Auto Roundup: LEA's Upbeat Outlook, STLA-Kuniko Partnership & More
As the second quarter of 2023 comes to a close, few automakers like Hyundai, Kia and Genesis unveil their June sales numbers. While most auto giants are set to report quarterly and June deliveries in the coming days of the week, U.S. light vehicle sales are expected to have risen 16-23% year over year in June 2023, per Cox Automotive, S&P Global Mobility and JD Power-GlobalData. In June, Hyundai and Kia experienced their 11th consecutive month of increased sales for light vehicles in the United States. The upside was supported by higher inventories and increased discounts, specifically related to promotions for the Jul 4 holidays. Continuing its positive momentum, Genesis also witnessed a 33% increase in sales last month, marking the eighth consecutive month of growth. Sales of Hyundai and Kia rose 14% and 8%, respectively, in June.
On the news front, auto parts manufacturer Lear Corporation LEA made significant announcements during its Seating Product Day. It unveiled an encouraging financial outlook and market share targets and announced its achievements in Thermal Comfort Systems. The US legacy automaker Ford’s F strategic cost-cutting measures is hitting engineering positions in the United States and Canada. The move is in sync with Ford+ plan that aims to increase the operational efficiency. Italian-American automaker Stellantis N.V. STLA partnered with European-focused battery minerals explorer Kuniko Limited to secure a stable supply of critical battery metals for electric vehicles (EVs). Japan’s auto giant Honda HMC issued a recall of 1.2 million vehicles in the United States. Finally, General Motors GM hit headlines as it announced ALGOLiON acquisition to ensure the safety and efficiency in EV battery technology.
While GM and HMC sport a Zacks Rank #1 (Strong Buy), STLA and LEA carry a Zacks Rank #2 (Buy). F carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 stocks here.
Last Week’s Top Stories
Lear raised its projections for 2023 net sales and earnings. The company aims to achieve a net sales range of $22.35-$23.05 billion, higher than the previous guidance of $21.2-$22 billion. Net income is now projected in the band of $620-$720 million in 2023, up from the prior projection of $510-$670 million. Lear has set ambitious market share targets, striving for a 29% share in JIT seating and a 32% overall Seating market share by 2027. Focusing on operational efficiency, the company expanded the Seating target margin range to 8.5-9.0%, which reflects on its commitment to improving profitability. Seating adjusted earnings are projected to increase approximately $700 million from 2023 to 2027, highlighting the company's dedication to sustainable growth.
Lear set a higher revenue target of $1 billion for its Thermal Comfort Systems, up from the previous goal of $800 million, to be achieved by 2027. Furthermore, the company announced significant contracts that underscore its strong business relationships and preferred supplier status. It secured a first-to-market contract to supply INTU products on future vehicle models with an ultra-luxury European automaker. Additionally, Lear was awarded the first production contract for FlexAir on a crossover vehicle launching in 2024 with an Asian automaker, solidifying its position as a trusted partner in the industry.
Ford announced its plans to conduct job cuts, with a primary focus on engineering positions in the United States and Canada.This round of layoff is expected to affect all of Ford’s business units, including Ford Blue, Model e and Ford Pro. In its quarterly filing in May, Ford disclosed that it expects to incur a total cost of between $1.5 billion and $2 billion this year, “primarily attributable to employee separations and supplier settlements.” In 2021 and 2022, the total cost incurred for the same was $2 billion and $608 million, respectively.
When compared with its competitors, Ford has a nearly $7 billion cost disadvantage that it aims to address through improved efficiency and job cuts. The Ford+ plan plays a vital role in the company’s staffing arrangements.According to a public filing, Ford’s worldwide employee count dropped by 10,000 to 173,000 last year. Meanwhile, Ford has committed to investing more than $50 billion by 2026 to advance the production of EVs worldwide. The company aims to reach annualized EV production capacity of 600,000 units globally by the end of this year and 2 million units per year by 2026.
Stellantis inked a binding offtake term sheet with Kuniko. This agreement allows Stellantis a future offtake of 35% of nickel sulphate and cobalt sulphate, crucial battery-grade metals, from Kuniko's Norwegian exploration projects for a nine-year term. Stellantis has also purchased €5 million (A$8 million) of new equity in Kuniko, giving it a 19.99% shareholding and the right to nominate one director to the Kuniko board. This investment will be used to propel Kuniko's brownfield and greenfield battery metals exploration projects in Norway, which include nickel, cobalt, and copper.
This strategic partnership aligns with Stellantis' Dare Forward 2030 plan, aiming to achieve a 100% passenger car battery electric vehicle sales mix in Europe and a 50% mix in the United States by 2030. Stellantis is progressing with its commitment to become a carbon net zero corporation by 2038. The collaboration with Kuniko brings it a step closer to this goal. Stellantis' Chief Purchasing and Supply Chain Officer, Maxime Picat, emphasized the company's aggressive path to building a comprehensive portfolio of raw materials to meet their electrification targets. The partnership with Kuniko serves as another lever to support Stellantis' European battery needs with a local and environmentally conscious solution.
Honda is recalling 1.2 million vehicles in the United States due to a defect in the rearview camera image. The recall includes certain 2018-2023 Odyssey minivans, 2019-2022 Pilot SUVs and 2019-2023 Passport SUVs. In a document posted by the U.S. safety regulator, Honda mentioned that the problem is linked to a defect in the communication coaxial cable connector, due to which the rearview camera image may not appear on the dashboard screen. The National Highway Traffic Safety Administration mentions that if the rearview camera image doesn't display on the screen, it can cut off the driver’s visibility and increase the risk of a crash.
From May 2017 to June 2023, the automaker received 273,870 warranty claims related to the issue. So far, there haven’t been any reports of injuries or deaths related to the recall issue. The owners of the vehicles will be notified by letter starting Jul 24, 2023. Dealers will install a better cable harness between the current display audio and vehicle terminal connections and a straightening cover over the vehicle cable connector to properly connect the audio display unit. The issue will be fixed free of charge.
General Motors acquired ALGOLiON, an Israel-based software startup that specializes in detecting potential hazards in battery cells. The acquisition of ALGOLiON is a crucial step for GM in improving its battery standards, a move urged by safety authorities following several incidents of vehicles catching fire due to defective battery modules. With ALGOLiON's software, GM hopes to spot even tiny changes that could affect battery health weeks earlier than other methods. This capability will provide a valuable tool for the company to mitigate battery-related risks and protect its reputation in the increasingly competitive EV market.
The team of ALGOLiON, including its founders, will join GM's Technical Center in Herzliya, Israel, where more than 850 employees are already working on technological advancements. This acquisition was led by GM's newly-formed Technology Acceleration and Commercialization organization, whose aim is to seek potential acquisition targets and explore investment opportunities and partnerships that can strengthen GM's position in battery development.
Price Performance
The following table shows the price movement of some of the major auto players over the last week and six-month period.
Image Source: Zacks Investment Research
What's Next in the Auto Space?
Industry watchers will be keeping a close watch on June and second-quarter 2023 delivery updates of auto biggies that will come out this week.
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