitled to his own opinion, but not to his own facts.” Daniel Patrick Moynihan (Former US Senator and Ambassador to the UN) Confessions of a Capital Junkie April 29, 2015 4
Slide 5: Auto industry's capex and R&D requirements have grown significantly
Auto industry’s capex and R&D requirements have grown significantly over the past years … Mainstream OEMs Premium OEMs Top OEMs1—Total capex + R&D spending over last 5 years (€bn)2 CAGR: Mainstream OEMs: ~12% Premium OEMs: ~10% 122 117 107 18 19 17 91 14 76 12 104 99 91 78 64 2010 2011 2012 2013 201
Slide 6: New technological challenges will continue to raise capital requirements
... and going forward, new technological challenges will continue to raise the bar on capital requirements Forces at work increasing capital requirements—Selected examples Regulatory-driven Customer-driven Emissions Car connectivity Safety regulations regulations and autonomy Tighter emissions S
Slide 7: Product development costs are consuming value at a much faster rate
Product development costs are consuming value at a much faster rate than in other industries … Time to reinvest enterprise value1 in product development (capital and R&D)2 Average number of years ~ 36 ~ 28 ~ 23 Average ~ 20 across ~ 19 industries3: ~ 18 ~20 years ~ 13 7.8 8.5 Auto ~7 5.0 industry 3.
Slide 8: High operational leverage amplifies profitability swings across the cycle
... and high operational leverage amplifies profitability swings across the cycle ... EBIT Margin1 of Auto OEMs vs other sectors (%) 30% 19% 8% (3%) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Aerospace & Defence Building materials Chemicals Consumer products Packaging 2 Pharmaceuticals Teleco
Slide 9: Structurally low and volatile returns
… resulting in structurally low and volatile returns ROIC1 of Auto OEMs vs other sectors (%) 30% 20% 10% Consensus 0 WACC: ~9% (10%) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Aerospace & defence Building materials Chemicals Consumer Packaging materials 2 Pharma Telecommunications Premium OEM
Slide 10: Why did this happen? OEMs spend vast capital on proprietary components
Why did this happen? OEMs spend vast amounts of capital to develop proprietary components, many not really discernible to customers New vehicle program—development Typical vehicle development costs costs split1 Other Powetrain ~5% Tooling Vehicle R&D ~5% ~40% Powetrain/ R&D ~15% 45–50% 50–55% Vehicl
Slide 11: Reducing number of active platforms and increasing scale
One industry solution focuses on reducing the number of active platforms and increasing scale … Active platforms by OEM1 Number of top hats by platform2 Average across top 10 global OEMs Average across top 10 global OEMs 22 3.3 21 18 -20% 2.6 +30% 2.5 2004 2009 2014 2004 2009 2014 "More of our compo
Slide 12: Larger scale commonization across diverse brands
… and some OEMs are trying larger scale commonization across diverse brands … MQB MC-M ARCHITECTURE ARCHITECTURE Alphard Harrier RAV4 Wish ES Mebius Golf Spacefox Fox Voyage A1 TT Octavia Ibiza (2018) (2017) (2018) (2018) (2016) Avalon Highlander SAI HS Polo Passat Lamando Scirocco Q1 Q3 Yeti Leon (
Slide 13: One-off co-operations, JVs and other equity tie-ups
… while others through one-off co-operations, JVs and other equity tie-ups Successful Failed One-off industrial Long-term industrial Cross-shareholdings— co-operations co-operations (JVs) enabled co-operations Full integration High Expected impact at the time of the deal Low/negative Low High Level
Slide 14: OEMs' returns and valuations are still depressed
But all this has produced poor results so far, as OEMs' returns and valuations are still depressed 2014 ROIC 2014 EV/EBITDA2 13.0x 22% 11.1x 10.7x 11.0x 19% 9.0x 9.1x 16% 14% 13% 6.8x 12% 6.2x 11% 10% 7.8% 4.0x Mainstream OEMs 1 1 Chemicals Pharma Aerospace and Defence Building materials Telecommuni
Slide 15: Why haven't these approaches provided a significant lift to returns?
