{"id":948,"date":"2021-01-15T12:34:12","date_gmt":"2021-01-15T11:34:12","guid":{"rendered":"https:\/\/a2kadvisory.com\/?p=948"},"modified":"2021-03-01T10:01:33","modified_gmt":"2021-03-01T09:01:33","slug":"https-a2kadvisory-com-2021-01-15-a-21-billion-wager-on-who-will-build-the-apple-car","status":"publish","type":"post","link":"https:\/\/a2kadvisory.com\/fr\/2021\/01\/15\/https-a2kadvisory-com-2021-01-15-a-21-billion-wager-on-who-will-build-the-apple-car\/","title":{"rendered":"A $21 Billion Wager on Who Will Build the Apple Car"},"content":{"rendered":"
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A red-hot trend in the car industry is for new entrants such as Fisker Inc. to hand over the complicated and capital-intensive work of engineering and building vehicles to a contract manufacturer. Increasingly, cars are judged on their software and electronics so why bother wasting time and money on metal bashing?<\/p>

If Apple Inc. is indeed seriously considering launching its own vehicle, as\u00a0press reports suggest<\/a>, then it will almost certainly decide to outsource, as it does with the iPhone. Apple designs the phone and its operating system but employs Foxconn to assemble components into a handset.<\/p>

There\u2019s at least one big contract manufacturer ready to take advantage of these seismic industry changes: Canada\u2019s Magna International Inc. \u201cIf Apple is serious about building a car \u2026 Magna Steyr should build it,\u201d says Evercore ISI analyst Chris McNally. Even if Apple doesn\u2019t come knocking, the manufacturer is already advising tech groups and start-ups looking to enter the automotive business, and investors have taken notice.\u00a0Magna\u2019s share\u00a0price has almost trebled since March, giving it a $21\u00a0billion market value.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Apple Car speculation has put some extra fizz into Magna’s shares. Source: Bloomberg<\/a><\/p><\/div><\/div><\/div><\/div><\/div>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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For a great primer on Magna and its earlier\u00a0car development work with Apple (those discussions didn\u2019t ultimately go anywhere) do\u00a0read this piece<\/a>\u00a0from 2016 by my Bloomberg Opinion colleague Alex Webb and Bloomberg News writers.<\/p>

Magna is one of the world\u2019s biggest car-parts suppliers, having generated nearly $40 billion of revenue in 2019 from products such as transmissions, vehicle cameras, mirrors and seating. The contract-manufacturing subsidiary, Magna Steyr, is the really interesting piece. It builds niche premium vehicles at a factory in Graz, Austria, including the Mercedes G-Class 4×4, the electric Jaguar I-Pace and the BMW Z4 sportscar. Typically those companies choose\u00a0to outsource\u00a0the work, rather than retool or build a new production line, because the sales volumes are relatively small.<\/p>

In 2019 Magna assembled almost 160,000 vehicles \u2013 more than many carmakers produce \u2014 and generated $6.7 billion of revenue from these activities. Together with joint venture partner Beijing Automotive Group Co. (BAIC)\u00a0it\u00a0recently added another\u00a0facility in China<\/a>, which is capable of producing 180,000 vehicles yearly.\u00a0A\u00a0north American plant might be next<\/a>.<\/p>

Magna\u2019s client roster\u00a0already extends well beyond the traditional automakers. Henrik Fisker\u2019s eponymous car venture, for one, went public in October after merging with a special purpose acquisition company. A manufacturing and vehicle engineering partnership with Magna is key to Fisker\u2019s asset-light approach. The latter often compares\u00a0this to the Apple-Foxconn relationship and hopes that will avoid the production nightmares that bedeviled Tesla Inc.<\/p>

The Austrian Magna subsidiary is reportedly in talks about producing vehicles for Canoo Inc., another SPAC-backed car start-up, while\u00a0in China it\u2019s\u00a0started producing the Arcfox<\/a>\u00a0for BAIC\u2019s electric vehicle offshoot. Other projects include helping Alphabet Inc.\u2019s Waymo subsidiary integrate self-driving technology into vehicles and working\u00a0with Sony Corp. to produce the futuristic Vision S prototype car.<\/p>

\u201cIt\u2019s not a secret that almost every non-OEM interested in realizing its own complete vehicles is contacting us,\u201d Frank Klein, Magna Steyr\u2019s boss, told investors last year.\u00a0<\/p>

You can see why new entrants may chose to work with a neutral party like Magna rather than partnering and sharing plans with an existing carmaker that might be a potential rival. As well as providing production capacity,\u00a0Magna says\u00a0it can handle the entire vehicle development process. The company was hired to turn chemicals billionaire Jim Ratcliffe\u2019s\u00a0Grenadier 4×4<\/a> into reality.\u00a0\u00a0<\/p>

The vehicles Magna builds in its factories usually include\u00a0more of its own components and systems than is the case for cars it doesn\u2019t make.\u00a0It can also take a financial interest in the companies with which it works. If it does what it promises, Magna could end up owning 6% of Fisker. Last year, it invested $100 million in Waymo .<\/p>

These are welcome sweeteners because contract manufacturing\u2019s economics are tough. The vehicle-building\u00a0subsidiary produced a 2% operating return on sales last year \u2014\u00a0much lower than the average in other parts of Magna\u2019s business.<\/p>

And there are risks in adding manufacturing capacity for start-ups who may fail or decide to insource the work themselves. If Apple were to become a Magna customer it would drive the same hard bargain as it does with Foxconn, whose operating margins have shrunk to about 2%.\u00a0Apple\u2019s is\u00a024%.<\/p>

Still, Magna\u2019s shares look less dauntingly overvalued than many companies with one foot in the electric-vehicle future.\u00a0Even after its blistering recent run, the stock is priced at less than 12 times forward earnings. The Canadian manufacturer has its attractions even without a Tim Cook order.<\/p><\/div><\/div><\/div><\/div><\/div>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Source : bloomberg.com<\/a>\/ Image : branchez-vous.com, bloomberg.com<\/a><\/p><\/div><\/div><\/div><\/div><\/div>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>","protected":false},"excerpt":{"rendered":"

A red-hot trend in the car industry is for new entrants such as Fisker Inc. to hand over the complicated and capital-intensive work of engineering and building vehicles to a contract 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A $21 Billion Wager on Who Will Build the Apple Car<\/a><\/blockquote>