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Chip Crunch Hit US Auto Sales in Q3: ETFs, Stocks in Focus
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After showing strength in the first half of 2021, the U.S. auto industry lost momentum owing to the global chip shortage and other supply chain disruption that has led to a spike in auto prices. U.S. sales tumbled about 26% in September with automakers selling just around a million vehicles during the month, according to Edmunds.com. For the third quarter, U.S. sales dropped 13% year over year to 3.4 million vehicles.
Of the six major American and Japanese automakers, General Motors (GM - Free Report) stood at the bottom of the table during the quarter, registering a 32.8% decline in sales, followed by a drop of 27.4% for Ford Motor (F - Free Report) , 19% for Stellantis (STLA - Free Report) formed after the merger of Fiat Chrysler, 10.9% for Honda Motors (HMC - Free Report) , and 10% for Nissan (NSANY - Free Report) . Toyota Motor (TM - Free Report) was the bright spot, registering a 1.4% increase in vehicle sales.
The semiconductor chip shortage is expected to cost the global automotive industry $210 billion in revenues in 2021, according to consulting firm AlixPartners. This is nearly double the $110 billion projected in May. The firm also forecasts that 7.7 million units of production will be lost in 2021, up from 3.9 million in its May forecast. The inventory shortages have also worsened throughout the year as the lack of production combined with strong consumer demand has pushed vehicle inventories to record lows (read: Chip Shortages: ETF Winners and Losers).
However, Cox Automotive projects vehicle supply to improve mildly in the fourth quarter, and continue to improve throughout 2022, but won’t return to “normal” until 2023. Automakers have promised to keep leaner inventories in the future to boost vehicle profits and prices, which have been at record levels. Meanwhile, J.D. Power expects the average transaction prices to reach a record of $42,802 in September, marking the fourth consecutive month of more than $40,000.
With continued acceleration in digitization, automakers have been propelling their online services, thereby providing a huge boost to the industry.
Below we highlight auto ETFs and a few stocks that could be attractive picks for the fourth quarter of 2021:
This fund offers a pure-play global exposure to 34 auto stocks by tracking the NASDAQ OMX Global Auto Index. It has a moderate concentration across components as each of these make up for no more than 8.8% share. CARZ has $64 million in AUM and trades in a small average daily trading volume of about 15,000 shares. The product charges 70 bps in fees per year and has a Zacks ETF Rank #3 (Hold) with a High risk outlook.
Simplify Volt Robocar Disruption and Tech ETF (VCAR - Free Report)
This is an actively managed ETF seeking concentrated exposure to the leader of autonomous driving technology and then enhancing the concentrated exposure with options. It is heavily exposed to the Tesla (TSLA - Free Report) stock and Tesla call options at 25% share. The fund seeks to boost its performance during extreme moves in Tesla, charging investors 0.95% in annual fees. It has accumulated $1.7 million in its asset base while trades in an average daily volume of 1,000 shares (read: ETFs to Buy on Tesla Record Q3 Delivery Numbers).
This company is the market leader in battery-powered electric car sales in the United States, owning around 60% of market share. The company witnessed positive earnings estimate revision of 87 cents for this year over the past 90 days. Tesla has an estimated growth rate of 13.2%. It has a Zacks Rank #1 (Strong Buy) and Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
This company is one of the leading providers of replacement parts, components, and systems that are required to repair and maintain vehicles. The company has witnessed positive earnings estimate revision of 53 cents for this year over the past 90 days. LKQ has an estimated growth rate of 44.7%. It has a Zacks Rank #2 (Buy) and a Growth Score of A.
This company is one of the leading manufacturers, distributors, and marketers of premium automotive replacement parts for engine management and temperature control systems. The company has witnessed positive earnings estimate revision of 52 cents for this year over the past 90 days and has an estimated earnings growth rate of 7.8%. It has a Zacks Rank #1 and a Growth Score of B.
