Future Mobility
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FUTURE MOBILITY Sector report 29 October 2019 – 5:30 PM Automotive – Mobility - Infrastructures CASE: what will change for OEMs CASE (Connectivity, Autonomous, Sharing and Electric) will change the way consumers see mobility and will dramatically transform the industry. Quarterly results will be useful to assess short-term price reactions but, we believe, how every company is positioned in a fast- changing environment cannot be ignored for long-term returns. The industry transformation doesn’t necessarily mean “shrinking”: we believe that the overall size of the profit should rise. But a large amount of business centred on ownership models will be transacted in the future through mobility providers (i.e. services) and current incumbents may not be the winners. We initiate coverages on CNH (NEUTRAL, TP EUR10.3) that aims to be a disruptor in its sector thanks profiting from future mobility trends but it is witnessing an unpredictable AG cycle, Ferrari (BUY, TP EUR163.0) which will use the hybrid technology at its advantages and Piaggio (BUY, TP EUR3.20) where electric will support a new replacement cycle. > Regulators are forcing the transition to electric but pick-up will be slowed down by the lack of infrastructure: EU CO2 targets are forcing carmakers to introduce EVs despite they are still losing money on it and consumers are wobbling. However, slow deployment of charging infrastructure, lack in electricity storage and grids last mile capacity, constraints on battery production and recycling should limit PHEV and BEV to 16% of total registrations by 2025. We believe that electric is a perfect technology for 2 wheelers where “range anxiety” doesn’t apply Massimo Vecchio Senior Analyst and could trigger a long-awaited replacement cycle. Hybrid supercar are [email protected] a different thing altogether and we believe this technology will be a plus Tel. +39 02 62753016 both for carmakers profitability and consumers tastes. Dario Fasani > Heavy Trucks/tractors: gas a mid-term bridge, hydrogen the end Analyst [email protected] point. While we don’t see electric as an option on those products, gas is Tel. +39 02 62753014 a reality. Hydrogen fuel cells is the future, probably 10 years from now. www.ubibanca.com/equity-research > Diesel is not dead, in our view: driven by public opinion, governments and local municipalities attacked heavily diesel engines. However diesel emits less than petrol and new technologies are reducing emissions further. We see diesel still at 20% of total sales by 2025. > Autonomous vehicles will dramatically change the landscape…in a faraway future. AD will be crucial to the birth of robo-taxi, will impact the component makers industry and will modify the business models by adding the usership option to the ownership one. But we don’t see this happening before 2030. Trucks and tractors autonomous instead is more We thank CESI Group for the very valuable support in preparing this report short term and incumbent will not be “attacked” by new comers. Stocks,> ratings and target prices CNH Ferrari Piaggio Rating NEUTRAL BUY BUY Target price (EUR) 10.3 163 3.20 Upside/(Downside) 6.5% 16.4% 19.4% Market cap (EURm) 13,000 26,458 960 P/E Adj. 2020 11.3 31.9 14.3 YTD performance 27.1% 46.9% 45.3% Dividend yield 2020 2.6% 0.9% 3.9% Source: Company data, UBI Banca estimates 1 Index 1 EXECUTIVE SUMMARY 3 2 NEW TRENDS AND EMERGING TECHNOLOGIES 8 3 FOCUS ON: DIESEL – WILL ONLY DECLINE OR IT WILL DISAPPEAR? 10 4 FOCUS ON: ELECTRIC VEHICLES 13 5 FOCUS ON: ALTERNATIVE FUELS 41 6 FOCUS ON: CONNECTED VEHICLES 46 7 FOCUS ON: AUTONOMOUS DRIVING AND SHARING 49 8 APPENDIX A – DEFINITION OF AUTONOMOUS DRIVING LEVELS 55 9 APPENDIX B – A BRIEF DESCRIPTION OF CESI 49 10 APPENDIX C – GLOSSARY 56 11 CNH – MONOGRAPHIC REPORT 12 FERRARI – MONOGRAPHIC REPORT 13 PIAGGIO – MONOGRAPHIC REPORT 2 Future Mobility 15 October 2019 Executive Summary We believe that the mobility industry is at the beginning of an epical transformation that cannot be ignored when assessing investment strategies. Alternative fuels, autonomous driving coupled with connected vehicles and the evolution of smart cities could change the way we see mobility. Upcoming quarterly results will be useful to assess short-term market price reactions but how every company is positioned in a fast- changing environment cannot be ignored as a driver of long-term returns; The overall industry profit should grow, but the split between incumbent and new comers will be key. The overall size of the profit of the automotive industry should rise at a 3.6% 2015-30 CAGR. But a large amount of business centered around ownership models will be transacted in the future through mobility providers (i.e. services) and it is not a given that