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Auto Stock Roundup: Fiat-Renault Merger Plan, Toyota's Investment in Ride-Sharing Firm

Zacks Equity Research

The past week saw Fiat Chrysler Automobiles N.V. FCAU proposing a tie-up with Renault SA RNLSY of France to set up the third biggest automaker in the world. The underlying aim of the planned collaboration is to vehemently enter the burgeoning electric and autonomous vehicles industry. With an anticipated annual vehicle production of 8.7 million, the merged entity is set to rewrite the global auto industry.

In another development, Japanese auto giant Toyota Motor Corporation TM is considering investing around 550 million in China-based ride-hailing upstart, Didi Chuxing. The increased investment made by global auto majors in the autonomous vehicle sphere, might have prompted Toyota to resort to such a move.

The week also witnessed motorcycle maker Harley-Davidson, Inc. HOG to have reportedly closed the factory in Kansas City, MO due to its waning sales. The shutdown, announced in early 2018, caused a loss of 800 jobs.

Recap of the Week’s Most Important Stories

1.    Genuine Parts Company GPC will acquire the outstanding 65% stake in Sydney, Australia-based Inenco Group (‘Inenco’). After completing the acquisition, Genuine Parts will have 100% ownership in Inenco. Prior to this, on Apr 3, 2017, the company bought 35% interest in Australia-based Inenco. The recent majority stake purchase will be funded through a combination of cash and borrowings. Subject to the fulfillment of customary closing conditions, the deal is likely to close on Jul 1, 2019.

Founded in 1954, Inenco is among the top industrial distributors of bearings, power transmission and seals. It has a presence across Australia, New Zealand and Asia with more than 160 locations. This industrial supplier in Australia is expected to generate $400 million in annual revenues.

Owning 100% stake in the leading industrial distributor of Australasia will support Genuine Parts’ plan to expand base in the world’s rapidly growing marketplace. Inenco’s skilled management is projected to be a good addition to Genuine Parts’ industrial portfolio. This is in sync with the company’s strategy of acquiring businesses to improve product offerings and strengthen its global platform for driving robust and sustainable sales growth. (Read more: Genuine Parts to Acquire Full Ownership of Inenco)

Genuine Parts currently carries a Zacks Rank #4 (Sell).

2.    Fiat Chrysler offered to collaborate with Renault of France to establish the third most leading automaker in the world, per Associated Press. The $40-billion company under proposal will aggressively enter the electric and autonomous vehicles industry. With an anticipated annual vehicle production of 8.7 million, the combined entity is likely to reshape the global auto industry.

The deal is likely to be beneficial to the companies. This would lead to annual savings of $5.6 billion in the form of research sharing, purchase of costs and other activities. Importantly, the merger is likely to be a good strategic fit as Renault boasts a strong presence in Europe and has an edge in developing electric vehicles while Fiat Chrysler has a robust foothold in the United States and SUV markets. However, these companies are comparatively weak in China, the largest auto market in the world.

Recently, the auto industry tends to opt for consolidation. In fact, the pressure and reality to invest heavily in developing electric cars, self-driving vehicles and in-car connectivity led to a growing number of integrations in the global auto industry. Additionally, regulators in China and Europe are prodding automakers to manufacture electric vehicles to comply with the stricter climate change regulations.

However, there are several hurdles before this mega merger. Problems may arise from the leadership position in the merged entity. Moreover, the cultural and geographical synchronization can create problems. (Read more: Fiat Chrysler Proposes $40B Merger Deal to Renault)

Fiat Chrysler currently carries a Zacks Rank of 4.

3.    Toyota is mulling over investing around 60 billion yen ($550 million) in China-based ride-hailing upstart, Didi Chuxing, according to Reuters. Given the elevation in investment by global auto majors in the autonomous vehicle arena, the Japan-based auto giant is not sitting idle either.

The proposed investment in Didi Chuxing is a testimony to Toyota’s growing focus on ride-sharing activities.

Notably, Toyota planned to start testing its self-driving vehicles by fiscal 2020. It is also collaborating with other entities to develop autonomous car technology. In fact, the company already made huge investments in the ride-hailing companies, such as Uber and Grab as established traditional automakers race to collaborate with the tech companies.

Per its sources, Toyota constantly strives to evaluate its business strategy by keeping the speedily evolving global perspective in mind. In order to meet customer needs in the areas of “Connectivity, Autonomous, Sharing and Electrification”, the company is re-orienting its business. In fact, Toyota has been eyeing to set up a mobility-services company in China, in sync with its latest strategy for the country. (Read more: Toyota to Invest $550M in China-Based Didi Chuxing)

Toyota is currently a Zacks #4 Ranked player.

4.    Harley-Davidson is reportedly said to have closed the factory in Kansas City, MO, as of May 24. The closure, which was announced around 16 months ago, resulted into a loss of 800 jobs. Declining motorcycle sales prompted this Milwaukee, WI-based motorcycle manufacturer to take such a decision.

Harley-Davidson announced that production from the shuttered Kansas City plant would be shifted to the factory in York, PA. In fact, the company is working on a $150-million expansion plan in York, where it is likely to recruit 450 employees to support the ramped-up production.

The production site at Kansas City has been assembling Harley-Davidson motorcycles since 1997. Now, the company stated that it has been offering support to employees, who lost jobs due to the closure. Arrangements were made to host job fairs and delivering free workshops for developing employment skills to the employees. (Read more: Harley-Davidson Shuts Production at Kansas City Factory)

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

5.    General Motors Company GM is likely to set up charging stations for electric vehicles (EVs) in collaboration with Bechtel Corporation, per Reuters. The fast charging stations will be constructed across the United States, for which the probable alliance is currently looking for investors that can fund the project.

The companies plan to set up charging stations in the urban and inadequately served areas besides setting the posts in interstates, which will be helpful for long-distance travel. Adequate availability of the charging posts will reduce customer concerns related to the use of EVs and motivate them to adopt the technology. Per General Motors, the partnership is currently at its Memorandum of Understanding (MoU) stage. The business structure has not been finalized yet.

The partnership with Bechtel is not the first of its kind for General Motors. In January 2019, the company announced a similar collaboration with EVgo, ChargePoint and Greenlots, the three leading EV charging network companies. In April 2019, General Motors’ car-sharing platform, Maven, introduced a network of fast-charging hubs with EVgo for Maven Gig's shared-use vehicles. (Read more: General Motors to Partner With Bechtel for EV Charging Points)

General Motors currently carries a Zacks Rank of 3.

Performance

In the past week, all the stocks, except Toyota declined. While Tesla, Inc. TSLA declined the most.

In the past six months, Tesla has declined the most. AutoZone, Inc. AZO recorded the maximum gain.

Company Last Week Last 6 Months
GM -6.3% -8.6%
F -5.2% 2.4%
TSLA -7.4% -46.8%
TM 1.1% -4%
HMC -2.2% -11.4%
HOG -5.7% -20.5%
AAP -3.4% -11.2%
AZO -0.5% 27.6%


What’s Next in the Auto Space?

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

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