How covid 19 affect the automotive industry

Dissertation submitted in partial fulfillment of the Requirement for the MSc in Finance FINANCE DISSERTATION ON HOW COVID-19 AFFECT THE AUTOMOTIVE INDUSTRY TRAN DUY HUNG ID No: 19046136 Intake Supervisor: Dr Pham Thu Thuy September 2020 Tai ngay!!! Ban co the xoa dong chu nay!!! 17014126621831000000 ACKOWLEDGEMENT The past twelve months being student of MSc programs from the University of the West of England have been wonderful to me The lecturers are very enthusiastic, while the subject of study are usually realistic and highly applicable Thus, Im very happy and certainly will recommend the course with my collegues and friends whenever I have the chance I would also like to exprerss my sincere thanks to Dr Pham Thu Thuy for her supervisor and guidance She gave me great suggestions from establishing research methodology and organisation so I could be able to complete my work Im grateful for all other lecturers and the staff at UWE and Banking Academy who support me throughout the programs And finally, thanks my parrents who support me for both their encouragement and financial supports EXECUTIVE SUMMARY This paper values four representative companies of the automotive industry – Toyota, Ford, Tesla, and General Motors to see how Covid-19 pandemic has caused impacts on these company valuations and financial strength, using financial ratios and two valuation models Based on the analysis results, Toyota is regarded as the most investment-worthy company at present Therefore, investors are recommended to invest in the stock of Toyota Company We also approach this four companies from the Macroeconomics, the automotive industry potentials to their own business model and strategies to have the comprehensive views before proceed to the evaluations TABLE OF CONTENTS Pages ACKNOWLEDGEMENTS…………………………………………………………………… EXECUTIVE SUMMARY…………………………………………………………………… TABLE OF CONTENTS……………………………………………………………………… CHAPTER 1: INTRODUCTION…………………………………………………….7 1.1 An overview on the Automotive Industry……………………………………… 1.2 Area of the study……………………………………………………………… 1.3 Study objectives………………………………………………………………… 1.4 Methods of the study…………………………………………………………… CHAPTER 2: MACROECONOMICS ANALYSIS……………………………… 10 2.1 The Global economy outlook of 2020: PEST analysis…………………………… 10 2.2 The United States market………………………………………………………… 14 2.3 The European market………………………………………………………………14 2.4 The Asia – Pacific market………………………………………………………….15 CHAPTER 3: Industry Analysis – Porter’s Forces……………………………… 17 3.1 Rivalry among Existing Firms…………………………………………………… 17 3.2 Threat of Substite…………………………………………………………………17 3.3 Threat of New Entrants………………………………………………………… 18 3.4 Bargaining Power of Suppliers………………………………………………… 18 3.5 Bargaining Power of Buyers…………………………………………………… 19 Chapter 4: TOYOTA COMPANY………………………………………………… 20 4.1 Company description…………………………………………………………… 20 4.2 Business model and strategy…………………………………………………… 21 4.3 SWOT analysis………………………………………………………………… 23 4.4 Financial health………………………………………………………………… 25 4.5 Key financial ratios………………………………………………………………26 4.6 Valuation……………………………………………………………………… 28 4.6.1 Multiples Valuation (Price/EPS)…………………………………………… 28 4.6.2 Discounted Cash Flow Model (DCF)……………………………………… 30 4.6.3 Suggested target price……………………………………………………… 30 Chapter 5: FORD COMPANY………………………………………………… 31 5.1 Company description………………………………………………………… 31 5.2 Business model and strategy…………………………………………………… 31 5.3 SWOT analysis………………………………………………………………… 32 5.4 Financial health………………………………………………………………… 36 5.5 Key financial ratios …………………………………………………………… 37 5.6 Valuation……………………………………………………………………… 39 5.6.1 Multiples Valuation (Price/EPS)………………………………………………40 5.6.2 Discounted Cash Flow Model (DCF)………………………………………… 40 5.6.3 Suggested target price………………………………………………………… 41 CHAPTER 6: TESLA MOTORS………………………………………………… 42 6.1 Company description…………………………………………………………….42 6.2 Business model and strategy…………………………………………………… 43 6.3 SWOT analysis………………………………………………………………… 45 6.4 Financial health………………………………………………………………… 48 6.5 Key financial ratios………………………………………………………………50 6.6 Valuation…………………………………………………………………………51 6.6.1 Multiples Valuation (Price/EPS)……………………………………………… 51 6.6.2 Discounted Cash Flow Model (DCF)………………………………………… 52 6.6.3 Suggested target price………………………………………………………….53 CHAPTER 7: GENERAL MOTORS…………………………………………… 54 7.1 Company description……………………………………………………………54 7.2 Business model and strategy…………………………………………………….55 7.3 SWOT analysis………………………………………………………………….56 7.4 Financial health………………………………………………………………… 58 7.5 Key financial ratios…………………………………………………………… 58 7.6 