Release Date: July 17, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Nemak SAB de CV (NMAKF, Financial) improved its EBITDA to $163 million, a 6% increase year-over-year despite challenging conditions in the automotive industry.
- The company has implemented a cost reduction program, optimizing discretionary spending, right-sizing headcount, and improving manufacturing costs.
- Nemak SAB de CV (NMAKF) was awarded business contracts worth approximately $165 million year-to-date, with minimal investments required to maximize existing assets.
- The company received prestigious 2024 Automotive News PACE Awards for innovation in lightweight high-pressure die casting and an aluminum subframe prototype.
- Nemak SAB de CV (NMAKF) continues to advance its sustainability agenda, certifying additional facilities with the Aluminum Stewardship Initiative performance standard.
Negative Points
- Overall volume decreased by 6% due to a slowdown in EV adoption and changes in customer production schedules.
- Revenue declined by 5% year-over-year to $1.3 billion, primarily due to volume reduction and product mix changes.
- Net debt increased to $1.75 billion from $1.68 billion at the end of the last quarter, driven by working capital requirements and pending customer claims.
- The company faces ongoing inflationary pressures and underutilized capacity in the e-mobility, structure, and chassis application segment.
- Nemak SAB de CV (NMAKF) is experiencing a slowdown in electrification, leading to a reassessment of peak revenue for contracts in the e-mobility segment, which is expected to be lower than originally anticipated.
Q & A Highlights
Q: Can you provide some color on the market for hybrids and what to expect in the second half and 2025 regarding hybrids demand?
A: The market for hybrids is seeing significant shifts in consumer preference, particularly in North America and Europe. Consumers are increasingly considering hybrids as a viable alternative, leading to higher demand for hybrid products. This trend is expected to continue into 2025, with increased volume requests from customers.
Q: What is your take on the imposition of provisional duties in Europe for Chinese EVs and their implications for Nemak?
A: The European Commission has imposed tariffs ranging from 18% to 35% on Chinese EVs, while the US has imposed a 100% tariff. These measures are intended to protect the local automotive sectors. Nemak sees this as a positive development that could benefit its operations in these regions.
Q: How is Nemak addressing the competition from combustion cars produced in China being sold abroad, especially in Mexico and Brazil?
A: Nemak is aware of the increased presence of Chinese vehicles in markets like Mexico and Brazil. Despite this, the company has seen strong volumes in these regions and remains confident in its competitive position.
Q: Can you explain the higher interest expenses and the $20 million other financing income in the quarter?
A: The higher interest expenses are partly due to increased debt and higher reference rates. The $20 million other financing income is related to incentives received for investments, which were categorized as financial income, with corresponding expenses recorded as interest expenses.
Q: Are you still targeting stable working capital or working capital gains during the year despite the $200 million impact on working capital?
A: Yes, Nemak expects to recover most of the working capital impact in the third and fourth quarters. The company is confident in achieving stable working capital levels by the end of the year.
Q: How much did the commercial negotiations add to EBITDA in the quarter, and what is the idleness rate in both segments currently?
A: While specific figures from commercial negotiations are confidential, they positively impacted EBITDA. The idleness rate in the EV and SC segments is around 60%, with ongoing negotiations to address this.
Q: What is the peak revenue now estimated from the $1.8 billion order book?
A: It's too early to provide a precise figure, but Nemak is reviewing its order book in light of slower EV adoption. The company expects to announce the impact once customer strategies are clearer.
Q: What is the situation of recovery in the USA?
A: The US automotive market is performing well, supported by sound economic conditions. The temporary disruption in dealership software affected sales, but the market is expected to recover.
Q: Have you considered raising capital by issuing stock in the mid-term given the current debt situation?
A: No, Nemak is not considering raising capital through stock issuance in the short or mid-term. The company plans to leverage cash generation and commercial initiatives to manage debt.
Q: What is the difference in Nemak's average content per vehicle for battery electric, hybrid, and ICE?
A: The average content per vehicle is approximately $600 for ICE, $800 for hybrids, and $1,400 to $1,500 for battery electric vehicles. While EVs require more CapEx, the increased demand for ICE and hybrids will generate more cash flow with minimal additional investment.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
