U.S. Markets closed

Auto Stock Roundup: China to Cut Tariffs, Thor Q1 Earnings Miss, Toyota Recalls

Beijing may cut tariffs on auto manufacturing from 40% to 15%. With the possibility of lower tariffs, U.S. automakers are set to get better access to the China market.

Following the possibility of truce or positive developments in trade relations between China and the United States, Beijing is likely to cut tariffs on auto manufacturing from 40% to 15%. With the chance of lower tariffs, U.S. automakers are likely to gain better access to China, the largest auto market in the world.

Autoliv, Inc. ALV announced that it will keep aside $210 million (165 million pounds) in the fourth quarter of 2018 as a cover for the possible fine to be imposed by the European Commission (EC). This auto safety equipment manufacturer believes that the EC is likely to enforce a fine, pertaining to the long-running cartel investigation.

In another incident, Toyota Motor Corporation TM announced that it will recall about 70,000 Toyota and Lexus branded vehicles in North America due to issues in the airbag inflator.

Thor Industries, Inc. THO reported first-quarter fiscal 2019 results. Earnings and revenues missed the Zacks Consensus Estimate, and both declined year over year.

Recap of the Week’s Most Important Stories

1.    Autoliv announced that it will keep aside $210 million (165 million pounds) in the fourth quarter of 2018 as a cover for the possible fine to be imposed by the European Commission, per Reuters. This Stockholm, Sweden-based auto safety equipment manufacturer believes that the EC is likely to enforce a fine, pertaining to the long-running cartel investigation.

The company has been under investigation since 2011 due to the allegation of anti-competitive behavior among suppliers of occupant safety systems in the European Union. In first-quarter 2018, the company had to pay a penalty of 8.1 million euro in relation to a smaller part of the investigation. Some other companies, which also faced penalties in the same investigation, were Toyoda Gosei, Takata, Marutaka and Tokai Rika.

Management of Autoliv now believes that the EC will seek to impose a fine in connection with the remaining portion of the investigation. The outcome of the investigation is likely to adversely affect Autoliv’s operating results. (Read more: Autoliv Sets Aside Funds to Cover Possible EC Fine)

Autoliv currently carries a Zacks Rank #5 (Strong Sell).

2.    Tesla, Inc. TSLA will initiate electric car production at its upcoming Shanghai, China-based plant from the second half of 2019, per Bloomberg. The information was shared by the Shanghai government. Apart from constructing the hub, the company has to ship and set up its production lines at the newly constructed plant. Lately, the mayor of Shanghai visited the factory site and encouraged Tesla to commence the factory construction.

Known as Gigafactory 3, Tesla’s first-ever plant outside the United States requires massive investment. High costs to construct the site pushed the company to borrow funds from a few banks in China. Per RBC Capital Markets analyst, Tesla might borrow approximately $1.3 billion from the local banks to pursue its facility development.

Huge prospects for battery-powered, plug-in hybrid and fuel-cell vehicles make China a lucrative market for automakers that offer new-energy cars. Per China Association of Automobile Manufacturers, the industry is expected to sell 1 million of such cars this year compared with 777,000 units sold in 2017. Further, by 2025, China set a target to sell 7 million of such vehicles per year. (Read more: Tesla to Start Production at Shanghai by End of 2019)

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

3.    Per Reuters, Fiat Chrysler Automobiles N.V. FCAU announced that it will build Jeep Grand Cherokee SUVs in an idled Detroit plant in 2020. This carmaker intends to renew Mack Avenue Engine II, which has been mothballed since 2012. This will create additional capacity to manufacture the redesigned Grand Cherokee, including a new three-row version.

Fiat Chrysler manufactures the two-row Grand Cherokee at the Jefferson North plant and it requires additional capacity. The latest move is likely to add at least 100 jobs and at the most 400 in the city.

This move by Fiat Chrysler coincided with General Motors Company’s GM plan to shut five assembly plants in North America in 2019, and cut to 15,000 jobs because of fragile demand for sedans and small cars in the United States.
Notably, General Motors has been receiving severe criticism from the lawmakers as well as President Donald Trump for its plan. Even the company was asked to reverse its plans. (Read more: Fiat Chrysler to Build Jeep in Idled Detroit Plant)

Currently, General Motors carries a Zacks Rank #2 (Buy) while Fiat Chrysler has a Zacks Rank #3 (Hold).

4.    Thor reported first-quarter fiscal 2019 (ended Oct 31, 2018) adjusted earnings of $1.28 per share, missing the Zacks Consensus Estimate of $1.52. Excluding acquisition-related costs, earnings for the reported quarter were 26 cents per share. In the prior-year quarter, adjusted earnings per share were $2.43. Net income declined to $14 million from $128.4 million in the prior-year quarter, majorly due to high effective tax rate.

In the quarter under review, revenues declined 21.3% year over year to $1.76 billion. The figure also lagged the Zacks Consensus Estimate of $1.87 billion.

Gross profit was $207 million compared with $333 million recorded in first-quarter fiscal 2018. Moreover, gross profit margin decreased to 11.8% from 14.9% in the year-ago quarter. The margin plummeted from the prior-year figure, majorly due to increased sales promotions and costs related to warranty expenses. (Read more: Thor Q1 Earnings & Revenues Lag Estimates, Down Y/Y)

Thor currently carries a Zacks Rank #5.

5.    Toyota announced that it will recall about 70,000 Toyota and Lexus branded vehicles in North America, per Associated Press. This Japanese auto giant intends to replace the airbag inflator in the vehicle as it can explode and project shrapnel at the driver, and passengers. Among the total vehicles to be recalled, 65,000 are from the United States.

Toyota informed that the replacement parts are available and the owners of the vehicles will be notified in 2019. The recall includes 2002 to 2005 Sequoia, 2003 to 2005 Corolla, 2003 to 2005 Tundra and 2002 to 2005 Lexus SC. Takata uses ammonium nitrate to generate a small explosion and to inflate the airbags. But it can deteriorate and burn too quickly, which can eventually blow the metal container apart. After this latest recall, Toyota will use inflators made by a different company, with a relatively safe chemical.

Currently, Toyota carries a Zacks Rank #3.

Performance

In the last week, shares of Tesla gained the most, whereas shares of Harley-Davidson, Inc. HOG declined the most.

In the past six months, AutoZone, Inc. AZO has increased the most, whereas Ford Motor Company F declined the most.

Company Last Week Last 6 Months
GM -2.3% -18.1%
F -5.9% -27.3%
TSLA 1.9% 2.4%
TM 0.8% -10%
HMC -1.5% -15.2%
HOG -14% -18.5%
AAP -6.3% 25.1%
AZO 1.1% 30.2%


What’s Next in the Auto Space?

Watch out for the usual news releases over the next week.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Tesla, Inc. (TSLA) : Free Stock Analysis Report
 
General Motors Company (GM) : Free Stock Analysis Report
 
Ford Motor Company (F) : Free Stock Analysis Report
 
Fiat Chrysler Automobiles N.V. (FCAU) : Free Stock Analysis Report
 
Toyota Motor Corporation (TM) : Free Stock Analysis Report
 
AutoZone, Inc. (AZO) : Free Stock Analysis Report
 
Autoliv, Inc. (ALV) : Free Stock Analysis Report
 
Thor Industries, Inc. (THO) : Free Stock Analysis Report
 
Harley-Davidson, Inc. (HOG) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research