Valuation……………………………………………………………………… 61 7.6.1 Multiples Valuation (Price/EPS)…………………………………………… 61 7.6.2 Discounted Cash Flow Model (DCF)……………………………………… 62 7.6.3 Suggested target price……………………………………………………… 62 CHAPTER 8: CONCLUSIONS AND RECOMMENDATIONS References Appendices CHAPTER INTRODUCTION 1.1 An overview of the automotive industry If 2019 was a year of considerable disruption and turbulence in the auto industry, 2020 will likely see even more A cooling economy in China aggravated by the prolonged US-China trade war, a struggling automotive market in India, and a looming Brexit, coupled with tough emission standards in Europe, continue to adversely affect global automotive demand The lower economic activity and consumer confidence mean continued depressed vehicle sales Leading automakers, including BMW and GM, have announced guidance for lower profits and sales in 2020 Global automotive demand is flat-lining; quite different from the typical “peaks and troughs” cycles seen before There are also profound structural changes visible The sacred order of the automotive ecosystem is under threat with disruptive forces – such as vehicle connectivity – encouraging new technology entrants to rethink the way we move around Lifestyle and mobility preferences are changing as frequently as the apps on smartphones The COVID-19 outbreak continues to develop fast The disruption has been felt by both auto manufacturers and OEMs (Original Equipment Manufacturers) that produce parts and materials necessary for the manufacture of new vehicles At the same time, dealerships have seen massive drop-offs in demand and plummeting sales as retail traffic has slowed to a near stop In some areas, dealers have been allowed to keep their stores open, but in others, they've been asked to shut down temporarily These places are turning to alternatives, like digital showings, limited hours and social distancing policies No matter what strategy a manufacturer takes, however, they should prepare for a long period of decreased demand and general market instability All manufacturers should plan for a slow restarting of the global supply chain The automotive industry will restart production at the same time as OEMs, meaning there could be significant strain on the auto parts supply chain Because automotive is such a massive industry — accounting for an estimated $5.5 trillion of the global economy — the impacts it feels will likely have a ripple effect Fortunately, experts predict that once the recovery begins, the demand may return quickly The Bank of England has warned that the UK is set to enter its "deepest recession in 300 years" but also predicted a Vshaped recovery, meaning that the economy is likely to bounce back as fast as it declined Again, when that recovery will begin still isn't clear Demand may not start rising until consumers feel confident in making large purchases This may not be until after a vaccine for the novel coronavirus has been developed — a process that could go on for months 1.2 Area of the study This study is proposing to analyse the performance and evaluate the intrinsic values of four leading companies in the automotive industry, namely Toyota, Ford, Tesla Motors and General Motors The analysis refers to three largest regions where these companies operate, including USA, Europe and Asia- Pacific The dissertation also aims to gain better understanding of the leaders in the automobile market and give investment recommendations for investors regarding these firms 1.3 Study Objectives The following report objectives was developed to see the whole picture of the automotive industry and provide valuable investment recommendations: 1) To provide insights on the automotive industry 2) To analyse main macroeconomic factors and key economies where automotive industry product are consumed the most, namely USA, Europe and Asia- Pacific 3) To To analyse the automotive industry in the three regions above 4) To analyse financial ratios of all four companies selected according to their financial situations, with emphasis on Debt-to-Equity ratio, Inventory Turnover ratio, Return on Equity ratio 5) To calculate intrinsic value of these leading firms with valuation models 6) To conclude final investment recommendations following the analyses and evaluation of four companies’s intrinsic value 1.4 Method of the study Top-down analysis method will be used Hence, the study starts with assessing the national economic environment of the automotive industry, followed by the automotive industry its selft Finally, the study looks at performances of companies and suggests a price on the basis of the employed valuating models