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Auto Stock Roundup: Ford Recalls Vehicles, Tesla Slashes Model 3 Price in China

Zacks Equity Research
Oracle (ORCL) benefits from strong adoption of its cloud-based solutions. Also, alliance with Accenture is helping the company to rapidly expand its cloud-base clientele.

Of late, Ford Motor Company F encountered several problems, the latest being the recall of 874,000 F-Series trucks due to fire risks in engine block heaters. A couple of months ago, the automaker recalled 1.46 million units of Ford Focus in North America, thanks to a defective fuel system. Such a series of recalls lowers investor confidence in the company’s stock.

Per Reuters, electric vehicle pioneer Tesla, Inc. TSLA has reduced the price of its flagship Model 3 electric vehicle in China. This price cut clearly indicates the huge importance that the automaker attaches to the Chinese market.

On the results front, in third-quarter fiscal 2019, CarMax Inc.’s KMX earnings surpassed the Zacks Consensus Estimate and also improved year over year. Also, during the reported quarter, net sales and operating revenues exceeded both the Zacks Consensus Estimate and the prior-year quarterly figure.
 
Recap of the Week’s Most Important Stories

1.    CarMax delivered earnings per share of $1.09 in the third quarter of fiscal 2019 (ended Nov 30, 2018), up 34.6% from 81 cents in the year-ago period. Moreover, the bottom line outpaced the Zacks Consensus Estimate of $1.01.

Net sales and operating revenues in the quarter under consideration increased 4.6% year over year to $4.3 billion. However, the figure marginally missed the Zacks Consensus Estimate of $4.33 billion. Total gross profit rose 5.6% year over year to $569.2 million.

During the quarter under review, used-vehicle revenues climbed 3.6% to $3.5 billion as unit sales inched up 2.3% to 173,476 vehicles. The average selling price of used vehicles improved 1.3% to $27,273. Comparable store used-vehicle unit sales dipped 1.2%. This downside was primarily caused by weak store traffic, partially offset by better conversion.

Wholesale vehicle revenues ascended 9.2% to $603.6 million in the reported period. Unit sales augmented 10% to 110,403 vehicles, courtesy of a boost in store base and a higher appraisal buy rate. The average selling price of wholesale vehicles slipped 1% to $5,214.

Other sales and revenues jumped 12.1% year over year. Moreover, the extended protection plan’s (EPP) revenues rose 11.1%.

CarMax Auto Finance (CAF”) reported a 6.7% increase in income to $109.7 million in the quarter under review, reflecting a collective effect of an 8.4% rise in average managed receivables and a slight decline in total interest margin percentage. (Read more: CarMax's  Q3 Earnings Beat Estimates, Revenues Miss)

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

2.    Daimler AG DDAIF is considering to join forces with BMW AG BAMXF for developing key automotive components, per Bloomberg. If the plan materializes, these two German automakers are anticipated to explore the areas of sharing batteries and autonomous-car technology along with vehicle platforms. However, the tie-up amid these auto giants would be limited to technology that is not brand-specific.

Huge investments in developing electric and autonomous vehicle technology compelled auto manufacturers to collaborate with peers, within and outside the industry. In an attempt to trim costs, various auto companies across the globe are forming alliances to invent futuristic technology. Apart from developing technology, partnerships are taking place to offer car-sharing online services. The collaborations aim to stay ahead of the recently entered cash-rich players in the market.

In March, Daimler and BMW agreed to merge their mobility services business units for offering sustainable urban mobility services. Per a recent Financial Times report, the collaboration has received the last approval from the regulators. The deal is expected to close by the end of January 2019, following which the mobility services — Car2Go and DriveNow — will operate together. The 50:50 merger will allow Daimler and BMW to strengthen presence in car-related mobility services. (Read more: Daimler to Partner Again With BMW for Auto Components)

Daimler currently carries a Zacks Rank of 3.