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Chip Crunch Hit US Auto Sales in Q3: ETFs, Stocks in Focus
After showing strength in the first half of 2021, the U.S. auto industry lost momentum owing to the global chip shortage and other supply chain disruption that has led to a spike in auto prices. U.S. sales tumbled about 26% in September with automakers selling just around a million vehicles during the month, according to Edmunds.com. For the third quarter, U.S. sales dropped 13% year over year to 3.4 million vehicles.
Of the six major American and Japanese automakers, General Motors (GM - Free Report) stood at the bottom of the table during the quarter, registering a 32.8% decline in sales, followed by a drop of 27.4% for Ford Motor (F - Free Report) , 19% for Stellantis (STLA - Free Report) formed after the merger of Fiat Chrysler, 10.9% for Honda Motors (HMC - Free Report) , and 10% for Nissan (NSANY - Free Report) . Toyota Motor (TM - Free Report) was the bright spot, registering a 1.4% increase in vehicle sales.
The semiconductor chip shortage is expected to cost the global automotive industry $210 billion in revenues in 2021, according to consulting firm AlixPartners. This is nearly double the $110 billion projected in May. The firm also forecasts that 7.7 million units of production will be lost in 2021, up from 3.9 million in its May forecast. The inventory shortages have also worsened throughout the year as the lack of production combined with strong consumer demand has pushed vehicle inventories to record lows (read: Chip Shortages: ETF Winners and Losers).
However, Cox Automotive projects vehicle supply to improve mildly in the fourth quarter, and continue to improve throughout 2022, but won’t return to “normal” until 2023. Automakers have promised to keep leaner inventories in the future to boost vehicle profits and prices, which have been at record levels. Meanwhile, J.D. Power expects the average transaction prices to reach a record of $42,802 in September, marking the fourth consecutive month of more than $40,000.
With continued acceleration in digitization, automakers have been propelling their online services, thereby providing a huge boost to the industry.
Below we highlight auto ETFs and a few stocks that could be attractive picks for the fourth quarter of 2021:
First Trust NASDAQ Global Auto ETF (CARZ - Free Report)
This fund offers a pure-play global exposure to 34 auto stocks by tracking the NASDAQ OMX Global Auto Index. It has a moderate concentration across components as each of these make up for no more than 8.8% share. CARZ has $64 million in AUM and trades in a small average daily trading volume of about 15,000 shares. The product charges 70 bps in fees per year and has a Zacks ETF Rank #3 (Hold) with a High risk outlook.
Simplify Volt Robocar Disruption and Tech ETF (VCAR - Free Report)
This is an actively managed ETF seeking concentrated exposure to the leader of autonomous driving technology and then enhancing the concentrated exposure with options. It is heavily exposed to the Tesla (TSLA - Free Report) stock and Tesla call options at 25% share. The fund seeks to boost its performance during extreme moves in Tesla, charging investors 0.95% in annual fees. It has accumulated $1.7 million in its asset base while trades in an average daily volume of 1,000 shares (read: ETFs to Buy on Tesla Record Q3 Delivery Numbers).
Tesla Inc. (TSLA - Free Report)
This company is the market leader in battery-powered electric car sales in the United States, owning around 60% of market share. The company witnessed positive earnings estimate revision of 87 cents for this year over the past 90 days. Tesla has an estimated growth rate of 13.2%. It has a Zacks Rank #1 (Strong Buy) and Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
LKQ Corporation (LKQ - Free Report)
This company is one of the leading providers of replacement parts, components, and systems that are required to repair and maintain vehicles. The company has witnessed positive earnings estimate revision of 53 cents for this year over the past 90 days. LKQ has an estimated growth rate of 44.7%. It has a Zacks Rank #2 (Buy) and a Growth Score of A.
Standard Motor Products Inc. (SMP - Free Report)
This company is one of the leading manufacturers, distributors, and marketers of premium automotive replacement parts for engine management and temperature control systems. The company has witnessed positive earnings estimate revision of 52 cents for this year over the past 90 days and has an estimated earnings growth rate of 7.8%. It has a Zacks Rank #1 and a Growth Score of B.