LNR.TO - Linamar Corporation

[compounding]

Here's a recent interview with CEO Linda Hasenfratz:

 

https://business.financialpost.com/feature/canadas-outstanding-ceo-of-the-year-linda-hasenfratz

[jfan]

Am I being to optimistic here or is the Market right?

 

Q1 2019 is out. Linda is guiding that they will have $500 to 700 million in free cash flow this year. Giving a current free cash flow yield of >15%.

 

There are some headwinds like tariffs/USMA (likely temporary), peak auto (in the setting of US fleet age of ~12 years), Worldwide Harmonized Light Vehicles Test Procedure in Europe affecting OEMs last year and this year, and the existential disruption by autonomous vehicles and electric vehicles (which obviously will come to fruition within the next 5 years).

 

Linamar has multiple growth options:

1) Continued Skyjack market share gains

2) MacDon acquisition with a potential of a 4x sales increase if they can gain International market share similar to North America.

3) Continued Content per vehicle growth as OEMs outsource manufacturing

4) Enough FCF to opportunistically paid down debt vs buyback shares (according to Linda on the conference call, depending on return)

5) Market multiple expansion given that the Industrial operating earnings makes up 40% of consolidated operating amount (despite it being viewed as only an auto supplier)

 

It seems like a reasonable bet on the upside particularly given the astute management involved.

 

 

 

 

 

 

[kab60]

Well, I'm in the same boat and have made it a 20 pct position. Not much to add really. Year end it should trade very meaningfully below book value, and so hopefully they get more aggressive on buybacks when leverage is down to 1x.

[SnarkyPuppy]

Just diving into this- looks interesting.  Quick question for those closer to the details- why have changes in working capital eaten away at such a large proportion of CFFO over the last 2 years?  They are guiding for $500-700mm FCF but why is this year not the outlier?

[SnarkyPuppy]

Some other things I don't love:

- They seem to boast a lot about double digit earnings/sales but a lot of this seemingly comes from acquisitions over the last few years?

- Management gets paid a ridiculous amount.  CEO and dad each get $11mm each bonus in 2018?

- FCF meaningfully below Net Income...growth has required meaningful increases in working capital (they also moved LT accounts receivable into changes in WC in 2017 - something to be mindful of).  Unclear how this normalizes.  Trades at closer to 10-11x levered FCF if you consider ~200mm increase in WC to be normal going forward *just a quick assumption). 

- As a result (FCF being constantly substantially below NI), return on tangible capital in 2017 and 2018 have been 7% and 4% respectively (as opposed to 14% and 16% using earnings).  And this is at the higher end of the cycle.  With that said 2015 and 2016 return on tangible capital using FCF were double digits. 

- This trades at 1.6x tangible book which is more representative of what you're paying (I think disingenuous to count goodwill/intangibles)

 

There are certainly some things I like but would be curious to get some feedback on the above to see if I'm looking at it wrong (have only done a couple hours of work so far).

 

Also - can someone shed some light on the specifics of what "new business" represents.  Management stating $8.5-9bn of annual revenue through 2023... is this contractual? verbal commitments?  Can customers cancel?

[kab60]

Just diving into this- looks interesting.  Quick question for those closer to the details- why have changes in working capital eaten away at such a large proportion of CFFO over the last 2 years?  They are guiding for $500-700mm FCF but why is this year not the outlier?

I think it is somewhat of an outlier, and I think that's one of the bigger negatives with this business. It's fairly capital intensive even when keeping capex low as a % of sales (around 6 pct. this year), and it takes some WC to grow, so I'd expect FCF to keep being lumpy. As long as they get a good return on their investments, I can live with them reinvesting in both capex and WC, but obviously ROI is something to keep an eye on. Not sure about the big WC increase in 2018, don't recall them calling it out, but it seems like they'll harvest some of that this year.

[SnarkyPuppy]

Just diving into this- looks interesting.  Quick question for those closer to the details- why have changes in working capital eaten away at such a large proportion of CFFO over the last 2 years?  They are guiding for $500-700mm FCF but why is this year not the outlier?

I think it is somewhat of an outlier, and I think that's one of the bigger negatives with this business. It's fairly capital intensive even when keeping capex low as a % of sales (around 6 pct. this year), and it takes some WC to grow, so I'd expect FCF to keep being lumpy. As long as they get a good return on their investments, I can live with them reinvesting in both capex and WC, but obviously ROI is something to keep an eye on. Not sure about the big WC increase in 2018, don't recall them calling it out, but it seems like they'll harvest some of that this year.

 

Isn't this relatively important to the thesis (valuation)?  Seems to be material to determine the price you're actually paying here. 

[kab60]

Some other things I don't love:

- They seem to boast a lot about double digit earnings/sales but a lot of this seemingly comes from acquisitions over the last few years?

- Management gets paid a ridiculous amount.  CEO and dad each get $11mm each bonus in 2018?

- FCF meaningfully below Net Income...growth has required meaningful increases in working capital (they also moved LT accounts receivable into changes in WC in 2017 - something to be mindful of).  Unclear how this normalizes.  Trades at closer to 10-11x levered FCF if you consider ~200mm increase in WC to be normal going forward *just a quick assumption). 

- As a result (FCF being constantly substantially below NI), return on tangible capital in 2017 and 2018 have been 7% and 4% respectively (as opposed to 14% and 16% using earnings).  And this is at the higher end of the cycle.  With that said 2015 and 2016 return on tangible capital using FCF were double digits. 

- This trades at 1.6x tangible book which is more representative of what you're paying (I think disingenuous to count goodwill/intangibles)

 

There are certainly some things I like but would be curious to get some feedback on the above to see if I'm looking at it wrong (have only done a couple hours of work so far).

 

Also - can someone shed some light on the specifics of what "new business" represents.  Management stating $8.5-9bn of annual revenue through 2023... is this contractual? verbal commitments?  Can customers cancel?

Can't say I disagree on 1 or 2 (To add: I hate how they use a ton of exclamation marks in their annual letter to shareholders when they highlight their achievements). I take it they're quiet frustrated about where the stock trades but to add another negative they didn't buy much stock back in the most recent quarter which was somewhat of a disappointment. I understand why they wanna get leverage down, but initiating a buyback and then not take advantage of it is a bit silly. Makes them seem somewhat promo.

 

In regards to FCF below NI, I think one has to keep in mind that this a double digit grower but it's not a say Autozone where your suppliers finance your growth nor a service biz without a need to invest in capex. It is a manufacturing business and it does require quiet a bit of capital to grow, so as a long as they keep growing, I'd expect FCF to be below NI. Now, if this thing didn't grow I'd be worried, since capex is higher than depreciation, but so far their track record is pretty good - not to say terrific. This somewhat ties into your next point (measuring ROIC using FCF or NI).

 

Given they invest at a somewhat high rate, their FCF takes a hit and thus ROIC using FCF. But I think that's penalizing them unfairly unless you think they'll get bad returns on their investments or their deprecitation charges are articially low. It's a lumpy business, it's somewhat capital intensive and they're making acquisition - I think one has to live with FCF jumping somewhat up and down.

 

In regards to new business wins I assume it's contractual, but I also assume contracts are up for dispute when shit hits the fan. I should probably look more into that, but to be honest I wouldn't trust them nor anyone else without actually seeing the contracts, and that's not gonna happen. I basically notice what happened during the GFC and would expect their revenues to take a big hit in the next recession as well - booked revenue or not.

 

To add another minor negative, Macdon has been pretty underwhelming so far. When they bought it, they seemed to know agriculture was about to hit a big upcycle (no idea where that came from) and now they expect most end markets to decline a bit this year. But I think of this as a 10 year plus invesment and I like that they did it. They bought Skyjack for some 30 mio. dollars in beginning 00's. Now that's what it earns each quarter.

[kab60]

Just diving into this- looks interesting.  Quick question for those closer to the details- why have changes in working capital eaten away at such a large proportion of CFFO over the last 2 years?  They are guiding for $500-700mm FCF but why is this year not the outlier?

I think it is somewhat of an outlier, and I think that's one of the bigger negatives with this business. It's fairly capital intensive even when keeping capex low as a % of sales (around 6 pct. this year), and it takes some WC to grow, so I'd expect FCF to keep being lumpy. As long as they get a good return on their investments, I can live with them reinvesting in both capex and WC, but obviously ROI is something to keep an eye on. Not sure about the big WC increase in 2018, don't recall them calling it out, but it seems like they'll harvest some of that this year.

 

Isn't this relatively important to the thesis (valuation)?  Seems to be material to determine the price you're actually paying here.

I don't think it is at this level. Their historical returns are pretty good (thus I'm happy that they reinvest), and taking the mid point of their guidance you get within a spitting distance of a 20 pct. FCF yield this year. Taking the average annual FCF from 2014-2019 (again mid point 19 guidance) you get a 10 pct. FCF yield but this from a business that has grown double digit annually (yes, organically and through acquisitions).

[SnarkyPuppy]

I do like that margins are meaningfully higher than they were at the peak before last crisis (2007 GP 12.5% versus 16.2% today;  2007 NI margins ~5% versus ~8% today)

 

But they've seemingly only have grown tangible book value per share from $17.30 in 2007 to $65.14 in 2018.  This is a 12.8% CAGR (if you include dividends paid out) through the cycle. 

 

How do you do well buying this at 1.6x tangible book? 

 

Granted this may be too punitive given they have a stronger margin profile in 2018 than they did in 2007 and the 2008 crisis may be too draconian.  Is that your thesis?  That it does OK from current prices (1.6x tangible book growing ~13% a year = ~8% return) in a downturn and GREAT from current prices in a flat environment?

[kab60]

I do like that margins are meaningfully higher than they were at the peak before last crisis (2007 GP 12.5% versus 16.2% today;  2007 NI margins ~5% versus ~8% today)

 

But they've seemingly only have grown tangible book value per share from $17.30 in 2007 to $65.14 in 2018.  This is a 12.8% CAGR (if you include dividends paid out) through the cycle. 

 

How do you do well buying this at 1.6x tangible book? 

 

Granted this may be too punitive given they have a stronger margin profile in 2018 than they did in 2007 and the 2008 crisis may be too draconian.  Is that your thesis?  That it does OK from current prices (1.6x tangible book growing ~13% a year = ~8% return) in a downturn and GREAT from current prices in a flat environment?

Industrial and agriculture is a much bigger part of the business now, so that might explain most of the margin improvements (not that it is a negative).

 

I know I mentioned book value, but obviously I'm not valuing this on book, let alone tangible book. I mentioned that it traded below book, because their historical acquistions have been pretty good (Skyjack was great) and now one can take a stake in the business at a discount to what has been invested. This for a business with a pretty stellar track record and returns on invested capital not to say returns on equity.

 

If we get a downturn, I'd think the stock gets hit pretty badly, but their balance sheet should be in great shape, they'll be more diversifed than last time, AND they came charging out of the gates and took share after the GFC. So while a crisis might hurt short term it might be an opportunity longer term.

 

I have no idea how things will unfold and really don't have much of macro view but I probably tend to be a bit more optimistic than most. Most people seem to expect a recession in the not so distant future, but I think the last one stung so bad, that we might be in for a longer ride than most expect. If I'm wrong, I think I'll do fine (but it'll take longer). If I'm right I don't need many years of plus 20 pct. FCF yield to figure I'll do okay.

[Spekulatius]

I do like that margins are meaningfully higher than they were at the peak before last crisis (2007 GP 12.5% versus 16.2% today;  2007 NI margins ~5% versus ~8% today)

 

But they've seemingly only have grown tangible book value per share from $17.30 in 2007 to $65.14 in 2018.  This is a 12.8% CAGR (if you include dividends paid out) through the cycle. 

 

How do you do well buying this at 1.6x tangible book? 

 

Granted this may be too punitive given they have a stronger margin profile in 2018 than they did in 2007 and the 2008 crisis may be too draconian.  Is that your thesis?  That it does OK from current prices (1.6x tangible book growing ~13% a year = ~8% return) in a downturn and GREAT from current prices in a flat environment?

 

Why is tangible book relevant for a manufacturing business. If you calculate ROI, regular book value should be considered, because the goodwill paid for acquisitions needs to be accounted for.

 

I think it is normal for a car supplier to suck up working capital when growing, but this also means that when the business shrinks, working capital should be released (assuming close to just in time production). If so, that should be insurance from a credit crunch in a recession. I looked at the annual report for 2009 and it looks in fact. what happened during the financial crisis.

 

While Linamar looks cheap and has a good record of LT growth, the small dividend and the failure of the recent MacDon acquisition are negatives. I particulary dislike the MacDon acquisition, where they paid 10x EBITDA while their own shares linger at <5x.

[SnarkyPuppy]

I do like that margins are meaningfully higher than they were at the peak before last crisis (2007 GP 12.5% versus 16.2% today;  2007 NI margins ~5% versus ~8% today)

 

But they've seemingly only have grown tangible book value per share from $17.30 in 2007 to $65.14 in 2018.  This is a 12.8% CAGR (if you include dividends paid out) through the cycle. 

 

How do you do well buying this at 1.6x tangible book? 

 

Granted this may be too punitive given they have a stronger margin profile in 2018 than they did in 2007 and the 2008 crisis may be too draconian.  Is that your thesis?  That it does OK from current prices (1.6x tangible book growing ~13% a year = ~8% return) in a downturn and GREAT from current prices in a flat environment?

Industrial and agriculture is a much bigger part of the business now, so that might explain most of the margin improvements (not that it is a negative).

 

I know I mentioned book value, but obviously I'm not valuing this on book, let alone tangible book. I mentioned that it traded below book, because their historical acquistions have been pretty good (Skyjack was great) and now one can take a stake in the business at a discount to what has been invested. This for a business with a pretty stellar track record and returns on invested capital not to say returns on equity.

 

If we get a downturn, I'd think the stock gets hit pretty badly, but their balance sheet should be in great shape, they'll be more diversifed than last time, AND they came charging out of the gates and took share after the GFC. So while a crisis might hurt short term it might be an opportunity longer term.

 

I have no idea how things will unfold and really don't have much of macro view but I probably tend to be a bit more optimistic than most. Most people seem to expect a recession in the not so distant future, but I think the last one stung so bad, that we might be in for a longer ride than most expect. If I'm wrong, I think I'll do fine (but it'll take longer). If I'm right I don't need many years of plus 20 pct. FCF yield to figure I'll do okay.

 

I think we've established that 20pct FCF yield isn't necessarily a normalized figure even in a steady state environment though?  Wouldn't be stunned that 10pct FCF is closer to normalized and that's without any economic downturn.

 

And you might not be valuing it at TBV, but the returns on capital that you reference are directly related to the growth in TBV which, through the cycle, has only be ~13% as I established above.   

 

I'm just trying to get a sense of where your conviction lies given you referenced above that this is a 20% position for you.  My interest in generally piqued when people hold largest concentrated positions.  I see the attractiveness of this name but I'm failing to see how it's a "fat pitch". 

[jfan]

Here are some financial ratios that I complied together for Linamar.

 

Hope this will be helpful for the discussion.

 

They have over the 8 years been investing capital in China and Europe via acquisitions and PPE to broaden their global footprint.

 

The MacDon acquisition could be considered a reasonable tradeoff to diversify away from auto manufacturing to ensure survivability with the autonomous vehicle disruption even though their shares may be undervalued. Albeit, they still have to execute properly to make MacDon a good investment. That being said, I recall that the same criticism was given to them when they initially purchased Skyjack. This was discussed in "Driven to Succeed".