Why haven’t these approaches provided a significant lift to returns? Large scale organic reduction in platforms ● Reluctance to replace old, less costly architectures ● Option available only to those OEMs with existing scale across platforms, top hats and regions ● Requires strict discipline to av
Slide 16: Why does industry consolidation matter?
Why does industry consolidation matter? High mortality rate caused by partial if non-existent integration ● Cultural divide (corporate and otherwise) ● Inequality of integrating parties ● Operating models radically different and never merged ● Insufficient sensitivity for brand differences ● Lack
Slide 17: Breaking down product development costs
The facts: Breaking down product development costs E-MPV segment mainstream “all new” vehicle example OEM B OEM A Typical development cost for vehicle and platform (excluding powertrain) % of total development costs 100% 14% 17% 1% 2% 5% 1% 4% 7% 38% 11% Under- Upper- Power- Brakes Suspen- Steering
Slide 18: Powertrain portfolios show high duplication across OEMs: engines
Powertrain portfolios show even higher duplications across OEMs, both for engines … Overlap with future FCA engine offering Major global car OEMs benchmarked Engine lineup OEM 1 OEM 2 OEM 3 OEM 4 OEM 5 OEM 6 OEM 7 OEM 9 • Small (1.3-1.6L) Diesel • Medium (2.0-2.3L) • Large (3.0-6.0L) • 3 Cylinder •
Slide 19: Duplication across OEMs: transmissions
… and for transmissions Overlap with future FCA transmissions offering Major global car OEMs benchmarked Transmissions lineup OEM 1 OEM 2 OEM 3 OEM 4 OEM 5 OEM 6 OEM 7 OEM 9 • Manual 5 Speed • Manual 6 Speed • MTA FWD • DDCT • Automatic 6 Speed • Automatic 8/9 Speed • CVT • Manual 6 Speed • Auto. LD
Slide 20: Sharing platform, vehicle and powertrain development can yield savings
The facts: Sharing platform, vehicle and powertrain development can yield significant savings Illustrative investment for developing 2 full new vehicles Indexed to 100, example mainstream B/C segment built on same platform ~50 ~100 ~20-401 ~60-80 ~50 Vehicle and Vehicle and Total stand-alone Savings
Slide 21: Large scale integrations are required to unleash full potential
We believe large scale integrations are required to unleash full potential Potential for capital rationalization across different types of co-operation Low High Drivers for capital One-off technical co- Cross-shareholding Full rationalization operation JVs enabled co-operations integration Share R&D
Slide 22: Potential synergies from consolidation of auto OEMs
Potential synergies from consolidation of auto OEMs would be ~70% driven by industrial rationale Estimated benefits from consolidation of auto OEMs1 Sharing platforms development costs Technology and product development Leveraging (e.g. sharing component commonalities in development costs) top-h
Slide 23: Consolidation can support ROIC and valuation improvement
Consolidation can support significant ROIC and valuation improvement ROIC FY 2014 25% Consumer & Retail 20% Pharma Consensus 2018 Premium OEM adjusted for Aerospace and Defence 15% consolidation OEM 6 OEM 8 Packaging materials Chemicals OEM 7 Telecommunications Building materials 10% OEM 4 Oil & Gas
Slide 24: Some conclusions
Some conclusions Top OEMs spent over €100bn for product development in 2014 only, >€2bn/week in product development and tooling costs, and poised to invest at similar rates in the futures Historical returns have been broadly below cost of capital, even after the restructuring of the US auto indu
Slide 25: The Red Queen
The Red Queen “Well, in our country” said Alice, still panting a little, “you’d generally get to somewhere else - if you ran very fast for a long time as we’ve been doing.” “A slow sort of country!” said the Queen. “Now here you see it takes all the running you can do to keep in the same place. If y
Slide 26: FCA Fiat Chrysler Automobiles
Fiat Chrysler Automobiles — Investor Presentation (April 2015) on 6ix