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Auto Stock Roundup: June U.S. Auto Sales Decline, TSLA Sees Record-High Production

Zacks Equity Research

Automakers reported U.S. sales for June. The overall auto sales performance was mixed for the month as well as for the quarter ending Jun 30. Like the past few months, the month witnessed fairly strong demand for SUVs and pickup trucks while the same for passenger cars declined.

U.S. auto sales are witnessing a slowdown and the overall U.S. new-vehicle sales are expected to decline this year. This can be attributed to rising interest rates and competition from off-lease vehicles.

Tesla, Inc. TSLA posted its best-ever figures for production and delivery, beating analysts’ expectations. The Model 3 maker delivered more than 95,200 electric vehicles to customers in the three months ended in June. Production of Model 3s, S sedans and X crossovers totaled 87,048 units in the quarter, exceeding the previous highest figure recorded in fourth-quarter 2018.

Recap of the Week’s Most Important Stories

1.    Group 1 Automotive, Inc. GPI announced that it completed a $1.8-billion revolving syndicated credit facility. This five-year credit facility, with 23 financial institutions, can be expanded to $2.1 billion. The 23 lenders include 19 commercial banks and four manufacturer-affiliated finance companies.

The extension of the credit facility strengthens the company’s balance sheet, and provides sufficient and reasonably priced capital for vehicle financing as well as acquisition growth over the next five years.

Out of the total facility, $1.44 billion will be provided for inventory floor plan financing. Additionally, $360 million will be for acquisition, working capital and general corporate requirements. Out of $360 million, $125 million can be borrowed in either euro or pound sterling. (Read more:Group 1 Automotive Announces $1.8B Revolving Credit Facility)

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

2.    Tesla continues its rollercoaster ride. After reporting weak results in the first quarter, the company has been recovering. The electric car-maker posted its best-ever figures for production and delivery, beating analysts’ expectations.

The Model 3 maker handed over 95,200 electric vehicles to customers in the three months ended in June. Production of Model 3s, S sedans and X crossovers in the quarter totaled 87,048 units, exceeding the previous highest figure in fourth-quarter 2018.

Tesla made incredible progress by efficiently organizing its global logistics. The company made improvements with respect to cost efficiencies, working capital and delivery operations at higher volumes.

Tesla currently carries a Zacks Rank #3.

3.    The U.S. sales performance was mixed in June for the major automotive companies.

There was still a fairly secure demand for SUVs and pickup trucks but passenger car sales continued to decline.

U.S. auto sales are experiencing a slowdown and the overall U.S. new-vehicle sales are expected to fall this year. The reason behind this deceleration is the rising interest rates and competition from off-lease vehicles. Sales in the last couple of months remained flat compared with 2018 because these factors are translating into fewer customers splurging on new cars.

While automakers are currently experiencing a steady market, there have been expectations that the Federal Reserve is likely to cut interest rates in the current year, which could possibly bring back customers to dealerships.

Despite softening vehicle demand, the industry witnessed sustained demand for trucks in June as well. In the pickup truck segment, Fiat Chrysler Automobiles NV’s FCAU Ram outsold General Motors Co’s GM Chevrolet Silverado in the second quarter.

In order to capitalize on robust truck demand and win strong market share, auto giants are flooding the market with efficient and restructured versions of pickup trucks. The changing vehicle buying trend compelled automakers to halt the manufacturing of loss-making car models and focus on profitable SUVs, crossovers and trucks.

Both General Motors and Fiat Chrysler currently has a Zacks Rank #3.

4.    In an attempt to fix electronic defects, Toyota Motor Corporation TM announced the third recall of its Prius hybrid models. The recall follows safety claims by Toyota’s California dealer.

Per Los Angeles Times, more than 20,000 Prius owners have reported electric power system failures since the last recall in 2014. The auto company intends to expand its electric power system recall to include Prius c models manufactured in 2018.

Reportedly, in 2014, the first recall covered 800,000 Prius Hybrids vehicles in the United States from model years 2010-2014 for inverter transistors that would abruptly shut down cars while on the go. Subsequently, a second recall was announced last October. Each recall involved software updates and detection of power failure.

The Toyota Prius hybrid system’s inverter uses high-power transistors to boost voltage from the Prius battery and convert electricity from direct current to alternative current and vice versa. The overheated inverter and burnt internal high-power transistors led to power loss in Prius cars. However, after the initial recall, Toyota responded to the issue by updating the inverter software, even though the inverter failure problem persisted. The company took an initiative to replace the damaged component under extended warranty coverage but failed to replace the inverters in all affected Prius vehicles.

Toyota currently carries a Zacks Rank #4 (Sell).

Performance

In the past week, all of the above-mentioned stocks have gained. Tesla stock gained the most.

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

Company Last Week Last 6 Months
GM 0.1% 14.5%
F 2.9% 26.2%
TSLA 7.1% -26.1%
TM 2.9% 5.9%
HMC 2.2% -4.6%
HOG 1.6% 4.5%
AAP 7.1% 1.1%
AZO 4% 35.3%

What’s Next in the Auto Space?

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

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Group 1 Automotive, Inc. (GPI) : Free Stock Analysis Report
 
General Motors Company (GM) : Free Stock Analysis Report
 
Tesla, Inc. (TSLA) : 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
 
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