 

 

 

 

Linamar_Ratios.xlsx

[kab60]

I do like that margins are meaningfully higher than they were at the peak before last crisis (2007 GP 12.5% versus 16.2% today;  2007 NI margins ~5% versus ~8% today)

 

But they've seemingly only have grown tangible book value per share from $17.30 in 2007 to $65.14 in 2018.  This is a 12.8% CAGR (if you include dividends paid out) through the cycle. 

 

How do you do well buying this at 1.6x tangible book? 

 

Granted this may be too punitive given they have a stronger margin profile in 2018 than they did in 2007 and the 2008 crisis may be too draconian.  Is that your thesis?  That it does OK from current prices (1.6x tangible book growing ~13% a year = ~8% return) in a downturn and GREAT from current prices in a flat environment?

Industrial and agriculture is a much bigger part of the business now, so that might explain most of the margin improvements (not that it is a negative).

 

I know I mentioned book value, but obviously I'm not valuing this on book, let alone tangible book. I mentioned that it traded below book, because their historical acquistions have been pretty good (Skyjack was great) and now one can take a stake in the business at a discount to what has been invested. This for a business with a pretty stellar track record and returns on invested capital not to say returns on equity.

 

If we get a downturn, I'd think the stock gets hit pretty badly, but their balance sheet should be in great shape, they'll be more diversifed than last time, AND they came charging out of the gates and took share after the GFC. So while a crisis might hurt short term it might be an opportunity longer term.

 

I have no idea how things will unfold and really don't have much of macro view but I probably tend to be a bit more optimistic than most. Most people seem to expect a recession in the not so distant future, but I think the last one stung so bad, that we might be in for a longer ride than most expect. If I'm wrong, I think I'll do fine (but it'll take longer). If I'm right I don't need many years of plus 20 pct. FCF yield to figure I'll do okay.

 

I think we've established that 20pct FCF yield isn't necessarily a normalized figure even in a steady state environment though?  Wouldn't be stunned that 10pct FCF is closer to normalized and that's without any economic downturn.

 

And you might not be valuing it at TBV, but the returns on capital that you reference are directly related to the growth in TBV which, through the cycle, has only be ~13% as I established above.   

 

I'm just trying to get a sense of where your conviction lies given you referenced above that this is a 20% position for you.  My interest in generally piqued when people hold largest concentrated positions.  I see the attractiveness of this name but I'm failing to see how it's a "fat pitch".

That 10 pct. FCF yield was averaged from 2014-2019 (excluding acquisitions so when factoring in growth one risks double counting). Their earnings power is much higher today than five years ago. At the same time, they expect to keep capex somewhat low at 6 pct. of sales in 2020 like this year, so I don't think 10 pct. is the right number (analysts according to Sentieo has it at 13,8 pct. in 2020).

 

So that might be something like 1/3 of the market cap returned as free cash in something like 19 months. Now that's not the only return one gets. Then you need to add in the growth. They expect (and might be too optimistic) double digit growth in operating earnings next year (more mature businesses). So you might get something like a +13 pct. FCF yield+10 pct. growth (which isn't all free cash since as we established it consumes WC when growing) or a possible total return of +20 pct.

 

That's without factoring any eventual multiple expansion. I'm not counting on it, I don't really care, but I don't think it's unlikel. Anyway, if they use all their free cash to delever we're quickly approaching an ev/ebitda of 3,5 times.

[jfan]

My brother-in-law rode in a friend's Tesla the other day and was very impressed with it autonomous function. The car was able to navigate the local roads as well as the highway with minimal driver input. It is certainly quite amazing what Elon has been able to achieve with this technology.

 

Widespread autonomous vehicle utilization would undoubtedly reduce the auto demand and affect the entire industry. With current cars being only used on average 2 hours a day, a 24h full autonomous fleet would reduce the total number of vehicles required to 1/12 of the current supply. This would be a bigger disruption to the auto industry than electric vehicles.

