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Auto Stock Roundup: Tesla Receives Nod to Sell Model 3 in Europe, Ford Lags Q4 Earnings

Zacks Equity Research
There are plenty of new quarterly earnings results from a number of retailers this morning, including Home Deport, Kohl's, J.C. Penney and others.

Tesla, Inc. TSLA received positive signal from the European territory this week to sell its flagship Model 3. It is indeed a big development for this electric vehicle pioneer as it believes that the size of the European premium sedan market is more than double of the one in the United States. This European launch has not only opened up a huge opportunity for this carmaker but is also likely to help it compete with automakers in Germany for the premium car market.

Ford Motor Company F posted fourth-quarter and 2018 results. It reported adjusted earnings per share of 30 cents for fourth-quarter 2018, missing the Zacks Consensus Estimate of 31 cents. In the prior-year quarter, adjusted earnings were 39 cents per share. Results were impacted by challenges faced by the company in China and Europe.

In another development, Japanese auto major Toyota Motor Company TM announced that it will produce batteries for electric vehicles (EVs) in a joint venture (JV) with Panasonic Corporation. The JV is expected to start operating from 2020, with Toyota holding 51% stake while Panasonic will hold the rest.

Recap of the Week’s Most Important Stories

1.    General Motors Company GM cautioned employees in Brazil about losses and informed that this situation requires a tough turnaround plan, per Reuters. The company is encountering challenges in South America, which makes it imprudent to deploy capital at this moment. However, if this leads to shutdown or halt in production in the continent, it will have serious consequences on the company’s employees.

In South America, conditions in Brazil are improving since the 2015-16 recession. However, Argentina struggled due to inflation and declining peso owing to a recession in 2018. Meanwhile, investors are keeping an eye on how economic reforms will change things in these key South American countries.

Notably, the government of Brazil extended subsidy to the auto industry, which has for long struggled to keep up with production in other regions. In sync with this, a 15-year tax break package was offered to automakers in 2018. However, per experts, Brazil cannot continue to offer subsidies to the key industries as it believes that the abolishment of protectionist policies will lead to more competitiveness. However, given the losses in South America, General Motors needs to devise a tough turnaround plan. (Read more: General Motors Cautions Workers in Brazil on Losses)

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

2.    Toyota, in a JV with Panasonic Corporation, will produce batteries for electric vehicles (EVs), per Reuters. The JV is expected to start operating from 2020, with Toyota holding 51% stake while Panasonic will hold the rest. Apart from Toyota, the manufactured batteries are expected to be used by Mazda Corporation and Subaru Corporation, the two partners in Toyota’s electric vehicle technology. The official announcement for the JV is expected to take place this week.

Toyota announced its plan to develop batteries with Panasonic in December 2017. This decision will ramp up Toyota’s vehicle production, enabling it to reach the set target for green cars to comprise half of its global sales by 2030. This collaboration is in addition to the already existing agreement with Panasonic that offers lithium-ion prismatic batteries for Toyota’s vehicles.

Under this collaboration with Toyota, Panasonic will transfer its prismatic battery manufacturing equipment and facilities to Japan, and China. The shift will be cost-efficient and advantageous for Panasonic, aiding it to grow efficiently in the fast-growing EV market. (Read more: Toyota Likely to Announce JV With Panasonic for Batteries)

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

3.    Tesla received green signal to sell Model 3 in Europe, per Bloomberg. With this, the electric vehicle pioneer crossed the final obstacle in selling its top seller vehicle in Europe. Per the news, delivery of the Long Range Battery version of the mid-size sedan will begin in February.

This vehicle launch in Europe is of huge importance to Tesla as the U.S. federal tax credit on the purchase of Tesla vehicles has been halved, with effect from Jan 1, 2019.

