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Auto Stock Roundup: Tesla Lowers Price, General Motors Reaches Tax Credit Phase Out Limit

Zacks Equity Research
Plug Power's (PLUG) fuel cell products are being marketed to a wider customer base, courtesy of its new products and strategic acquisitions.

China hinted that it might lower tariff on auto imports from the United States from 40% to 15%. However, this drop in tariff is likely to benefit German automakers more than U.S. automakers as the German automakers export a large number of vehicles to China from their manufacturing plant in the United States.

In fourth-quarter 2018, EV-pioneer Tesla, Inc.’s TSLA vehicle production and delivery numbers witnessed sequential rise of 8%. During the quarter, this auto giant manufactured 86,555 vehicles and delivered 90,700. Out of the total vehicles delivered, Model 3 accounted for 63,150 units while Model S and X were 13,500 and 14,050, respectively. Further, the company decided to the cut vehicle price, owing to the phasing out of federal EV tax credit. In order to keep EVs affordable to the customers, the company adopted the strategy of partially absorbing the tax credit reduction.

By the end of 2018, General Motors Company GM sold 200,000 electric vehicles (EVs) in the United States. With this, the auto giant reached the limit, which may lead to the phasing out of tax credit.

Recap of the Week’s Most Important Stories

1.    Per Reuters, Nissan Motor Company NSANY will slash vehicle production in China to survive the slackening economy. Over the three-month period beginning in December, the company is likely to reduce initial vehicle production by 30,000 units. However, the planned production target for the three months is not known yet. From December 2017 to February 2018, Nissan produced 400,000 units in China.

Reportedly, this Japanese automaker plans to cut production at three of its factories in China, including plants in Dalian and Zhengzhou. The Dalian hub manufactures Nissan’s well-known Qashqai and Infiniti QX50 SUV crossover models while X-Trail SUV crossover and Venucia models are manufactured at the Zhengzhou plant.

China is the second-largest auto market for Nissan, having contributed one-fourth of the company’s annual global sales. In 2017, the company sold 1.5 million vehicles in China and it set a target to sell 2.6 million units by the end of 2022. In August, the company announced its plans to expand its vehicle manufacturing capacity in China by 40%. For this, the company planned to invest $900 million, of which, $8.73 billion will be allocated to expand its footprint in China. (Read more: Nissan Plans to Decrease Vehicle Production in China)

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

2.    It has been reported that China may lower tariffs on auto imports from the United States from 40% to 15%. The move may signal efforts on the parts of Beijing to dampen the trade tensions between these countries.

However, instead of the big American car makers, the German automakers such as BMW AG BAMXF and Daimler AG DDAIF are likely to gain more with factories in the United States. German automakers are the largest exporters of China-bound SUVs from the United States and significant importers of luxury sedans into the United States. BMW exports vehicles to China from its factory in Spartanburg, SC, which is BMW’s largest factory in the world. Daimler, exports autos from its plant in Alabama.

While Daimler currently carries a Zacks Rank #2 (Buy), BMW has a Zacks Rank #3 (Hold).

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

3.    Per Reuters, General Motors sold 200,000 electric vehicles (EVs) in the United States by the end of 2018. With this, the auto giant reached the limit, which may lead to the phasing out of a $7,500 federal tax credit over the next 15 months. Notably, the 200,000 figure includes this automaker’s cumulative EV sales since 2010.

The federal tax credit is offered to lower the up-front costs of plug-in EVs. The manufacturer will be eligible for this tax credit up to 200,000 qualified EVs have been sold in the United States. Once that limit is reached, credit begins to phase out for the manufacturer. General Motors reached the limit in fourth-quarter 2018. This implies that in April the credit will decline to $3,750. Then, it will further decline to $1,875 in October for six months. By April 2020, the tax credit will disappear completely.

General Motors has been appealing for expanding the consumer tax credit for EVs as the company expanded production of the EV Bolt in response to consumer demand. In sync with its restructuring moves, this auto giant has been channelizing more resources to develop electric and self-driving vehicles.

Currently, General Motors carries a Zacks Rank #2.

4.    Tesla’s vehicle production and delivery numbers witnessed sequential rise of 8% in fourth-quarter 2018. During the quarter ending on Dec 31, it manufactured 86,555 vehicles and successfully delivered 90,700 vehicles. Out of the total delivered vehicles, Tesla’s Model 3 accounted for 63,150 units while Model S and X were 13,500 and 14,050 units, respectively.

In fact, Tesla delivered 245,240 vehicles in 2018, which consisted 145,846 units of Model 3 and 99,394 units of Model S and X. The actual deliveries of Model S and X missed the set target of 100,000 units.

During the fourth quarter, all the Model 3 deliveries, comprising of a mid-to-high price range, were delivered only in North America. Apart from catering to the reserved bookings in the region, the company delivered the model to new customers as well.

Further, Tesla views good growth opportunities for Model 3 in markets outside North America. With this anticipation, the company plans to launch the lower-priced model variation in international markets. It will start delivering Model 3 in Europe and China from February 2019, gradually expanding to other markets.

Despite reporting decent fourth-quarter 2018 deliveries, shares of Tesla have plunged roughly 3.8% in a day’s trading on Jan 2. The dip in share price can be attributed to the company’s decision to slash all three model prices by $2,000 in the United States.

Tesla has decided the price cut, owing to the phasing out of federal EV tax credit, which has been dropped to $3,750 from the prior credit of $7,500, effective Jan 1, 2019. In a bid to keep the electric vehicles affordable for customers, the company adopted the strategy of partially absorbing the tax credit reduction.

Per a few analysts as reported in Reuters, the $2000 price cut for all models questions the demand for the California-based manufacturer’s EVs. The step might also imply a lowering demand for Tesla’s vehicles. Furthermore, as Tesla is already struggling to deliver profit, the recent move will further dent its profit margin.

Tesla currently carries a Zacks Rank #3.

Performance

In the last week, the maximum increase was witnessed by Toyota Motor Corporation TM, whereas Tesla 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 0.4% -13.7%
F 0.6% -18.1%
TSLA -4.9% -0.2%
TM 2.3% -8.8%
HMC 1.8% -8.4%
HOG 0.8% -19.4%
AAP 1.9% 17%
AZO -0.1% 24.5%


What’s Next in the Auto Space?

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

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