3.    Tesla has slashed the price of its flagship Model 3 electric vehicle (EV) in China, per Reuters. This Palo Alto, CA-based EV pioneer announced that certain Model 3 EV prices were reduced by up to 7.6%. After this price cut, the starting price of Model 3 sedans in China now stands at 499,000 yuan ($72,000).

China offers huge prospects for EV manufacturer like Tesla. However, the company’s high dependence on imports at times of high import tariffs impeded its growth. Tesla intends to begin manufacturing vehicles in China by 2019 to keep a lid on expenses. The latest move to lower vehicle prices in the mainland reflects the automaker’s interest in China.

In fact, this is the third time in the past two months that Tesla has slashed vehicle price in China. In November, the company cut prices of Model X and Model S vehicles by 12-26% in the country. Earlier this month, the automaker reduced Model S and Model X car prices in China. The price of Model S was cut by 105,000 yuan ($15,200) and Model X’s by up to 65,000 yuan. The possibility of China suspending additional tariffs on U.S.-manufactured cars and light trucks prompted Tesla to reduce its vehicles’ price in China. (Read more: Tesla Reduces Price for Model 3 Vehicle in China)

Tesla is currently a Zacks #3 Ranked stock.

4.    Ford is recalling 874,000 F-Series trucks due to fire scares in engine block heaters, according to Reuters. The recall in North America consists of 410,000 pickup trucks from the United States and 464,000 from Canada.  

The splice connector of the heater cable may get blocked due to water and contaminants, which can corrode or damage the cable. The heater cable is used to warm up the vehicle engine during cold weather. That cable might catch fire because of a damaged cable splice connector. Three fire incidents have been reported in Canada as a result of this issue. However, no occurrence of accident or injury has been informed about.

Starting from January, the company’s dealers will inspect the heater cable of recalled vehicles. Ford will replace faulty parts if required. The recall covers 2015-2019 Ford F-150 trucks, 2017-2019 Ford F-250 Super Duty, F-350 Super Duty, F-450 Super Duty and F-550 Super Duty pickup trucks.

The F-Series line-up occupies one of the top spots among the best-selling pickup trucks in America. Strong demand for high-end trucks forced Ford to set a target of selling 1 million F-Series pickups by 2018-end. (Read more: Ford Issues Another Recall for Trucks in North America)

Ford is currently a #3 Ranked stock.

5.    Per Reuters, Nissan Motor Company NSANY will lay off 1,000 workers from its two plants in Mexico. Situated in Cuernavaca and Aguascalientes of Mexico, these two manufacturing sites will retrench the respective workforce due to a challenging market environment.

In fact, Nissan has already commenced with the process of streamlining its workforce in the Aguascalientes plant. However, the company has not yet determined the job cut distribution across the two plants. It has decided to shrink the workforce as it aims to change vehicle production levels for combating unfavorable market conditions.

Revenues of Japanese automakers in the United States were strained with a persistent decline in sedan sales. Over the past 11 months, beginning January 2018, Nissan’s Versa sedan witnessed a year-over-year sales plunge of 30.7%.

In May, Nissan announced to cut vehicle production in North America by about 20%. Waning profitability in the United States prompted this automaker to make such a move. Now, the company aims at improving profitability in North America while also raising sales in China, which is the biggest auto market in the world. (Read more: Nissan to Slash Mexican Workforce for Challenging Conditions)

Nissan currently has a Zacks Rank #3.

Performance

Past week, the maximum increase was witnessed by Harley-Davidson, Inc. HOG whereas Ford declined the most.

In the past six months, AutoZone, Inc. AZO has gained the most while, whereas Ford declined the most.
 

Company Last Week Last 6 Months
GM -4% -17%
F -5.6% -31.3%
TSLA -2.1% -5.4%
TM -4.7% -10.5%
HMC -2.8% -11.2%
HOG 1.7% -18.8%
AAP -0.7% 15.4%
AZO 0.4% 25.4%


What’s Next in the Auto Space?

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

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CarMax, Inc. (KMX) : Free Stock Analysis Report
 
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