Auto Roundup: GM's Investment Plans, CVNA's Improved Q2 Outlook & More
According to the China Passenger Car Association, there was a 6.9% increase in passenger vehicle sales in China in May, totaling 1.76 million vehicles. In the same month, 580,000 new energy vehicles were sold, reflecting 10.5% monthly growth and constituting 32.9% of the total sales in May. From January to May, overall passenger vehicle sales rose 4% from the previous year, reaching 7.74 million cars.
On the news front, U.S. auto giant General Motors GM announced a slew of investments to boost the production of its internal combustion engine (ICE) vehicles. Crosstown rival Ford F issued a recall for 125,000 vehicles amid the risk of engine failure. Used car e-retailer Carvana CVNA unveiled an improved financial outlook for the second quarter of 2023, driven by its innovative online platform and focus on profitability. Auto equipment provider, Autoliv ALV announced its plans to accelerate its global structural cost reductions as well as reiterated its 2023 outlook. Lastly, recreational vehicle (RV) maker Thor Industries THO released its fiscal third-quarter 2023 results. The company’s sales and profits exceeded expectations but declined on a yearly basis.
While GM and F sport a Zacks Rank #2 (Buy), CVNA, ALV and THO carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Last Week’s Top Stories
1. General Motors set forth its plans to invest over $1 billion in two of its Flint manufacturing sites, namely Flint Assembly and Flint Metal Center. GM is developing both sites for producing next-generation ICE heavy-duty trucks.This $1 billion investment will strengthen GM’s U.S. manufacturing operations, which include over 50 assembly, stamping, propulsion and component plants and parts distribution centers nationwide. It also underscores the automaker’s commitment to provide a strong portfolio of ICE vehicles to its customers in the future.
The company also announced a significant investment of C$280 million in its Oshawa Assembly plant to propel the production of next-generation internal combustion engine (ICE) full-size trucks. This move underscores GM's sustained commitment to Canadian manufacturing, following a hefty $1.2 billion investment in the Oshawa plant in 2020.
In yet another news, GM plans to invest more than $500 million in Arlington Assembly to make the plant ready for the production of future ICE full-size SUVs, subject to successful discussions with local government officials. Since 2013, GM has announced around $2 billion in investments for Arlington Assembly.With this announcement, GM’s U.S. manufacturing and parts distribution facility has committed more than $31 billion in investment since 2013.
2. Thor Industries delivered adjusted earnings of $2.24 per share for third-quarter fiscal 2023, which surpassed the Zacks Consensus Estimate of $1.13 per share. This outperformance can be primarily attributed to higher-than-expected revenues from the European RVs segment. The bottom line declined massively by 64.6% from the year-ago profit of $6.32 per share. The company registered revenues of $2,928.8 million for the quarter under review, outpacing the Zacks Consensus Estimate of $2,838 million. However, the top line declined 37.1% year over year.
As of Apr 30, 2023, Thor had cash and cash equivalents of $353.2 million and long-term debt of $1,641 million. Thor now projects its full-year consolidated net sales in the range of $10.5-$11.0 billion compared with the prior guided range of $10.5-$11.5 billion.Earnings per share are now expected to be in the range of $5.80-$6.50, up from the previously projected range of $5.50-$6.50.
3. Ford is recalling over 125,000 sports utility vehicles (SUVs) and trucks. Per the National Highway Traffic Safety Administration (NHTSA), the recall includes 86,656 Ford Escapes model years 2020-23, 35,501 Ford Mavericks model years 2022-23 and 3,165 Lincoln Corsairs model years 2021-23. The affected vehicles have 2.5L of HEV/PHEV engines that could fail prematurely. Per NHTSA, if the engine fails, engine oil or fuel vapor may be released and accumulate near ignition sources, resulting in fires or smoke.
So far, Ford has received reports of at least three vehicles experiencing a fire, even after getting a recall fix in 2022. Therefore, Ford and NHTSA have advised customers to park safely and shut off the engine if they hear unexpected engine noises, notice a power decrease or see or smell smoke. The owners of the vehicles will be contacted starting Jun 12, 2023. Per the traffic safety administration, the solution for the engine issue is expected to get ready by the third quarter of 2023.
4. Autoliv has announced its intention to expedite its global structural cost reductions, with a specific emphasis on its European operations to support its medium- and long-term financial objectives and reaffirm its full-year 2023 indications. The company aims to enhance operational efficiency by closing multiple sites in Europe, resulting in the elimination of around 2,000 indirect positions globally, accounting for roughly 11% of Autoliv's total indirect workforce, with approximately 1,000 positions being affected in Europe.
Autoliv restated its projections for 2023, expecting an adjusted operating margin of approximately 8.5-9.0% and an operating cash flow of approximately $900 million. The company anticipates a gradual improvement in its adjusted operating margin, which will contribute to a significant increase in cash flow and generate higher returns for its shareholders.
5. Carvana unveiled an improved second-quarter 2023 financial outlook, showcasing its dedication to driving profitability and revolutionizing the car-buying experience. With projected adjusted EBITDA surpassing $50 million, Carvana demonstrates its ability to generate substantial earnings. Moreover, non-GAAP total gross profit per unit is expected to be above $6,000, indicating a 63% improvement from the same quarter in 2022, setting a new company record. These figures exemplify Carvana's ongoing commitment to operational efficiencies and customer-centric strategies.
By continually prioritizing operational excellence, Carvana delivered one of its best-performing quarters, i.e., first-quarter 2023, underscoring its ability to execute its growth strategy effectively. As the company strives for improved unit economics, including a more robust GPU in the second quarter and positive free cash flow in the future, investors can anticipate sustained growth and a continued positive trajectory for Carvana.
Price Performance
Image Source: Zacks Investment Research
The following table shows the price movement of some of the major auto players over the last week and six-month period.
What’s Next in the Auto Space?
Stay tuned for the quarterly releases of used car retailer CarMax and RV maker Winnebago Industries, scheduled for next week. Industry watchers will keep a tab on May 2023 passenger vehicle registrations to be released by the European Automobile Manufacturers Association soon.
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Ford Motor Company (F) : Free Stock Analysis Report
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Autoliv, Inc. (ALV) : Free Stock Analysis Report
General Motors Company (GM) : Free Stock Analysis Report
Carvana Co. (CVNA) : Free Stock Analysis Report
