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Auto Roundup: BorgWarner-Wolfspeed Deal, Tesla Recall & More

Last week, the European Automobile Manufacturers Association (ACEA) released data on passenger car registrations for October 2022. The European Union (EU) passenger vehicle market increased 12.2% last month to 745,855 units, marking the third straight month of growth this year. Registrations in Italy, Germany, Spain and France witnessed a year-over-year rise of 14.6%, 16.8%, 11.7% and 5.5%, respectively. During the first 10 months of 2022, new car registrations contracted 8.1% from the prior-year period’s level to 7,529,965 units. During this period, all the major EU markets witnessed a decline in registrations, including Italy (13.8%), France (10.3%), Spain (5.8%) and Germany (5.5%).

On the news front, automotive equipment provider BorgWarner Inc. BWA boosted its electrification game with a $500-million deal with Wolfspeed. The deal leads BorgWarner to secure a stable silicon-carbide devices supply-chain essential for its inverter growth plans. Auto retailer AutoNation Inc. AN acquired a 6.1% ownership stake in the automotive digital platform TrueCar to enhance its digitization efforts. The deal will bolster AN's omnichannel prospects. Meanwhile, Advance Auto Parts, Inc. AAP and Copart, Inc. CPRT released quarterly results, wherein both missed the Zacks Consensus Estimates for earnings. Finally, electric vehicle (EV) giant Tesla TSLA grabbed the headlines with a series of recalls.

While Copart currently carries a Zacks Rank #4 (Sell), TSLA, AAP, BWA and AN carry a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Last Week’s Top Stories

Advance Auto reported adjusted earnings of $2.84 per share for third-quarter 2022 (ended Oct 8, 2022), down 11.5% from the year-ago quarter’s reported figure. The same also missed the Zacks Consensus Estimate of $3.32 a share. AAP generated net revenues of $2,641.3 million, falling short of the Zacks Consensus Estimate of $2,652 million and slipping 0.8% from the year-ago reported figure.

Advance Auto estimates 2022 net sales in the band of $11-$11.2 billion. Comparable store sales are now envisioned to decline up to 1% against the prior forecast of 1-3% growth. Adjusted operating income margin is projected in the range of 9.8-10%. Advance Auto expects 2022 capex to be a minimum of $350 million. AAP now targets an FCF of a minimum of $300 million, down from $700 million estimated earlier. Adjusted EPS is now forecast between $12.60 and $12.80, down from the previously guided range of $12.75-$13.25. The auto parts retailer now intends to buy back a maximum of $600 million worth of shares in 2022. It aims to open 125-150 stores this year.

Copart reported first-quarter fiscal 2023 (ended Oct 31, 2022) adjusted earnings per share of 51 cents, missing the Zacks Consensus Estimate of 55 cents. The underperformance was due to lower-than-anticipated service revenues and high costs. The bottom line slid 5.6% year over year. The online auto auction leader generated revenues of $893.3 million, beating the Zacks Consensus Estimate of $884 million. The top line also increased 10.3% from the year-ago reported figure.

Gross profit was down 4% year over year to $369.5 million. Total operating expenses flared up 21.2% to $581.8 million. Operating income declined to $311.5 million from $330.1 million recorded in the year-ago quarter. Copart had cash, cash equivalents and restricted cash of $1,539.4 million as of Oct 31, 2022, compared with $1,384.2 million as of Jul 31, 2022. Long-term debt fell to $1,969,000 at the end of the reported quarter from $1,996,000 as of Jul 31, 2022.

BorgWarner entered into a strategic partnership with Wolfspeed to obtain a reliable supply of silicon-carbide devices. BWA will invest $500 million in Wolfspeed’s financing transaction in exchange for a silicon carbide device capacity corridor. Per the multi-year agreement, BorgWarner will be entitled to purchase up to $650 million of devices annually to cater to its growing requirement.

BorgWarner is intensively ramping up its EV game with its ambitious Charging Forward strategy, announced last year. The plan targets to generate $4.5 billion of electric vehicle revenues for 2025 compared with less than $350 million in 2021. On third-quarter earnings call, management stated that BWA is on track to achieve nearly $4 billion of EV revenues by 2025, considering new business awards and acquisitions announced as of the earnings release. Also, BWA expects 2022 EV revenues to grow to approximately $850 million, more than doubling the year-ago reported figure.

AutoNation announced that it acquired a minority ownership stake of 6.1% in TrueCar, an automotive digital marketplace. The buyout will allow both companies to develop new ways to improve the buying and selling of vehicles.TrueCar’s leading position in the digital space makes it well-suited to provide personal transportation solutions, with the central focus laid on customer needs. This makes TrueCar a preferred choice for AN. The decision to invest in TrueCar is a testimony to AN’s strong commitment to providing its customers with a premium experience and bringing emerging technologies to uplift the digital buying experience. Through TrueCar, the end-to-end purchase process will be transparent and efficient for consumers.

Digital automotive platforms are rapidly gathering steam and emerging as a very sought-after purchase medium. AutoNation is focused on tapping into this huge pool of opportunities bolstering its prospects, and boosting profitability and market presence. AN stated that more than 50% of its unit sales were generated from its digital channels in the last reported quarter.

Tesla issued a recall of 321,628 vehicles over a software snag, causing the tail lights on some cars to malfunction. The glitch may affect one or both taillights on specific Model 3 and Model Y vehicles. The recall covers certain 2020 to 2023 Model Y SUVs and 2023 Model 3 sedans. However, brake lamps, backup lamps and turn signal lamps will remain unaffected by the software glitch. The automaker will fix the problem through an online software update. Owners will be notified by a letter starting Jan 14.

In another setback, Tesla will be recalling nearly 30,000 Model X cars in the United States over an issue of faulty deployment of airbags. There was a probability that the airbag was deployed incorrectly in specific low-speed collision events when a young front-seat passenger ran the danger of being unbelted and slipping out of position, increasing the risk of injury. The situation will be addressed through an on-air software update, as is the most common mitigation measure by the EV behemoth.

Price Performance

The following table shows the price movement of some of the major auto players over the last week and in the past six months.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

What's Next in the Auto Space?

Industry watchers will keep tabs on October commercial vehicle registrations to be released by the European Automobile Manufacturers' Association.


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BorgWarner Inc. (BWA) : Free Stock Analysis Report
 
AutoNation, Inc. (AN) : Free Stock Analysis Report
 
Advance Auto Parts, Inc. (AAP) : Free Stock Analysis Report
 
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Copart, Inc. (CPRT) : Free Stock Analysis Report
 
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