 

However, that being said, historically automobile innovations has required a few decades to become full widespread. Airbags were invented in 1953, but full regulated implementation didn't occur until 1997.

 

Furthermore, safety features like seatbelts, actually worsened driver behaviour and led to increased pedestrian deaths offsetting the decrease in driver's deaths. (Sam Peltzman was the Chicago economist who ran the sutdy in 1975)

 

A 2007 study of NASCAR drivers confirmed a similar effect. For each additional safety feature, drivers drove faster and took on more risk due to their perception of increased safety in the driving environment.

 

It would not be inconceivable that the introduction of autonomous vehicles would likely lead to the same human behaviours/tendencies. And because driving affects the public safety, it would require significant public and private discourse regarding liability/fault/insurance, cyber-security, and government regulation/criminal law/licensing to name a few.

 

This would require likely at least of decade of debate before full implementation of robotaxis could be realized. The technology may be there but the people are not.

 

Auto OEMs will likely have to re-calibrate their long-term strategies in this disruption and this will require significant capital. This environment likely will help auto suppliers at least for the next 10 years but they will also need to pivot if they plan to be relevant in the future as well.

 

I don't know if Linamar will pivot successfully, a bet on them is a bet on their 100 year strategic plan, diversification goals, and good operational management. This is the narrative in my head.

 

 

 

[clutch]

Widespread autonomous vehicle utilization would undoubtedly reduce the auto demand and affect the entire industry. With current cars being only used on average 2 hours a day, a 24h full autonomous fleet would reduce the total number of vehicles required to 1/12 of the current supply. This would be a bigger disruption to the auto industry than electric vehicles.

 

Most of that 2 hours would be concentrated around 8-9am and 5-6pm... so I highly doubt that an autonomous fleet would dramatically reduce the number of vehicles required. At least the math won't be 1/12.

[compounding]

If I got a penny for every time someone in the financial community started talking about autonomous robotaxi fleets, I would be a very happy man.

[jfan]

- FCF meaningfully below Net Income...growth has required meaningful increases in working capital (they also moved LT accounts receivable into changes in WC in 2017 - something to be mindful of).  Unclear how this normalizes.  Trades at closer to 10-11x levered FCF if you consider ~200mm increase in WC to be normal going forward *just a quick assumption). 

 

Couldn't find the reason for why they moved LT accounts receivable to changes in WC in 2017. The LT accounts receivable is related to their finance leasing operation of industrial equipment to rental fleet customers. This probably should have belonged to working capital in the first place.

 

There are certainly some things I like but would be curious to get some feedback on the above to see if I'm looking at it wrong (have only done a couple hours of work so far).

 

Also - can someone shed some light on the specifics of what "new business" represents.  Management stating $8.5-9bn of annual revenue through 2023... is this contractual? verbal commitments?  Can customers cancel?

 

As per their Risk Management section - Long-term Contracts:

"The company principally engages in machining and assembly for the automotive industry, which generally involves long-run processes for long-term contracts. Long-term contracts support the long-term sales of the Company but these contracts DO NOT guarantee production volumes and as such the volumes produced by the Company could be significantly different than the volume capacity for which the contract was awarded."

 

"Contracts for customer programs not yet in production generally provide for the supply of components for a customer's future production levels. Actual production volumes may vary significantly from these estimates. These contracts can be terminated by a customer at any time and, if terminated could result in the company incurring pre-production, engineering and other various costs which may not be recoverable from the customer."

 

That said, in the section "Dependence on Certain Customers"

"The company believes that it is currently the sole supplier being used by its customer worldwide for products that represent more than 1/2 of the company's transportation sales".

 

It also goes on to say in "Competition, Outsourcing, and Insourcing"

"The basis for supplier selection by OEMs is not typically determined solely by price. ....... The number of competitors that OEMs solicit to bid on any individual product has, in certain circumstances, been significantly reduced and management expects that further reductions will occur as a result of the OEM's stated intention to deal with fewer suppliers and to award those suppliers longer-term contracts."

