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Auto Stock Roundup: General Motors to Rehire Employees, Tesla Lowers Price in China

Zacks Equity Research
Chemed's (CHE) VITAS shows higher adoption via an expanded average daily census. Also, the Roto-Rooter's business grows on the back of strong core plumbing and drain cleaning service segments.

General Motors Company GM announced that around 2,700 workers of its U.S. plants, which will close, will be offered jobs at other factories of the company. Notably, in November, General Motors took the decision to shut down production at four plants in the United States and one in Canada due to the shift in consumer preference.

Waning popularity of passenger cars amid higher demand for SUVs and trucks compelled General Motors to lower manufacturing of six car models and cut its workforce. But, now the company plans to rehire some of these employees in its other plants.

Navistar International Corp.’s NAV fourth-quarter fiscal 2018 earnings and revenues beat estimates. Further, the figures improved year over year, driven mainly by 45% rise in sales volume of Navistar’s Class 6-8 trucks and buses in the United States as well as Canada.

Recap of the Week’s Most Important Stories

1.    Tesla, Inc. TSLA reduced Model S and Model X car prices in China, per Reuters. The announcement was made after China reported that it will briefly suspend additional tariffs that it imposed on U.S.-manufactured cars and light trucks. The price of the company’s Model S was reduced by 105,000 yuan ($15,200) and Model X’s by up to 65,000 yuan.

Beginning Jan 1, 2019, China will slash the additional rate of 25%, which will reduce tariffs to 15%. The reduced rate will put the U.S. exports at par with other countries within the World Trade Organization. The additional tariff suspension was followed by a trade truce between China and the United States. It will be effective on Mar 31.

In November, the company announced a similar price cut of its Model X and Model S cars in China to make the cars more affordable for its customers in China. During that time, it slashed the prices of these two models by 12-25%.

Steep tariff rates from July strained this U.S.-based electric automaker’s financials in 2018. During the announcement of third-quarter 2018 results, the company reported that high import duties on Model S and X vehicles reduced its growth in China. In fact, CFRA’s analyst, Garrett Nelson, reported to CNBC that Tesla’s deliveries to China accounted for 6% in the third quarter’s total revenues compared with 17.2% in 2017.

Huge prospects for electric vehicles make China a worthwhile market for Tesla that offers alternate-energy cars. However, Tesla’s dependence on imports at times of high import taxes hampered growth. In a bid to increase affordability and reduce shipping costs, the company will start manufacturing vehicles in China by 2019. (Read more: Tesla Slashes Prices of 2 Models for China Post Tariff Cut)

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

2.    General Motors announced that around 2,700 workers of its U.S. hubs, which are closing, will be offered jobs at other factories of the company, per AP. The four plants, scheduled to close in 2019, will lay off 3,300 blue-collared workers in the United States. Further, shutting down of one manufacturing site will lay off 8,000 white-collared workers and 2,600 factory workers in Canada.

Out of 3,300 workers in the United States, 2,700 will be offered jobs at other plants of the company while a few will retire. New job allocation will also consist of relocation for a few of the workers. The blue-collared workers will be hired in factories, which will raise their vehicle production targets.

New job opportunities at existing plants offer good prospects for the blue-collared workers, who are likely to lose their jobs at factories that are slated to close in the next year. However, the closures will still hit the white-collared workers, who are currently working at those four U.S. hubs. The company will offer similar openings to a few of these workers while others will get assistance to find new jobs.

In the last month, General Motors announced that it will close production at four plants in the United States and one in Canada, owing to change in consumer preferences. Plummeting demand for passenger cars, and increased demand for SUVs and trucks impelled General Motors to trim productions and slash manufacturing of six car models.

The decision has been taken to raise the long-term profitability of the company beside improving the potential of cash generation. General Motors anticipates that the closing of factories and cutting of car models will elevate annual adjusted automotive free cash flow by $6 billion by the end of 2020 and lower capital expenditure by roughly $1.5 billion. (Read more: General Motors Offers Job Transfers for 2,700 U.S. Workers)

General Motors currently carries a Zacks Rank #2 (Buy).

3.    In fourth-quarter fiscal 2018 (ended Oct 31, 2018) Navistar recorded earnings of $1.89, beating the Zacks Consensus Estimate of $1.68. This compares favorably with the prior-year quarter’s earnings of $1.36 per share.

Navistar recorded net income of $188 million, up from $135 million in the prior-year quarter.

The company generated $3.32 billion in revenues, which beat the Zacks Consensus Estimate of $3.26 billion. The figure also marks 28% rise from fourth-quarter fiscal 2017. This year-over-year improvement was primarily driven by a 45% increase in sales volume of Navistar’s Class 6-8 trucks and buses in the United States as well as Canada.

For fiscal 2018, Navistar reported earnings of $340 million or $3.41 per share, up from $30 million or 32 cents per share recorded in the previous fiscal year.

Revenues for the year went up 20% year over year to $10.25 billion. (Read more: Navistar Q4 Earnings Drive Past Estimates, Rise Y/Y)

Navistar currently carries a Zacks Rank #3 (Hold).

4.    Cooper Tire & Rubber Company CTB is forming a joint venture with Sailun Vietnam Co., Ltd. to build a tire production hub in Vietnam. The new factory will have the capacity to manufacture more than 2 million truck and bus radial (TBR) tires per year. Subject to government approvals, the plant under the JV will be situated at Sailun Vietnam’s existing operations.

The construction will commence at the beginning of 2019 and the plant will be ready for tire production by the first half of 2020. The total spending on the equipment and development of this Vietnam-based facility is anticipated to be $220-$240 million.

The new JV in Vietnam is in sync with Cooper Tire’s strategy to diversify its TBR tire production in order to gain from the rising original equipment (OE) and replacement TBR business. Additionally, Cooper Tire will own 35% in the JV.

The company is focusing to optimize its global production capabilities by forming a competitive cost structure and improving regional production capacity per the market requirements. In fact, the growing original equipment business impelled Cooper Tire to expand its presence in Asia. For the long term, the company has good prospects in its Asia business, with expanding customer base. (Read more: Cooper Tire to Expand in Asia With New Location in Vietnam)

Cooper Tire currently carries a Zacks Rank #2.

5.    The Goodyear Tire & Rubber Company GT will expand its production hub at Kranj, Slovenia, to increase tire production. Rise in demand for premium tires across EMEA impelled the company to raise production at its Slovenian plant and reap benefits from the increasing demand in this lucrative region.

Goodyear will invest €94 million to add 5400 square meter area in this existing facility. The extended area will be used to store tire-building machines, which will help Goodyear to produce an additional 1.8 million premium larger-rim-diameter tires by 2022. The production will be focused on 17 to 19-inch replacement consumer tires for EMEA.

The construction of the expanded hub will start from January 2019 while the subsequent phases to complete the construction are planned for 2020 and 2021. The facility is anticipated to create 160 job positions, majorly for the production area.

Goodyear currently has a Zacks Rank #4 (Sell).

Performance

In the last week, all these stocks declined. The maximum decline was witnessed by Tesla.

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 -2.1% -15.1%
F -3.7% -28.9%
TSLA -9.2% -4.2%
TM -2.1% -10%
HMC -1.8% -12.6%
HOG -7.7% -26.5%
AAP -6.5% 11.9%
AZO -6% 21.4%


What’s Next in the Auto Space?

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

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