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The Zacks Analyst Blog Highlights Toyota, Ford, Renault, Volkswagen and Daimler AG
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For Immediate Release
Chicago, IL – March 9, 2022 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Toyota (TM - Free Report) , Ford (F - Free Report) , Renault (RNLSY - Free Report) , Volkswagen (VWAGY - Free Report) and Daimler AG .
Here are highlights from Tuesday’s Analyst Blog:
Raging Russia-Ukraine Crisis Raises Red Flag for Auto Space
Troubles don’t seem to end for the auto industry. Just when the existing problems start showing signs of abatement, fresh concerns surface. This time, it is the intensifying conflict between Russia and Ukraine, which is set to prolong industry woes.
After a rocky 2020 amid coronavirus woes, market experts predicted a somewhat smoother run for the auto industry in 2021. But when things seemed to be looking up for the auto market in early 2021, with sales recovering from coronavirus lows, the mounting shortage of semiconductors again left the industry in disarray. Just when industry watchdogs and auto giants were predicting the chip deficit to gradually start easing out from mid-2022, it seems that the hiccups in the way of the auto industry are here to stay for quite some time amid escalating tensions between Russia and Ukraine.
Russia-Ukraine War Likely to Compound Chip Crunch
The geopolitical conflict is likely to trigger a second round of global microchip shortage. Basically, both Russia and Ukraine are key suppliers of major gases and raw materials required for global semiconductor production. Neon—a critical gas that runs lasers needed to manufacture microchips—is a major resource for semiconductor production.
Now, Ukraine is home to 70% of the world’s neon output. To make matters more complicated, Ukraine relies on Russia for its neon production. Notably, neon gas is a major byproduct of steel manufacturing in Russia. The gas then gets purified in Ukraine and is exported worldwide. Per a market research firm, Techcet, chipmakers in the United States depend almost entirely on laser gas from Russia and Ukraine.
Then, there is another key commodity used for chip manufacture, palladium. Importantly, Russia provides more than 33% of the world's palladium. Other raw materials including aluminum, nickel and pig iron could also be at risk. The war is already creating supply issues for parts like wire harnesses, which play a key role in connecting a variety of vehicle components. Possibilities of escalation of supply shortage of components and semiconductors are high.
The Russia-Ukraine conflict has already started to create ripple effects in the automotive supply chain and it is likely to exacerbate the chip deficit as raw materials get difficult to come by. The longer the war continues, the more likely it is that chip production in the world would get impacted, with companies running low on neon and palladium.
And if that happens, the situation would only get worse for the automakers just when they were hoping to see the light at the end of the tunnel. CEO of the Center for Automotive Research, Carla Bailo said, “Eventually, if semiconductors don't come, we'll be right back to where we were last year."
Automakers Reassess Russian Operations
The invasion has prompted auto giants to re-evaluate their business and suspend operations in Russia. Last week, Japan’s Big 3 automakers halted vehicle imports to Russia owing to logistical challenges amid the war. Toyota has suspended operations at its factory in Russia since last Friday due to supply-chain disruptions. The company has also stopped vehicle imports into the country indefinitely.
It is to be noted that TM is Russia's top Japan-based brand, producing about 80,000 vehicles at the St. Petersburg plant. The plant manufactures RAV4 and Camry models. Toyota accounts for around 5.5% of Russia’s total vehicle output. TM currently carries a Zacks Rank #3 (Hold).
U.S. auto giant Ford issued a statement last Tuesday notifying its intentions to suspend operations in Russia, effective immediately, until further notice. As it is, in recent years, Ford has scaled down its operations in the country.
The company now focuses exclusively on commercial van manufacturing and sales through a minority interest in the Sollers Ford joint venture, the operations of which Ford has currently suspended. F currently carries a Zacks Rank #3.
Renault has lost around a quarter of its market value in the wake of the war. In fact, this French automaker is likely to lose the most amid the Ukraine-Russia tensions. It should be noted that Renault commands a huge presence in Russia, with the country being the company’s second-biggest market. Renault has a controlling stake in Russia-based automaker, AvtoVAZ, accounting for 39.5% of the country’s vehicle production.
Renault is in a fix as it can’t pull out of the market thanks to the historic $1 billion Ghosn-era deal with Putin. RNLSY has warned of significant supply chain snarls if the dispute between the warring countries deteriorates. Renault is currently a Zacks Rank #3 firm.
German auto bigwigs like Volkswagen , Daimler AG and others have also suspended shipments to Russia. Last Monday, Daimler Truck announced freezing its business activities in Russia with immediate effect, including its collaboration with local truck maker Kamaz. Mercedes-Benz Group is also contemplating legal options to divest its 15% stake in Kamaz.
