Delphi 2Q17 Earnings Call Notes

Kevin Clark

China is forecast to lead the world in powertrain electrification

” China’s forecasted to lead the global trend in Powertrain electrification, representing over 50% of unit production in 2025, reflecting a 40 fold increase over today’s levels. We remain optimistic about the China market as a result of the underlying macro trends which include increased government focus on emissions regulations, which are increasing demand for China’s new energy vehicles, increased consumer demand for active safety and infotainment in user experience technologies, and accelerated penetration of higher contented SUVs and luxury vehicles.”

The data opportunity in this industry is huge

“Well, listen. As we’ve talked about before, the data opportunity in this industry is huge. And, as an industry, we’ve just scratched the surface. We think mobility on demand and specifically the business opportunities we have with fleet management firms or what I’d call the mobility on demand providers, put us in a position where there’s both opportunity within the vehicle from a data standpoint, but there’s also real opportunity outside the vehicle. And those are what we are evaluating now. Those are the reasons why we’re doing these smart sitting pilots with a select group of partners. And you’ll hear us talk more about our plans as we firm them up.”

Delphi 2Q16 Earnings Call Notes

Delphi Automotive Plc (DLPH) Q2 2016 Results

Kevin P. Clark – President, CEO, Chief Operating Officer & Director

Customers increasingly seeing need for electrification

” As we’ve discussed previously, our customers are increasingly seeing the need for further electrification of the powertrain to close regulatory gaps on CO2 emissions and fuel economy. 48-volt mild hybrids deliver roughly a 70% reduction in CO2 emissions compared to full hybrids at about 30% of the cost. Given our strength in Electrical Architecture and power electronics, Delphi has competitive advantage in the intelligent electrification of the vehicle.”

Large increases in demand for active safety technologies

” with almost 80% of the safety benefits of Level 4 automation coming for just 20% of the cost at Level 2 automation, we see the near-term demand for active safety technologies only growing. As a result, we expect our active safety revenues to increase roughly 50% annually over the next few years.”

Singapore is farthest along in launching robo-taxis

“Yeah, Singapore’s the most advanced from a plan to get to, use your term, robot taxis, and we’ve been working with them or planning with them for about the past year. There are several other cities that are talking about it at this point in time, that we’re talking with, providing the same sort of service and solution. But when you look at Singapore in terms of actually executing, we’re in a situation now where we’ve launched a program. We’ll have piloted vehicles for two years through the end of 2018 and actually pilotless vehicles beginning in 2019. And their plan is to have pilotless vehicles, a fleet of pilotless vehicles in the areas that we’re currently testing beyond 2020 servicing consumers. So they, by far and away, are the further along. But when you look at other U.S. cities, there certainly are examples. London’s talking about it, Amsterdam’s talking about it. They’re looking at it where we’re located outside of Shanghai in Anting, so there’s a lot of dialogue, but Singapore’s first.”

Better margins where it’s tougher to integrate

“We’re now at a point, we’ve talked previously, we talked specifically to active safety, about an investing mode. We’re in profit mode now. It’s not where E&S margins are, but we’re clearly making money. I think with respect to price pressure with specifically as it relates to active safety, it really somewhat depends on what sort of active safety solution you’re talking about, right? If it’s Level 1 where it’s just a camera or just a radar right? As you know, we’re in an industry that commoditizes itself very, very quickly. And to Joe’s point, we’re really good at getting cost out when we get volume and leveraging the manufacturing plant as well as getting material savings. As you get into integrated solution where you’re fusing sensors, that’s a much different scenario, and there are only a few players that can actually do that, we being one of them. And I think in those sorts of scenarios, and that’s where this space is headed. In those sort of scenarios, the pricing pressure is actually very reasonable. It’s there. It’s always there but it’s much more reasonable.

Joseph R. Massaro – Chief Financial Officer & Senior Vice President

We’re watching north America closely but at this point have not seen any softening

Yeah, David, we’re obviously watching it very closely. There was obviously an announcement last week with Ford and such. At this point, what we see is in the forecast. We haven’t had any updates or we have not seen any softening at this point beyond the volume estimates that we have provided.

Mobileye 2Q16 Earnings Call Notes

Mobileye’s (MBLY) CEO Ziv Aviram on Q2 2016 Results

Amnon Shashua

level 3 and level 4 autonomous vehicles in volume production on the road by 2021

“Moving to autonomous driving, the second quarter highlights include on July 1, Mobileye, BMW and Intel announced a program to put level 3 and level 4 autonomous vehicles in volume production on the road by 2021 using the full capabilities of EyeQ5.”