current incumbents will be the winners. There could be several mitigating factors that would “soften” the revolution that incumbents are going to face: a) Outsiders do not appreciate the sheer complexity of developing a mass market vehicle (I.e. Tesla example); b) Changes will happen unevenly around the world; c) Consumers might even invest more in their vehicles as a new era of customization dawns; Electric vehicles growth, required by regulations, could be slowed down by lack of infrastructure. We see BEV (Battery Electric Vehicles) and PHEV (Plug-in Hybrids) representing 16% of yearly new registrations in 2025 (4% and 12% respectively). While this revolution is inevitable, our estimates are probably below market consensus. We believe that the slow deployment of the charging infrastructure is one of the two major factors consumers cites for not to buy a BEV/PHEV. The other factor, price, is a consequence of volumes and therefore interrelated with infrastructure. While, ideally, the infrastructure has to anticipate a product to allow a rapid uptake, in this specific case, the infrastructure development is not keeping the pace of EVs volume growth already in 2018 (see next graph). And this before taking into account that volume growth is accelerating in 2019 and should pick up from 2021-22. Figure 1 – EV car parc vs. EV public charging infrastructure Source: Global EV Outlook 2018, Statista, Insideevs, Technologyreview, Global China Association of Auto Mfrs, ALixPartners analysis 3 Future Mobility 15 October 2019 In our view this is because car makers themselves didn’t put emphasis on EV deployment but then had to change their minds and recover the lost ground once diesel sales fall and regulators didn’t delay the introduction of stricter emission limits. This is evident when looking at the number of new EVs to be introduced (next graph): very few until 2019 and then a ramp-up shortly before 2021 emission targets kick-in. Figure 2 – Total number of available EV models on the market in Europe 350 Subaru Suzuki 300 Mazda Tesla 250 Honda Ford 200 Jaguar Land Rover Hundai-Kia Volvo/Greely 150 Renault-Nissan-Mitsubishi FCA 100 BMW Daimler 50 Toyota PSA Volkswagen 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Source: T&E Issues like grid surcharge risks, re-modulation in electricity prices, batteries production capacity and re-cycling need to be addressed. On top of the slow down caused by charging stations other factors have to be taken into account to evaluate the potential ramp-up speed of EVs (in order of importance): o Grid surcharge risks: in our view there are no risks at national level of being short in electricity capacity. However, the challenges are centered at local network level where there is a risk of overloading residential transformers. Smart charging systems are expected to reduce these risks and, to the extent the grid will become more digital, even be a source of power rather than a drain; o Electricity prices: today in Italy, for instance, the charging cost may reach the EUR511/MWh mark (non-residential private charging point). This reduces the savings, when compared to ICE, to 0.4 EUR/KWh per km in some cases. A remodeling of electricity prices would be needed to incentivize EVs uptake. On the other hand, governments could lose part of the taxes on fuel that they get (EUR73 billion p.s. in Italy alone); o Battery production capacity: T&E (European Federation for Transport & Environment) has calculated that the total lithium-ion battery demand from EV (and hybrid) production volumes within the 4 Future Mobility 15 October 2019 EU is expected to reach 112 GWh in 2023 and 176 GWh in 2025 according to the forecasted battery sizes provided by carmakers. The European Battery Alliance, launched by the EU Commission as part of its ‘new industrial policy strategy’ materialized into plans for at least a dozen cell manufacturing factories in Europe which should result in a manufacturing capacity to be at least 131 GWh in 2023 and 274 GWh in 2028 (i.e. enough to cover the demand mentioned in the point above); o Battery recycling: recycling will begin to be an issue from 2035 onwards (i.e. assuming a pick-up in EVs from 2025 and a life expectancy of 10 years) and to become a sizeable issue from 2040 onwards. In the long run the question has to be posed given that, as of today, there are no clear solutions in terms of recycling technologies. The issue however has a short term implication too, which is more commercial than environmental: granting a residual values to battery will reduce the TCO of vehicles and ease the leasing/renting of cars/batteries. E-scooters and e-bikes are a key part of the micro-mobility rise. While electric doesn’t seem the answer for Heavy trucks and tractors, it is a promising development for 2 wheelers.