Motley Fool Money: Amazon Enters a New Lane
Release Date: December 11, 2024
Hosts: Mary Long, Asit Sharma, Ricky Mulvey, Jim Gillies

1. Amazon Ventures into the Car Dealership Business

Mary Long opens the episode by highlighting Amazon's recent foray into the automotive sector. Amazon has partnered with Hyundai to launch the Hyundai Biz, available in 48 U.S. cities. This initiative allows customers to purchase Hyundai vehicles directly through the Amazon platform, acting as an intermediary that facilitates financing, pickup arrangements, and even trade-ins via the Amazon app.

Mary Long elaborates, “[...] you will now be able to buy Hyundai vehicles off of Amazon through participating dealers. Amazon is kind of acting as a middleman here” (00:46).

Asit Sharma discusses the potential implications for traditional car dealerships. He suggests that dealerships may adopt a "wait and see" approach to assess the economic benefits of partnering with Amazon. Asit shares his personal experience attempting to purchase a vehicle on Amazon, noting the limited dealer options as some dealerships have yet to opt into the program.

Notable Quote:
“As it’s not so flashy as we’ve come to expect, those who visit the large car manufacturers’ websites for buying a new vehicle, it is a faster process and you’re used to it.” — Asit Sharma (04:15)

2. Impact on Traditional and Online Car Dealerships

The hosts delve into how Amazon's entrance might affect different types of dealerships. Asit posits that while traditional dealers might weigh the trade-offs between profit margins and increased sales volume through Amazon, online dealerships like Carvana may remain unfazed. Asit remarks on Carvana's resilience, noting their "battle-hardened" stance after navigating past economic challenges.

Asit Sharma:
“I think because they’ve been through the fire a couple of times, they’re probably like, so what, no bar. They’re like another day, they’re battle hardened.” (04:25)

He also speculates that Amazon's focus will remain on new car sales, potentially leaving the used car market to specialized platforms like Carvana.

3. General Motors Shuts Down Cruise Robo-Taxi Unit

Shifting gears, Mary Long brings attention to General Motors' decision to shutter Cruise, their autonomous taxi division, after investing approximately $8 to $10 billion since 2016.

Mary Long:
“Meanwhile, over at GM, we got news that they’re shutting down Cruise, their robo taxi unit.” (08:40)

Asit Sharma reflects on Cruise's original vision—to transform GM from a traditional automaker into a ride-hailing service provider with a fleet of autonomous taxis. However, due to the substantial investment and lack of imminent returns, GM faced pressure from shareholders leading to the unit's closure.

Notable Quote:
“I think investors were getting antsy on how much money that GM has put into this business.” — Asit Sharma (09:53)

4. Challenges in Achieving Autonomous Vehicle Goals

The conversation broadens to address why major corporations are retracting from autonomous vehicle projects. Asit outlines the technological and regulatory hurdles necessary to reach Level Four autonomy—where vehicles can operate without human intervention in most scenarios.

Asit Sharma:
“There’s so much involved in getting to truly driverless states... patience comes into play. Patience of management teams, patience of shareholders, patience with regulators.” (14:10)

He emphasizes the extensive investment in technology such as radar, lidar, and high-definition mapping, alongside the need for a robust regulatory framework—a combination many companies find too challenging to navigate long-term.

5. Breakfast News Segment: Personal Experiences with Robo Taxis

In the Breakfast News segment, Mary Long and Asit Sharma share personal anecdotes about their experiences—or lack thereof—with autonomous taxis.

Mary Long recounts her attempt to use Waymo during a marathon event in Phoenix but was deterred by long wait times:

“…the bus that we had been waiting for wound up getting there in that time. So we did not try it.” (17:15)

Asit Sharma expresses his intent to try a robo-taxi when he has the opportunity, emphasizing safety and practicality as his primary concerns.

6. Deep Dive into AerCap: An Aircraft Leasing Powerhouse

Transitioning to the aviation sector, Ricky Mulvey invites Jim Gillies to discuss AerCap, a prominent airplane leasing company. Jim passionately endorses AerCap, highlighting its strategic positioning in a recovering aviation industry.

Jim Gillies:
“AerCap is the biggest and best player in a space facing probably the most attractive industry conditions they’ve had for a while while gushing cash, deploying that capital in the service of shareholders…” (19:15)

Key Points Discussed:

• Post-Pandemic Recovery: AerCap suffered during COVID-19, with stock prices plummeting from ~$70 pre-pandemic to ~$14. The recovery is buoyed by a resurgence in air travel, with revenue passenger kilometers (RPK) growth rebounding to 12% recently and expected to stabilize at around 5% long-term.

• Business Model: Airlines prefer leasing over owning aircraft to minimize capital expenditure and focus on operational complexities. AerCap benefits from this trend by providing flexible leasing options, often selling planes after 10-15 years at a premium.

• Financial Health: Despite a hefty debt load of $43 billion, Jim clarifies that for a leasing company, debt is akin to raw materials. AerCap's assets are highly liquid, allowing them to manage and redeploy planes efficiently to minimize financial risks.

Notable Quotes:

• “Debt is raw material to you. It shouldn’t be viewed as scary because at the end of the day, let’s say AerCap needed to pay off all their debt tomorrow, they could sell a bunch of planes…” — Jim Gillies (25:06)
• “Are you expecting we’re going to shut down the world again? Because I suspect we’re not.” — Jim Gillies (28:XX)

Valuation Insights:
AerCap is trading at slightly over its book value with a price-to-earnings ratio of 8.2, indicating a potentially undervalued stock given its strong market position and growth prospects.

7. Concluding Thoughts

The episode wraps up with reminders about subscriber benefits and upcoming segments. Mary Long advises listeners to exercise due diligence when considering stock recommendations discussed during the show.

Mary Long:
“Don’t buy or sell stocks based solely on what you hear.” (29:16)

Final Takeaways

• Amazon's Entry into Car Sales: Represents a significant shift in the automotive retail landscape, potentially challenging traditional dealerships and redefining online vehicle purchases.

• Autonomous Vehicles' Rocky Road: Even with substantial investments, achieving fully autonomous robo-taxis remains elusive due to technological, regulatory, and financial challenges.

• AerCap's Strategic Advantage: Amidst a recovering aviation industry, AerCap stands out with its robust leasing model, strategic asset management, and attractive valuation, making it a compelling consideration for investors.

Transcript Reference: The timestamps correspond to specific points in the provided transcript, ensuring accurate attribution and context.