The Business Of

Cars | Mister Car Wash | Houthi Red Sea Attacks

Morning All!

TGIF! The weekend is so close! But before we get there, we’ve got one final newsletter to round off The Business Of Mister Car Wash. Let’s have a quick recap of some of the fun, surprising things we’ve learnt about the car wash industry this week…

• ~30x - Mister Car Wash’s average subscriber washes their car ~30x a year! You must seriously love keeping your car clean if you’re washing it 30x a year!

• ~17k - There is a whopping ~17k car washes around the US. And despite Mister Car Wash being the largest player, they only have ~3% of these!

• ~21% - With strong visibility of revenues thanks to their subscription model, Mister Car Wash boasts an EBIT margin of ~21%! Not too shabby at all!

Okay so, that is pretty much a wrap on The Business Of Cars series! In the graphic below, we can see the logos of all the companies we’ve looked at over the 3-week series. AutoNation, CarMax, Carvana, Copart, Tesla, Ford, Ferrari, and a bunch of EV challengers - including Lucid and Rivian. I’d say we’ve covered quite a lot!

However, the car industry is so large, that there’s a couple of other sectors we still haven’t touched on yet! And that’s the auto suppliers industry. And the aftermarket parts and accessories industry! Today, we’ll very, very briefly touch on both of these sectors too.

But before we do that, let’s get onto our ‘special’ topic for today… the Houthi Red Sea Attacks! And the reason we’re talking about the current situation in the Red Sea is because 2 of the companies we’ve recently spoken about on The Business Of have been very impacted by the events - Maersk and Tesla! And it’s not that obvious why!

Ships Get Hijacked, Share Price Goes Up… I’m Sorry, What?!

Okay, so first off - let’s set the scene - what’s actually happening in the Red Sea at the moment? Well, back in November 2023, a group of rebels (the Houthis) hijacked a container ship in the Red Sea. The reasons for the hijacking are political… and we won’t get into this now! But this article here explains what happened (and why) in more detail.

Now, after this initial hijacking, we saw more attacks from the rebels in December. And this is where Maersk and other big shipping companies started to get involved. The rebels started firing missiles at 2 of Maersk’s ships! And understandably Maersk decided to pause their shipping routes that passed through the Suez Canal/Red Sea!

So, this is clearly not great for Maersk. Their ships are being attacked by missiles! And they had to pause transporting their customers’ containers. However, in January 2024, we started seeing some odd headlines like the one below. Despite facing huge disruption to their usual shipping operations, Maersk’s share price wasn’t going down… it was flying up!

Now, this I’m sure this is a bit confusing for some of us. Something good was happening (share price going up), even though something very bad was happening (ships getting hijacked)! We’ll get into the reasons for this in a moment!

But then, in January 2024, another strange thing happened. Elon Musk announced that Tesla was going to stop producing cars in their Berlin factory BECAUSE of the crisis in the Red Sea - headline below. Now, why on Earth would an attack in the Red Sea cause Tesla to stop producing cars? Well, we’re about to find that out too!

Issues For Maersk… Means Issues For Most Companies!

Alrighty so, let’s start with the impact on shipping companies. After temporarily pausing their operations through the Red Sea, Maersk and other shipping companies then decided to re-route all their shipping routes that would normally pass through the Suez Canal. What do I mean?

Well, let’s take a shipping route from Singapore to Rotterdam (like you can see in the image below). NORMALLY, for a Maersk ship to travel from Singapore to Rotterdam, it would pass through the Suez Canal/Red Sea region. And the trip would be ~8,500 nautical miles and take ~26 days (yellow line). However, with re-routing AROUND AFRICA, this trip would now be an extra ~3,500 nautical miles and take an EXTRA 10 DAYS!

Now, what does this mean for Maersk? Well, it means they’ll need 10 days extra fuel for the trip. They’ll need to pay wages for 10 more days. And in total, this re-routing would cost Maersk an extra £1.6 million per trip!