Volkswagen has also suspended production in Russia at its production sites in Kaluga and Nizhny Novgorod. The company has also halted deliveries to car dealerships in Russia.German automaker VWAGY makes up for 12.2% share of Russia’s auto output.
Jeff Schuster, president of global forecasting and the Americas at LMC Automotive, is of the view that Russia’s invasion of Ukraine could slash global production of cars and trucks by millions of units this year. LMC Automotive has already cut the 2022 forecast for European auto production by 700,000 units.
The European auto market is likely to bear the brunt of the tensions far more quickly than the U.S. and its other counterparts. Vehicle production in Europe is crashing as flow of wire harnesses is drying up. Many European auto companies including Volkswagen have cut production in car factories in Germany.Mercedes-Benz anticipates production cuts at some of its European plants as parts supplies from Ukraine are running short.
German automakers association VDA thinks that the ongoing conflict between Russia and Ukraine is disrupting transport and financial transactions. The conflict’s impact on shipping, rail and air freight has been aggravating problems in the supply chain at a time when inventory levels are already low. The association is bracing for severe raw-material shortages, going forward.
AutoForecast Solutions envisions vehicle production in Russia and Ukraine to be halved this year amid the conflict. A recent CNBC article cited that an early “pessimistic outlook” from research firm IHS Markit expects the global impact this year to be about 3.5 million fewer vehicles in connection with semiconductor chip constraints. Russia and Ukraine are critical sources of neon gas and palladium that are used to produce semiconductor chips.
Final Thoughts
The auto industry is already struggling with low inventory. While the demand for vehicles is strong, limited vehicle supply amid chip crunch have kept a lid on inventory and sales volumes. With the war likely to elongate the semiconductor shortage, there’s little respite for automakers in the coming months. Commodity scarcity and inflation, logistical challenges and a difficult labor environment will continue to play spoilers.
Considering the production cuts and limited supply of microchips, inventory is likely to remain low for quite some time. As we know, the supply-demand mismatch has resulted in high vehicle prices. The Russia-Ukraine crisis is likely to worsen inflation, inducing already record-high vehicle prices to spike higher. While some customers would be willing to pay a premium for their preferred vehicle, others might choose to wait on the sidelines. Automakers and consumers alike should brace for tough times ahead.
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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The Zacks Analyst Blog Highlights Toyota, Ford, Renault, Volkswagen and Daimler AG
For Immediate Release
Chicago, IL – March 9, 2022 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Toyota (TM - Free Report) , Ford (F - Free Report) , Renault (RNLSY - Free Report) , Volkswagen (VWAGY - Free Report) and Daimler AG .
Here are highlights from Tuesday’s Analyst Blog:
Raging Russia-Ukraine Crisis Raises Red Flag for Auto Space
Troubles don’t seem to end for the auto industry. Just when the existing problems start showing signs of abatement, fresh concerns surface. This time, it is the intensifying conflict between Russia and Ukraine, which is set to prolong industry woes.
After a rocky 2020 amid coronavirus woes, market experts predicted a somewhat smoother run for the auto industry in 2021. But when things seemed to be looking up for the auto market in early 2021, with sales recovering from coronavirus lows, the mounting shortage of semiconductors again left the industry in disarray. Just when industry watchdogs and auto giants were predicting the chip deficit to gradually start easing out from mid-2022, it seems that the hiccups in the way of the auto industry are here to stay for quite some time amid escalating tensions between Russia and Ukraine.
Russia-Ukraine War Likely to Compound Chip Crunch
The geopolitical conflict is likely to trigger a second round of global microchip shortage. Basically, both Russia and Ukraine are key suppliers of major gases and raw materials required for global semiconductor production. Neon—a critical gas that runs lasers needed to manufacture microchips—is a major resource for semiconductor production.
Now, Ukraine is home to 70% of the world’s neon output. To make matters more complicated, Ukraine relies on Russia for its neon production. Notably, neon gas is a major byproduct of steel manufacturing in Russia. The gas then gets purified in Ukraine and is exported worldwide. Per a market research firm, Techcet, chipmakers in the United States depend almost entirely on laser gas from Russia and Ukraine.
Then, there is another key commodity used for chip manufacture, palladium. Importantly, Russia provides more than 33% of the world's palladium. Other raw materials including aluminum, nickel and pig iron could also be at risk. The war is already creating supply issues for parts like wire harnesses, which play a key role in connecting a variety of vehicle components. Possibilities of escalation of supply shortage of components and semiconductors are high.
The Russia-Ukraine conflict has already started to create ripple effects in the automotive supply chain and it is likely to exacerbate the chip deficit as raw materials get difficult to come by. The longer the war continues, the more likely it is that chip production in the world would get impacted, with companies running low on neon and palladium.