 

That 10 pct. FCF yield was averaged from 2014-2019 (excluding acquisitions so when factoring in growth one risks double counting). Their earnings power is much higher today than five years ago. At the same time, they expect to keep capex somewhat low at 6 pct. of sales in 2020 like this year, so I don't think 10 pct. is the right number (analysts according to Sentieo has it at 13,8 pct. in 2020).

 

The 6-8% of sales dedicated to capex according to management will produce double digit sales growth. Using Greenwald's maintenance capex calculation, I estimate that no-growth maintenance capex is approximately 3% of sales.

 

If the overall, auto industry is flat and MacDon does little in the near term, my guess is that no-growth FCF is ~ $8 - 8.40/share.

 

While Linamar looks cheap and has a good record of LT growth, the small dividend and the failure of the recent MacDon acquisition are negatives. I particulary dislike the MacDon acquisition, where they paid 10x EBITDA while their own shares linger at <5x.

 

I'm not sure that the MacDon acquisition was a suboptimal capital allocation decision. In the footnotes, it seems that they paid 10x Net earnings for it. But the Return on Tangible Equity for MacDon (less Goodwill) was ~14%. During the AGM, they plan to run this operation separately but create "synergies" via purchasing, global distribution, supply chain management, etc. If they can pull off MacDon's expansion, it might be a better choice than buying back their shares.

 

Personally, I would like them to pay off their debt first before buying back shares.

 

As an aside, their AGM was the largest in terms of attendance than any of the past 3 years that I've been there. Lots more financial people and many of Linamar's suppliers were also invited. They even had a 5 hour plant tour with introduction to their new non-ICE products which was never offered before. Not sure this is a good or bad thing, but management is of opinion that their shares are undervalued and seem determined to rectify their public perception.

 

 

[bizaro86]

Widespread autonomous vehicle utilization would undoubtedly reduce the auto demand and affect the entire industry. With current cars being only used on average 2 hours a day, a 24h full autonomous fleet would reduce the total number of vehicles required to 1/12 of the current supply. This would be a bigger disruption to the auto industry than electric vehicles.

 

Most of that 2 hours would be concentrated around 8-9am and 5-6pm... so I highly doubt that an autonomous fleet would dramatically reduce the number of vehicles required. At least the math won't be 1/12.

 

Yeah - I doubt people are going to start commuting at 4 AM to make the robotaxi industry more efficient.

 

Also, with no driver who cleans up the fast food wrappers and body odor smell? I'm sure they'll clean them between shifts, but how many times would you want to commute in a vehicle that smells like stale fench fries and sweat?

[Spekulatius]

Widespread autonomous vehicle utilization would undoubtedly reduce the auto demand and affect the entire industry. With current cars being only used on average 2 hours a day, a 24h full autonomous fleet would reduce the total number of vehicles required to 1/12 of the current supply. This would be a bigger disruption to the auto industry than electric vehicles.

 

Most of that 2 hours would be concentrated around 8-9am and 5-6pm... so I highly doubt that an autonomous fleet would dramatically reduce the number of vehicles required. At least the math won't be 1/12.

 

Yeah - I doubt people are going to start commuting at 4 AM to make the robotaxi industry more efficient.

 

Also, with no driver who cleans up the fast food wrappers and body odor smell? I'm sure they'll clean them between shifts, but how many times would you want to commute in a vehicle that smells like stale fench fries and sweat?

 

Exactly - the utilization of a robot taxi fleet will be limit by the fact they most traffic occurs probably within 4 hours (2 in the morning, 2 in the afternoon ) during the day.

[Jurgis]

Widespread autonomous vehicle utilization would undoubtedly reduce the auto demand and affect the entire industry. With current cars being only used on average 2 hours a day, a 24h full autonomous fleet would reduce the total number of vehicles required to 1/12 of the current supply. This would be a bigger disruption to the auto industry than electric vehicles.

