1/ A quick thread on Auto OEM Enterprise Values

2/ Auto OEMs present a unique challenge from a valuation Perspective, and it takes some time to untangle the GAAP/IFRS statements in a way that makes sense given the way they report. Normal OEMs report pretty much the same way, whereas Tesla more difficult, for different reasons

3/ Generally speaking, the fortunes of the industrial business (ie that OEM subsidiary) are what are most important to the overall business

4/ However - each OEM is made up of multiple subsidiaries in multiple business lines. The consolidated financial statements are a mashup of these businesses and the interrelated transactions between them

5/ Let's use GM as an example: General Motors Co as an example (the publicly listed entity)

General Motors Co owns General Motors LLC and General Motors Financial Co

6/ General Motors LLC (the OEM) is effectively in 4 business lines. 1) Automobile Manufacturing, 2) Investments in Chinese automobile manufacturers, 3) Insurance (through ~$64bn in investment assets and $86bn in pension liabilities) & 4) autonomous vehicles through Cruise

7/ General Motors Financial Co (the finance side) is effectively in 2 business lines. 1) automotive financing (including loans, leases and floorplan financing) and 2) investments in Chinese automotive financial services businesses

8/ All of this means that, if you want to figure out how much you are paying for the main value driver, you need to figure out where the OEM business is trading relative to the total SOTP

9/ Obviously there is some subjectivity in the estimates of the value of each of the other businesses, but that's why analysts get paid the big bucks

10/ I traditionally have dealt with this by keeping the valuation assumptions for the subs constant across different companies, within reason, to get a sense of where the OEMs trade to each other

11/ Given the way the OEMS (ex TSLA) reporting under GAAP/IFRS and their supplemental disclosure, you are able to get a pretty good sense of the core OEM profitability. It just takes a lot of work, but it's doable

12/ That to me, is the biggest difference between the TSLA bulls and TSLA bears - the bears have put some level of work in, while the bulls really have not (just ask them what GM's enterprise value is and you'll see)

13/ What I have put together here is a quick walk from how the bulls see enterprise value to how I see it. This is a walk from the simplistic view of enterprise value of GM/F/FCAU/TSLA to what the "Industrial" businesses are actually trading at

14/ For Ford and GM, their financial service subsidiaries actually file their own 10-K's and 10-Qs, so all the information is out in the open. FCAU discloses Industrial vs Financial on their website and TSLA knows no one reads their numbers so just pretends its one big business

15/ On major thing to realize is that OEM's need a TON of cash on their balance sheet to function day to day. I'll spare the details, but its a function of how they operate with their financial service subsidiaries. They basically carry no AR to offset payables, so they need

15 continued/ to carry enough cash to pay the payables in the event sales nosedive (like right now). My baseline estimate is that the OEM's need about 2.5 months of liquidity to survive in normal times, and anything in excess of that can be used as cash for the net debt calc

16/ With all that in mind, here is how I look at Enterprise Value. I'll spare any discussion of multiples for now

17/ Here is GM in detail

18/ Here is Ford

19/ FCA

20/ Tesla

Note: With Tesla I have recreated the Financial Services side of the business from their disclosures in the 10-K. Both Industrial and Financial Services includes Solar

21/ Without launching into a long discussion on why autos trade where they do, I figured I'd update the 3 USD reporting companies with some valuation metrics

22/ Same idea as before - start at consolidated to work to industrial

One note on Tesla - again - they don't report normally and I've had to reconstruct their Financial Services Segment from the info we have. I've used reasonable estimates as needed

23/

24/ Interestingly GM's OEM is trading at 3.9x EV/EBITDA and Ford's OEM is trading at 4.0x (LTM through 12/31/19). I am pretty sure we would see similar numbers if we did the other non-Tesla OEMs

25/ Left of FCA as I don't feel like adjusting from euros at the moment