So what did Maersk and other shipping companies do to combat the higher costs of their trips? Well, they charged their customers like Nike, Apple, etc. more for transporting their goods! And not just a bit more. The price for shipping containers from Asia to Europe was up 310% since November! Now, what does this mean for Maersk’s expected revenues? Well, revenues will go up! And what’s happened to the stock price? Well, as the chart below shows us… it’s done pretty well!

Okay so, that’s Maersk. Now let’s look at the impact on Tesla. Let’s take Tesla’s Berlin factory. Now, in order to make their cars in Berlin, Tesla will need to bring over some parts from Asia. However, as we’ve just seen - receiving these parts from Asia takes ~10 days longer than normal because of Maersk’s re-routing of ships! And it also costs Tesla a lot more to bring these parts over!

So, what does this mean for Tesla? Well, it slows their production down. Factory workers might be ready to build cars… but the parts they need to build the cars were still stuck at sea! And so, instead of having their factory workers just twiddling their thumbs, waiting for the parts to arrive, Elon Musk just thought - ‘why don’t we just stop producing cars for a few weeks till the disruption is sorted. That way I can save factory costs for a couple of weeks! And then we’ll get back to work!’

And so that’s how the Houthi rebel attacks link to the Tesla headline! I hope that’s useful. Oh, and this article here provides a much more detailed view of Tesla’s factory closure.

Hold On, Ford Don’t Make Their Own Seats?!

Alrighty, let’s wrap up for today by just briefly touching on the two industries we mentioned earlier - (i) the auto supplier industry, and (ii) the aftermarket parts industry. First, let’s look at the auto supplier industry. And the first question I have is - what do auto supplier companies actually do?

Well, you know in a car. You’ve got seats, brakes, sensors, and a whole lot of other parts. Do car manufacturers like Ford make the seats, brakes, and sensors found in their cars? Well, the answer is no!

There are companies who manufacture and supply the seats, brakes, and sensors for car manufacturers like Ford! Some of the biggest and most well-known companies in the auto supplier industry are Bosch (German, €92bn revenue), Lear (US, $24bn), and Aptiv (Ireland, $20bn).

Now, even within the auto suppler industry, there’s some separation. You have Tier 1 suppliers, Tier 2 suppliers, all the way to Tier 5 suppliers. And for more understanding on how Tier 1 suppliers are different to Tier 2 suppliers, I’d recommend checking out this really great video!

AutoZone Makes How Much Revenue… ?!

Alrighty, let’s wrap up. And let’s finally touch on the aftermarket parts industry. Now, what do these companies do? Well, aftermarket parts companies basically sell car owners ‘parts’ when something needs fixing. Like when a car battery, or brake pad, or oil filter needs replacing, you can go to an aftermarket retailer to get these replacements.

But hold on, didn’t we say in week 1 of this series that dealerships (like AutoNation) and auto manufacturers (like Tesla) also have repairs and parts divisions? So, why do we need these separate aftermarket companies? What are they here for?

Well, there’s a couple of key differences. You can find a whole list of them in this article here. But one of the main differences is the price. Aftermarket retailers often sell parts to customers at a much cheaper price than what you’d find at a franchised dealership. As an example, let’s take one of AutoNation’s Ford dealerships.

Let’s say a year or two after an individual has bought a Ford car from that dealership, they need a replacement brake pad. Now, they could go back to that dealership to get the part. OR they could go to an aftermarket retailer to get the part. And more often than not, the aftermarket retailer will offer the cheaper price!

Now, I’m really not doing the aftermarket parts industry justice by just touching on it in a few sentences! Because there are some absolutely cracking companies to look at in this sector. Two of the biggest aftermarket parts companies in the world are AutoZone (US, $18bn revenue), and O’Reilly Auto Parts (US, $16bn). Yes, you saw that right… $18 billion revenues! Go and check them out!

16th Feb 2024

Nigel Jacob CFA