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Auto Roundup: Honda's (HMC) Big EV Bet, KMX's Mixed Q4 Results & More

·7 min read

Last week’s biggest highlight was Japan-based auto giant Honda Motor’s HMC massive electric vehicle (EV) plans. At a recently-held press conference, Honda revealed ambitious plans to drive its futuristic electrification vision. The company is striving to reduce its environmental footprint and hence looks to strengthen electrification initiatives. U.S. legacy automaker General Motors GM inked a deal with Glencore for sourcing cobalt to rev up its EV game. It also reported a decline in year-over-year vehicle sales in China for first-quarter 2022.

EV behemoth Tesla TSLA also made news by issuing a recall of nearly 600K vehicles. But on a positive note, Tesla will be resuming operations in Shanghai today, per media sources. Meanwhile, used vehicle auto retailer CarMax Inc. KMX reported mixed fourth-quarter fiscal 2022 (ended Feb 28, 2022) results, with the bottom line missing the consensus mark while the top line surpassing estimates. Finally, auto equipment supplier American Axle & Manufacturing Holdings, Inc. AXL also grabbed the limelight as it is set to acquire Tekfor Group in a bid to rev up its electrification strides.

Top Stories of the Week Gone By

Honda announced a spending of nearly 8 trillion yen ($63 billion) for research and development (R&D) expenses over the next 10 years, of which around 5 trillion yen is planned to be invested in electrification and software. HMC will invest about 1 trillion yen in new growth areas. It will also dedicate investment in startups with high-potential advanced technologies and business models at a scale of 10 billion yen per year. The Japan-based auto giant targets to launch 30 EV models globally by 2030. It aims for a production volume of more than 2 million units annually.

With regard to battery procurement, Honda has come up with two basic approaches. It will ensure stable procurement of liquid lithium-ion batteries in each region, namely North America, China and Japan, by strengthening the external partnership. Further, it will accelerate its independent R&D of next-generation batteries. HMC intends to build a demonstration line by investing around 43 billion yen for all-solid-state batteries it currently has, which it plans to make operational in the spring of 2024.

American Axle entered into a definitive agreement to acquire Tekfor Group for an enterprise value of €125 million. Hausach, Germany-based Tekfor Group is renowned in automotive fasteners and metal-formed components for driveline, powertrain and E-mobility applications. Tekfor generated sales of approximately €285 million in 2021. The buyout promises significant synergies for AXL and has the potential to diversify its geographic and customer sales mix as well as bolster the electrification portfolio. The purchase will also broaden its metal forming technologies to serve a wide range of customers globally. The deal is expected to close in second-quarter 2022 after standard approvals.

In another development, American Axle set out new environmental sustainability targets. It targets to become carbon neutral by 2040. It intends to strengthen the electric propulsion product portfolio, laying more emphasis on e-Beam axles and next-generation 3-in-1 electric drive units. AXL is making considerable progress toward diversifying its business, products and customer base as well as creating a sustainable supply chain system.

CarMax reported fourth-quarter fiscal 2022 net earnings per share of 98 cents, missing the Zacks Consensus Estimate of $1.28 amid lower-than-anticipated sales volume from the used-vehicle segment. The bottom line also decreased from $1.27 per share recorded in the year-ago period. The auto retailer registered revenues of $7,686.7 million, beating the Zacks Consensus Estimate of $7,566 million and increasing 48.8% year over year.

KMX had cash/cash equivalents and long-term debt of $102.7 million and $3,255.3 million, respectively, as of Feb 28, 2022. To investors’ delight, the company boosted the buyback program by $2 billion. CarMax opened 10 new stores in fiscal 2022 and targets to open 10 more in fiscal 2023. It expects capital expenditure to increase from $308.5 million in fiscal 2022 to $500 million in fiscal 2023. Meanwhile, CarMax has upwardly revised its long-term targets. KMX now envisions selling 2-2.4 million vehicles by fiscal 2026, up from the prior view of 2 million units. Additionally, it expects to generate revenues in the band of $33-$46 billion by fiscal 2026, up from the previous view of $33 billion.

General Motors inked a multi-year sourcing agreement with Glencore. Per the deal, Glencore will supply cobalt to GM from its Murrin Murrin operation in Australia to create sustainable supply chains. As Glencore is a leading producer, recycler and supplier of the element, GM will be able to leverage its experience and strive for reducing its carbon footprint in the transportation sector. The cobalt will be used in GM’s Ultium battery cathodes, which will power its models such as the Chevrolet Silverado EV, GMC HUMMER EV and Cadillac LYRIQ.

Meanwhile, General Motors reported its China sales data for the first quarter of 2022. GM and its joint ventures delivered more than 613,000 vehicles in the world’s largest car market, down from 780,000 units in first-quarter 2021. The downside stemmed from persistent chip shortage and COVID-19 resurgence. In first-quarter 2022, GM’s key brands including Cadillac, Buick, Chevrolet, Baojun and Wuling recorded deliveries of 47,000, 163,000, 52,000, 20,000 and more than 330,000 units, respectively.

Tesla issued a recall for nearly 595,000 cars over an issue in its Boombox, a feature that allows drivers to play music while in motion. This marks the eighth recall in the past five months. The U.S. National Highway Traffic Safety Administration adjudged the Boombox as non-compliant with safety regulations, as it might drown out alert sounds required for all EVs. The latest recall includes the company’s Model Y, X, and S vehicles built within 2020-2022 along with the 2017- 2022 Model 3 vehicles.

In another development, Tesla is gearing up to resume production at the Shanghai plant from today after a three-week hiatus. The company's Shanghai factory suspended production on Mar 28 after a resurgence of COVID-induced restrictions and lockdowns. Sources have reported that the carmaker plans to start with one shift and gradually ramp up. The latest stoppage marks the longest one since the factory started production in late 2019 and resulted in an estimated output loss of more than 50,000 units.

Tesla currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price Performance

The following table shows the price movement of some of the major auto players over the past week and six-month period.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

What’s Next in the Auto Space?

Industry watchers will keep a tab on March passenger vehicle registrations, likely to be released by the European Automobile Manufacturers Association this week. Meanwhile, the first-quarter 2022 earnings season for the auto sector kicks off this week. Investors are keenly awaiting Tesla’s results, set to be released on Wednesday. Also, stay tuned for how automakers make changes in operations in the light of increasing supply chain snarls.


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