Clear commitment to volume production of level 4 autonomy

“We believe this represents a turning point in the auto industry, both in terms of a clear commitment to volume production of level 4 autonomy, but also the start of a paradigm shift where partnerships among OEMs, Mobileye and additional players emerge in order to tackle together as equal partners the ambitious challenge of putting a safe level 4 autonomous vehicle on the road.”

We will not extend our relationship with Tesla

“I have few words to say about our relationship with Tesla. Mobileye’s work with Tesla will not extend beyond EyeQ3. We continue to support and maintain the current Tesla Autopilot product plans. This includes the significant upgrade of several functions that affect both our ability to respond to crash avoidance and to optimize auto-steering in the near-term without any hardware updates. Nevertheless, in our view, moving forward, more advanced autonomy is a paradigm shift both in terms of function complexity and the need to ensure an extremely high level of safety. There is much at stake here to Mobileye’s reputation and to the industry at large. Mobileye believes that achieving this objective requires partnerships that go beyond the typical OEM supplier relationship, such as our recently announced collaboration with BMW and Intel. Mobileye will continue to pursue similar such relationships.”

I don’t want to put too much color around the Tesla statement

“With respect to Tesla, we made a statement, I don’t want to put too much color into it, I don’t want to open the floor to now speculations. I think EyeQ3 shipments to Tesla would continue for the near future and maybe even the longer future. We simply decided where we need to put our resources for the future of autonomous driving and there are all sorts of considerations where you need to put your resources and we decided what we decided.”

Camera only steering is not something you can provide a driver in an unlimited way, otherwise technology can be abused

“The difference between camera-only and camera plus radar is cost. And in this case, Nissan is planning a high volume penetration of these kinds of features. Of course introduced in a way which is safe, now that driver cannot use this technology freely, your hands needs to be on the steering wheel and all sorts of other safety mechanisms are put there. Because again camera only auto steering is not something that you can provide a driver in an unlimited way, otherwise the technology can be abused and create problems. But it is if used properly, it is something that is increases safety, increases the possibility to avoid crashes and having it in high-volume penetration is a good thing and by removing the radar from a cost perspective, you can do that.”

BMW solution will have EyeQ5 running camera information, fusion algorithms run on intel chip

” in the BMW – this is Amnon. So, in the BMW relationship, with respect to fusion, these are algorithms to be developed between Mobileye and BMW and deployed on the Intel chip. So, the EyeQ5 will be processing all the camera information, including radars and LIDARs for redundancy. Fusion algorithms will run on the Intel chip and very possibly also the driving policy algorithms developed by Mobileye in conjunction with BMW would also be deployed on the Intel chip”

Implying that TSLA didn’t use the technology in the way that they expected it to be used

“I think we made public statements following the crash, the May 7 crash that can give some color. I think in a partnership, we need to be there on all aspects of how the technology is being used and not simply providing technology and not being in control on how it is being used. I think that this provides a bit more color to the official statement that we made and it’s based on public statements that we have made following the crash.”

There is a need for standardization

” It’s not tomorrow there is going to be standardization. But I think the need for standardization exists and it will occur naturally because of the complexity of this problem and the need to reach a solution with a high level of safety. This will drive players to consolidate.”

Ofer Maharshak

OEM ASP was $44.05

” Our OEM ASP for the second quarter was $44.05 compared to $43.07 during the same period last year and $44.02 in Q1 of 2016. The increase in ASP this quarter is related to the mix of deliveries, which reflect a higher portion of pedestrians autonomous emergency braking.”

Raising 2016 revenue guidance to $350m

“We are raising our total 2016 revenue guidance range to be between $344 million and $350 million from the prior $336 million to $340 million, representing 44% year-over-year growth at the midpoint. ”

Autozone FY 3Q16 Earnings Call Notes

AutoZone’s (AZO) CEO Bill Rhodes on Q3 2016 Results

On the surface it looks like sales started strong and moderated but it really was actually consistent

” Our same-store weekly sales performance was quite volatile during the quarter. We started the quarter very strong, but recall that last year’s third quarter started very weak due to a shift in tax refund timing. Additionally, we had a few weeks of poor sales when the weather was materially colder and wetter than last year. On the surface, it appears that the quarter started strong and then moderated. But when you assess it on a two-year basis, sales trends were generally consistent throughout the quarter.”

Performance in weather hit areas worse than other markets

“On a regional basis, our performance in the Midwestern, Mid-Atlantic and Northeastern states were substantially below other markets, especially in late March, all the way through the end of the quarter, where temperatures were much cooler and it was much wetter than usual.”

Miles driven is biggest tailwind

“The biggest sales tailwind at the moment, in our opinion, remains the increased miles driven across the country. While volatility with weather has been the greatest headwind, increasing miles driven leads to more failure and maintenance related demand and benefits both our DIY and DIFM businesses. But unusually cool weather leads to limited sales.”

They are calling for a hot summer and if that comes it should help

“To your question about should you straight-line the two year comp, our premise at this point in time, as you know we don’t give guidance. But we think the weather was a pretty significant headwind in this quarter. They are calling for a hot summer. We haven’t seen it yet. It’s starting to heat up around here a little bit, and hopefully it does in the Northeast. But we think if that comes to fruition we could have a pretty strong fourth quarter.”

Bill Giles

Gas prices increased during the quarter

” during the quarter nationally unleaded gas prices started out at $1.72 a gallon and ended the quarter at $2.22 a gallon, a $0.50 increase. Last year gas prices increased $0.42 per gallon during the third quarter, starting at $2.27 and ending at $2.69 a gallon.”

Miles driven increased in Jan and Feb

“current average, is much different than on newer cars in terms of wear and tear. Miles driven increased in both January and February. We don’t have March or April data yet. The other statistic we highlight is the number of seven-year and older vehicles on the road, which continues to trend in our industry’s favor.”

Delphi Automotive 1Q16 Earnings Call Notes

Delphi Automotive Plc (DLPH) Q1 2016 Results

Steady growth in vehicle production in CHina, NA and EU

” Regulatory trends and consumer demands continue to influence fuel economy, emissions, and vehicle safety standards, driving content per vehicle growth. And we continue to expect steady growth in global vehicle production, driven by continued growth in China, North America, and Western Europe.”

Declines in SA and Eastern EU though

” We’ve seen further declines in vehicle production in both South America and Eastern Europe and increased weakness in the global commercial vehicle market, now expected to be down low-single digits driven by double-digit declines in the North American off-highway market.”

Customer interest in electrification is gaining momentum

“As we highlighted at our Investor Day and was reinforced in Beijing last week, customer interest in electrification is gaining momentum. Our customers increasingly see the need for electrification of the power train to close the regulatory gaps on CO2 emissions and fuel economy. ”

Automakers are exploring moving to a 48-volt system

“If you look at HIS, and based on conversations with customers, that mix of EV and hybrids out in 2025 has actually increased over the last 6 months. And listen, I’d say there’s maybe an opportunity that it accelerates further. Clearly there’s more dialogue and more interest from our customers, as they focus on solutions to reducing CO2 emissions and increasing fuel economy. And things like 48-volt, where you can get a significant benefit at a fraction of the cost, it’s a great value proposition. It’s a terrific value proposition.”

Cost and regulation are the current hurdles to autonomous driving

“Yeah. We can certainly offer a turn-key solution from a technology standpoint. And we are having dialogues with various parties with respect to that. I think the challenge for both customers as well as folks like ourselves are kind of two-fold. Near term it’s cost…And it’s how you sell commercially effective solution. And then second, it’s the regulatory/legal environment. And how you cross those various bridges. I mean as we said in the past the biggest challenge to get to fully automated is not going to be the technology or the cost. It’s really going to be regulation and legal liability.”

Autonomous is an extension of active safety

“I think the important thing from our perspective as we said, we look at automated driving as quite frankly the far end of the spectrum on active safety. And what excites us most is getting to level two automated driving, which is fully commercialize-able today. You can get to 80% of the active safety benefits, so really at a fraction of the cost. And that is really why we’re seeing the tremendous demand for active safety solutions.”

Engineering growth is in software and systems, it can be done in foreign countries though

“When you think about it from the most rapid growth from an engineering standpoint, it’s clearly on software and systems. They’re 25% of our – those engineers are 25% of our engineering work force to date. And I think we expected – Jeff [Owens] talked about it in our Investor Day – close to doubling that number over the next 5 years. And that doesn’t mean you need to do it in Silicon Valley. You can do it in places like Bangalore, where we’re located, in places like Shanghai. We’re looking at other locations to actually recruit and put those people. And quite frankly where it makes sense, we partner with outside service providers and leverage their capabilities.”

Mobileye 4Q15 Earnings Call Notes

Mobileye’s (MBLY) CEO Ziv Aviram on Q4 2015 Results

10m cars on the road using our tech

“There are now over 10 million cars on the road enjoying a safer driving experience through the use of our technology.”

We are in a forward position to create a standardized map asset for autonomous driving

“We have planned to include all car manufacturers and create a world index. Our position as a technological supplier puts us in a forward position to create a standardized map asset for the autonomous driving industry. Given that our announcements were reciprocated by similar announcements by GM and Volkswagen, this indicates that we are not alone in appreciating the significance of the value we bring to the mapping industry.”

The bar for competition is very high

“A worthy competitor must achieve production worthy performance on the entire spectrum of customer functions, including sensing, mapping and driver policy. Together with a huge database covering tens of millions of miles on driving required to validate the performance of the system, the necessary bar for competition is very high.”

Autonomous driving will be a multi-player game. Open architecture makes the most sense

“I think the motivation for open architecture is not to increase revenue, but to enable our partners to be able to provide their own value into the system, because when you talk about autonomous driving, it’s really a multi-player game. It’s very, very hard to think about it in terms of a closed system. Sensing alone, it’s okay to think about it as a closed system, but once you start adding mapping, you start adding your driver policy, you start adding differentiation between different players; an open architecture makes more sense.”

Our belief is that consumer electronics companies underestimate the challenge of automotive

“we supply to whoever wants us to supply to. So it’s not that we will not supply our chip to consumer electronics players, if and when they will become suppliers to the automotive industry. Now, as for whether the future would be that the car is electronics on wheels, and it will be supplied by consumer electronics companies rather than traditional car manufacturers, our belief is that consumer electronics companies today underestimate the challenge of automotive.”

Consumer electronics have more defects than are allowable in the auto industry

“And when you look at consumer electronics, the kind of product that we are used to have lots of imperfection, and we as consumers have learned to live with it. We buy an iPhone or an Android smartphone and we wait for the next software upgrade and then it gets better or it gets worse and so forth and so forth, it’s always imperfect. We are not tolerant to imperfection with cars. Now you buy a car, you don’t expect it to go to a mechanic every month. Once in five years this is our expectation. And when you think about autonomous driving, where there is safety involved, the level of perfection is really foreign and unparallel to the consumer electronics world.”

Ofer Maharshak

ASPs should grow as complexity increases

“So as we said, the longer-term trends that ASP is growing, it’s growing because of the complexity of features, as Prof. Shashua just mentioned and I also mentioned in the prepared comments. We see a trend with OEMs that even beyond NCAP they are requiring more sophisticated features.

Delphi Automotive 4Q15 Earnings Call Notes

Delphi Automotive Plc (DLPH) Q4 2015 Results
Kevin P. Clark – President, CEO, Chief Operating Officer & Director

Chinese volumes whipsawed

“However, operating margins lagged the prior year, primarily the result of the sequential whipsaw in China volumes. You probably recall that in response to the third quarter slowdown in China, we actually reduced head count by about 4,000 employees. And then had to add back over 6,000 employees to meet the 40% sequential increase in volumes that we experienced in the fourth quarter.”

Continue to expect solid growth in global vehicle production

“We continue to expect solid growth in global vehicle production, primarily driven by strong growth in China, North America, and Western Europe.”

The pool of opportunities is higher in 2016

“the pool of opportunities is actually higher. So the amount of activity that remains out there is actually higher than what it was in 2015, which is certainly a positive sign. So we would expect from a booking standpoint to come in roughly in line with what we booked in 2015 from a total new business bookings standpoint.”

Opportunities are in active safety, electrification

“The big opportunities tend to be around, as you can guess, active safety. We’re seeing a big ramp-up in demand – off of a small number obviously – on vehicle electrification, including things like 48-volt, as well as a fair amount of activity on our traditional powertrain products like GDi, Gas Direct Injection. So very good. Great deal of opportunity out there.”

4-5x content on a 48 volt hybrid than on a traditional car

“We’re starting to see more demand, more of a ramp-up in vehicle electrification, including things like 48-volt. Those are very good for us. So 48-volt hybrid content is four times to five times the content that we have on a traditional car. Full EV is seven times the content. 48-volt is an area that – quite frankly a product that we’ll be talking more with folks like yourself about at our investor conference in April.”

We see no change in production schedules from OEMs

“listen we’ve – again we understand the concern that people in the investment community have with respect to where we are in the cycle and what production schedules look like. We see none. I mean we’ve seen absolutely no change in production schedules from when we gave guidance originally a month ago, as well as what our outlook was in the fourth quarter of last year as it relates to 2016. So we’ve seen no change.”

Watching non-traditional competitors closely

“Yeah. No, it’s – listen, it’s something that we always think about. To date it’s not as direct a competition in terms of space or places that we compete. So it hasn’t had an effect. And it’s something we watch closely. I mean the Chevy Volt is a great example. I mean that’s a car where we have close to $400 of content. So we have a pretty good position from a vehicle standpoint. But it’s something we monitor very closely.”