 

Most of that 2 hours would be concentrated around 8-9am and 5-6pm... so I highly doubt that an autonomous fleet would dramatically reduce the number of vehicles required. At least the math won't be 1/12.

 

Yeah - I doubt people are going to start commuting at 4 AM to make the robotaxi industry more efficient.

 

Also, with no driver who cleans up the fast food wrappers and body odor smell? I'm sure they'll clean them between shifts, but how many times would you want to commute in a vehicle that smells like stale fench fries and sweat?

 

They might if the prices at 4am are 1/2 of the prices at 7am. (Personally I commute outside rush hours, so bring it in!)

 

Your second complaint is mostly a straw man. First, nobody's cleaning regular taxi all day either. Second, anyone commuting in a bus/metro are exposed to even worse smells. Third, you can have inside cameras to ding passengers who leave trash (although clearly this is a bit draconian and companies might choose not to do it.). Fourth, I'm sure there's gonna be stratification of taxis - if you pay up, you gonna get white glove limo cleaned up and dusted and with champagne too.

 

I agree that 1/12 of car fleet is huge underestimation. But even 1/2 of car fleet or even 2/3 would be a huge hit to auto industry. Worse than most recessions.

[bizaro86]

Widespread autonomous vehicle utilization would undoubtedly reduce the auto demand and affect the entire industry. With current cars being only used on average 2 hours a day, a 24h full autonomous fleet would reduce the total number of vehicles required to 1/12 of the current supply. This would be a bigger disruption to the auto industry than electric vehicles.

 

Most of that 2 hours would be concentrated around 8-9am and 5-6pm... so I highly doubt that an autonomous fleet would dramatically reduce the number of vehicles required. At least the math won't be 1/12.

 

Yeah - I doubt people are going to start commuting at 4 AM to make the robotaxi industry more efficient.

 

Also, with no driver who cleans up the fast food wrappers and body odor smell? I'm sure they'll clean them between shifts, but how many times would you want to commute in a vehicle that smells like stale fench fries and sweat?

 

They might if the prices at 4am are 1/2 of the prices at 7am. (Personally I commute outside rush hours, so bring it in!)

 

Your second complaint is mostly a straw man. First, nobody's cleaning regular taxi all day either. Second, anyone commuting in a bus/metro are exposed to even worse smells. Third, you can have inside cameras to ding passengers who leave trash (although clearly this is a bit draconian and companies might choose not to do it.). Fourth, I'm sure there's gonna be stratification of taxis - if you pay up, you gonna get white glove limo cleaned up and dusted and with champagne too.

 

I agree that 1/12 of car fleet is huge underestimation. But even 1/2 of car fleet or even 2/3 would be a huge hit to auto industry. Worse than most recessions.

 

I agree public transportation and taxis are generally not as nice as driving my own automobile. But to replace existing car orders, robot taxis don't need to have higher utility (one aspect of which is how pleasant they are) than driven taxis and taking the bus, they have to have higher utility than taking a privately owned car.

 

I don't commute at all, and am looking forward to robot taxis, just a few thoughts.

[Jurgis]

I agree public transportation and taxis are generally not as nice as driving my own automobile. But to replace existing car orders, robot taxis don't need to have higher utility (one aspect of which is how pleasant they are) than driven taxis and taking the bus, they have to have higher utility than taking a privately owned car.

 

Yes, but you'd have to include everything into your utility function. I.e. destressing, lower yearly cost, etc.

 

OTOH, I think there will be a some percentage of personally owned robo cars. I don't have a good prediction of what that percentage will be. I think that most people who try to predict don't know crap either.  8)

[Orchard]

Don't most cars on average drive until they are done i.e. people sell their cars used, someone buys it cheap until it doesn't work anymore.

 

So if you have fewer cars but they are driven more often, wouldn't the total annual mileage for all cars still be the same?

 

In that case wouldn't the replacement rate just be faster and annual production still be similar?

 

In other words, unless you worry about decreased mileage on cars isn't the time to worry when existing cars can do more miles without being replaced not when people use fewer cars to do the same miles?