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Fiat Chrysler (FCAU) & Foxconn Sign 50-50 Merger Agreement

Zacks Equity Research

Fiat Chrysler Automobiles N.V. FCAU recently announced plans to establish a 50-50 joint venture (JV) with Foxconn, in a bid to develop and manufacture next-gen battery electric vehicles (EV) in China and engage in the IoV, or' ‘Internet of Vehicles’ business. The Italian-American carmaker will launch its first full-electric model in 2020 — the 500 small car.

The companies are in the process of signing a preliminary agreement that will govern further discussions to reach final binding agreements in the coming months.

Per Fiat Chrysler, the JV will enable both parties to pool the expertise of the two global leaders across the spectrum of automotive design, engineering and manufacturing, and mobile software technology to concentrate on the growing battery EV market. Therefore, the tie-up would be one of the most significant moves by Fiat Chrysler to market EVs in China, where automakers are investing in battery-powered cars to meet government regulations.

Meanwhile, Fiat Chrysler signed a binding agreement with France’s PSA Groupe for a merger in a 50-50 share swap last December. Reportedly, this tie-up will form the fourth largest global automotive OEM by volume and the third largest by revenues, with combined revenues of nearly €170 billion.

Shares of Fiat Chrysler have underperformed the industry it belongs to over the past year. During this time frame, it has declined 7%, as against the industry’s rise of 5.5%.

Last December, Fiat Chrysler also committed to make an investment of $9 billion, by signing a tentative four-year labor contract with the United Auto Workers (UAW) union. The company will spend $4.5 billion to boost the output of its Jeep sport utility vehicles and Ram trucks, while the other half of the investment will be spent over the next four years. It will also generate 7,900 jobs under this four-year agreement.

Zacks Rank & Other Stocks to Consider

Currently, Fiat Chrysler carries a Zacks Rank #2 (Buy).

Other top-ranked stocks in the Auto-Tires-Trucks sector, include Blue Bird Corporation BLBD, Tesla, Inc. TSLA and SPX Corporation SPXC, each carrying a Zacks Rank of 2, at present. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Blue Bird has an estimated earnings growth rate of 25.47% for 2020. The company’s shares have appreciated 2.7% in a year’s time.

Tesla has a projected earnings growth rate of 6,380% for the ongoing year. Its shares have surged 90.2% over the past year.

SPX has an expected earnings growth rate of 8.09% for the current year. The stock has rallied 79.8% in the past year.

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