And if that happens, the situation would only get worse for the automakers just when they were hoping to see the light at the end of the tunnel. CEO of the Center for Automotive Research, Carla Bailo said, “Eventually, if semiconductors don't come, we'll be right back to where we were last year."
Automakers Reassess Russian Operations
The invasion has prompted auto giants to re-evaluate their business and suspend operations in Russia. Last week, Japan’s Big 3 automakers halted vehicle imports to Russia owing to logistical challenges amid the war. Toyota has suspended operations at its factory in Russia since last Friday due to supply-chain disruptions. The company has also stopped vehicle imports into the country indefinitely.
It is to be noted that TM is Russia's top Japan-based brand, producing about 80,000 vehicles at the St. Petersburg plant. The plant manufactures RAV4 and Camry models. Toyota accounts for around 5.5% of Russia’s total vehicle output. TM currently carries a Zacks Rank #3 (Hold).
U.S. auto giant Ford issued a statement last Tuesday notifying its intentions to suspend operations in Russia, effective immediately, until further notice. As it is, in recent years, Ford has scaled down its operations in the country.
The company now focuses exclusively on commercial van manufacturing and sales through a minority interest in the Sollers Ford joint venture, the operations of which Ford has currently suspended. F currently carries a Zacks Rank #3.
Renault has lost around a quarter of its market value in the wake of the war. In fact, this French automaker is likely to lose the most amid the Ukraine-Russia tensions. It should be noted that Renault commands a huge presence in Russia, with the country being the company’s second-biggest market. Renault has a controlling stake in Russia-based automaker, AvtoVAZ, accounting for 39.5% of the country’s vehicle production.
Renault is in a fix as it can’t pull out of the market thanks to the historic $1 billion Ghosn-era deal with Putin. RNLSY has warned of significant supply chain snarls if the dispute between the warring countries deteriorates. Renault is currently a Zacks Rank #3 firm.
German auto bigwigs like Volkswagen , Daimler AG and others have also suspended shipments to Russia. Last Monday, Daimler Truck announced freezing its business activities in Russia with immediate effect, including its collaboration with local truck maker Kamaz. Mercedes-Benz Group is also contemplating legal options to divest its 15% stake in Kamaz.
Volkswagen has also suspended production in Russia at its production sites in Kaluga and Nizhny Novgorod. The company has also halted deliveries to car dealerships in Russia.German automaker VWAGY makes up for 12.2% share of Russia’s auto output.
While Daimler currently sports a Zacks Rank #1 (Strong Buy), Volkswagen carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Vehicle Production to Suffer
Jeff Schuster, president of global forecasting and the Americas at LMC Automotive, is of the view that Russia’s invasion of Ukraine could slash global production of cars and trucks by millions of units this year. LMC Automotive has already cut the 2022 forecast for European auto production by 700,000 units.
The European auto market is likely to bear the brunt of the tensions far more quickly than the U.S. and its other counterparts. Vehicle production in Europe is crashing as flow of wire harnesses is drying up. Many European auto companies including Volkswagen have cut production in car factories in Germany.Mercedes-Benz anticipates production cuts at some of its European plants as parts supplies from Ukraine are running short.
German automakers association VDA thinks that the ongoing conflict between Russia and Ukraine is disrupting transport and financial transactions. The conflict’s impact on shipping, rail and air freight has been aggravating problems in the supply chain at a time when inventory levels are already low. The association is bracing for severe raw-material shortages, going forward.
AutoForecast Solutions envisions vehicle production in Russia and Ukraine to be halved this year amid the conflict. A recent CNBC article cited that an early “pessimistic outlook” from research firm IHS Markit expects the global impact this year to be about 3.5 million fewer vehicles in connection with semiconductor chip constraints. Russia and Ukraine are critical sources of neon gas and palladium that are used to produce semiconductor chips.
Final Thoughts
The auto industry is already struggling with low inventory. While the demand for vehicles is strong, limited vehicle supply amid chip crunch have kept a lid on inventory and sales volumes. With the war likely to elongate the semiconductor shortage, there’s little respite for automakers in the coming months. Commodity scarcity and inflation, logistical challenges and a difficult labor environment will continue to play spoilers.
Considering the production cuts and limited supply of microchips, inventory is likely to remain low for quite some time. As we know, the supply-demand mismatch has resulted in high vehicle prices. The Russia-Ukraine crisis is likely to worsen inflation, inducing already record-high vehicle prices to spike higher. While some customers would be willing to pay a premium for their preferred vehicle, others might choose to wait on the sidelines. Automakers and consumers alike should brace for tough times ahead.
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.