Palo Alto, CA-based Tesla is optimistic about the European market. This automaker estimates the size of the European premium sedan market to be more than double of the one in the United States. Moreover, North America Model 3 delivery volume may not be sustainable until lower-cost versions are introduced. Given this, the launch in Europe will not only open up a huge opportunity for this carmaker but also help it compete with automakers in Germany for the premium car market. (Read more: Tesla Receives Green Signal to Sell Model 3 in Europe)

Tesla currently carries a Zacks Rank #3.

4.    Johnson Controls International plc JCI expects the weakening automotive manufacturing in China to negatively impact the power solutions (PS) segment, per Reuters. The segment provides lead-acid batteries for vehicle production to the world’s largest automotive market. In a year, the PS unit of Johnson Controls delivers roughly 154 million battery units for the manufacturing of passenger cars and light trucks in China.

The PS segment generates most of its revenues by selling replacement batteries while generating remaining revenues by selling batteries for new vehicle production. In fiscal 2018, the unit’s sales in China accounted for roughly 7%.

Weakening consumer demand, along with tariff wars, weakened China’s economy in 2018. Beside Johnson Controls, many other companies within the automotive industry also agreed that the slowing auto production in the world’s largest market will hamper sales. (Read more: Johnson Controls' PS Unit Under Weak China Demand Pressure)

Johnson Controls currently carries a Zacks Rank #4 (Sell).

5.    Ford reported adjusted earnings per share of 30 cents for fourth-quarter 2018, missing the Zacks Consensus Estimate of 31 cents. In the prior-year quarter, adjusted earnings were 39 cents per share. Results were impacted by challenges faced by the company in markets of China and Europe.

Adjusted EBIT was $1.5 billion, reflecting a decrease from $2 billion recorded in the year-ago quarter.

During the reported quarter, Ford logged automotive revenues of $38.7 billion, up from the prior-year quarter figure of $38.5 billion. The Zacks Consensus Estimate for revenues was $37 billion.

In 2018, this automaker reported an adjusted EBIT of $7 billion or $1.30 per share, down from adjusted EBIT of $9.6 billion or $1.78 per share in the previous year.

Revenues for the year went up 2% year over year to $160.3 billion.

During the reported quarter, wholesale volume at the Ford Automotive segment declined 275,000 units to 1.47 million. Earnings before income and taxes (EBIT) were $1.1 billion, a decline of $500 million from the year-ago quarter.

In North America, revenues increased $1.7 billion year over year to $25.8 billion during the reported quarter. Wholesale volume declined 1,000 units to 738,000. Further, EBIT was $2 billion, marking an increase of $200 million from the year-ago quarter. This rise is majorly due to the favorable mix and higher net pricing.

In South America, revenues slumped $500 million year over year to $1.2 billion. Pre-tax loss amounted to $199 million, owing to weak major markets except for Peru. Moreover, wholesale volume declined by 18,000 units to 89,000.

In Europe, revenues increased $700 million to $7.4 billion. Wholesale volumes decreased by 55,000 units to around 361,000. The region incurred pre-tax loss of $199 million, owing to lower volume, high costs and currency fluctuation.

In the Middle East & Africa segment, revenues declined $1 million year over year to $700 million due to lower volume. Further, wholesale volume declined 3,000 units to 32,000. The region recorded pre-tax loss of $49 million.

In the Asia Pacific region, revenues decreased $200 million to $3.6 billion. Wholesale volume declined 198,000 units to 254,000. Further, the region incurred pre-tax loss of $381 million.

Ford currently carries a Zacks Rank #3.

Performance

In the last week, Advance Auto Parts, Inc. AAP gained maximum while Ford declined the most.

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

Company Last Week Last 6 Months
GM 0.3% 0.1%
F -5.7% -20.8%
TSLA -16.5% -6.8%
TM -3% -7.4%
HMC -0.5% -1.9%
HOG -2.5% -20%
AAP 2.5% 17%
AZO 0.6% 18.3%


What’s Next in the Auto Space?

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

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