Motus dismisses threat posed by transition to new energy vehicles

Motus, the JSE-listed integrated automotive business, has dismissed any potential immediate risk posed by the increased adoption of new energy vehicles (NEVs) by consumers.

And its strategy over the next two years is to focus on growing its aftermarket parts business.

Motus CEO Osman Arbee said on Wednesday the company plans to do bolt-on acquisitions where it can – in South Africa, the UK and Australia – in line with its aftermarket strategy.

Read: Motus secures ESG funding facilities worth R6.8bn

“That [the aftermarket parts business] is an area we believe is not dependent on new cars, is not dependent on what the OEMs [original equipment manufacturers] want and is very cash generative,” he said.

Arbee warned people to be careful about what they read about the transition to electric vehicles (EVs), stressing that “EVs are coming but very slowly”.

“You read these fancy reports that we will all have EVs tomorrow. We can’t. There aren’t enough batteries, there aren’t enough charging stations, there isn’t enough investment that has taken place.

“It will take time. It could take another 15 years before we start normalising,” he said.

Arbee said South Africa has 12 million internal combustion engine (ICE) cars and referred to Mercedes-Benz launching its EV range this past weekend.

“What was the price? R1.6 million? Audi has a beautiful EV vehicle priced at R1.6 million to R1.7 million,” he said.

The “bread and butter” in the South African car market is below R750 000.

“When the price of EVs comes down and we get some [government] subsidies – I don’t know when – we will pick up that market,” he said.

Read:
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Arbee stressed that Motus plans to exploit ICE vehicles because there are millions of them it can sell parts to in the country.

He said the UK has 35 million ICE cars and suggested all of them will only possibly be EVs by 2050, adding that Australia has 20 million ICE vehicles.

“They [UK government] can put up the tolls, put in emission charges and do all those things but how are you going to convert 35 million cars to EVs? You are not going to do it quickly. That is why we believe aftermarket parts has got a lot of road to run in selling lots more parts to that industry,” he added.

Arbee said some acquisition opportunities “are coming our way” and Motus is looking at these opportunities quite critically.

Read: Motus to continue its acquisitions spree

He said it will target businesses that are cash-generative, have good margins and can provide Motus with sustainability into the future while also entering into joint ventures.

Financial performance

Turning to Motus’s financial results for the year to the end of June 2022, Arbee stressed that the environment the company operated in was one in which Covid-19 was still an issue. He cited lockdowns in China, Australia and the UK, as well as shortages of cars and interest rates and inflation both increasing.

“We are resilient and we will get through these headwinds. Two years ago we were in dire straits. The Motus management team did a great job getting these results,” he said.

The group on Wednesday reported a 5% rise in revenue to R91.9 billion, from R87.2 billion in the previous year.

Operating profit improved by 31% to R5.03 billion from R3.8 billion.

Profit before tax grew by 56% to R4.47 billion, from R2.86 billion, while the group’s headline earnings per share increased 72% to 2 025 cents from 1 179 cents.

The total dividend per share improved by 71% to 710 cents from 415 cents.

Motus sold a total of 135 564 new vehicles in its financial year to end-June, with its sales in South Africa increasing by 21% to 104 638 units from 86 304 in the previous year. Its total sales of pre-owned vehicles slumped by 17% in the year to 89 753 units from 108 700 units.

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The South African operations contributed 66% to revenue and 81% to operating profit for the year, with the remainder contributed by the UK, Australia and South East Asia.

The number of new vehicles sold in South Africa increased by 10% in the year to end-June to 490 124 vehicles, resulting in Motus increasing its market share to 22.4% from 20.2%.

Arbee said Motus is forecasting new vehicles sales of between 500 000 and 520 000 units for this calendar year and between 530 000 and 550 000 in 2023.

He said consumer and business sentiment will remain under pressure over the short to medium term but stressed that the strength of the group lies in its integrated business model, diversification and scale.

Arbee said Motus expects to deliver positive earnings growth, a solid financial position and strong cash generation from operations in the year to end-June 2023.

An analyst, who did not want to be named, said the vehicle market will be supportive of Motus’s import and distributed brands if supply chains remain disrupted and Asian vehicle brands continue to gain market share, as they have over the past 12 months.

However, the analyst said if supply chains start normalising, the market share gains Asian manufacturers achieved in South Africa will begin to reverse.

Read: SA motor manufacturers take steps to halt illegal vehicle imports

He said OEMs normally respond very quickly to lost market share and the only reason this has not happened to date is because they do not have vehicle supply.

“When they start to get a bit of supply, one of their priorities will be to claim back market share and that will be a potential headwind for Motus.

“That said, there is a flip side to this because Hyundai, Kia and Renault models have been really good and gained traction with consumers over the last years and confidence in these brands is increasing further,” he said.

Shares in Motus declined 4.41% on Wednesday to close at R116.00.

Listen to Arbee speaking about the group’s latest full-year results: