FR FP

Publicly traded companies mentioned herein: Mercedes-Benz Group AG (MBG GR), Moody’s Corp (MCO), Siemens AG (SIE GR), Valeo (FR FP), Volkswagen AG (VOW GR)

Highlights

The presenter is short shares of Valeo (FR FP), a global automotive supplier headquartered in France with a €4.8B market cap. A common bull case made by investors is the expectation for Valeo to successfully transition from an ICE automotive supplier to EVs, but currently more than half the business is slowly eroding as ICE cars decline (ICE powertrains, ADAS, lighting, climate control, etc. make up >50% of revenues and ~80% of profits). Another recent bull thesis is around the Valeo Siemens eAutomotive joint venture (VSeA), which the presenter is bearish on due to its unprofitability, cash burn, and a major customer rolling off. The short position seems to have an attractive setup this year; along with his expectation that the company misses on FCF this year, the major near-term catalyst is Moody’s potentially downgrading the credit, and losses could accelerate next year when the Mercedes contract rolls off. He ultimately thinks the stock is worth €13 – €14 per share, offering 35% downside from the current €20 share price.