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Auto Stock Roundup: China to Scrap Limit on Foreign Auto JVs, GM to Cut Jobs
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Somewhat easing the tension of a trade war, China announced that it will erase the limit on foreign ownership of domestic auto ventures. This will assist foreign automakers to own factories in the country. Notably, this restriction has been in place since 1994, which limits foreign carmakers to own not more than 50% share of any local establishment.
China will lift foreign ownership limit for the wider car market by 2022. This may open up opportunities for U.S. automakers and enable them to earn higher profits. But disentangling the network of collaborations forged with local Chinese companies may not be easy.
The past week also saw General Motors Company (GM - Free Report) announcing layoffs of around 1,500 workers at its plant in Lordstown, OH, per CNBC. The auto giant took such a decision due to the dramatically slowing demand for compact cars.
1. Per Reuters, Volkswagen AG’s Truck & Bus GmbH unit agreed to form a strategic alliance with Hino Motors, Ltd., a subsidiary of Toyota Motor Corporation (TM - Free Report) , to develop self-driving capabilities and lower-emission vehicles.
Intended to strengthen their market position as commercial-vehicle manufacturers, the two automakers will join forces to deal with rising investment costs related to the development of autonomous vehicles and new transportation services, including ride sharing.
The combined forces will work on research and development, technology and procurement of gasoline-electric and diesel hybrid engines as well as self-driving technologies. This will enable both the companies to benefit from the economies of scale and come up with innovative products at a faster pace compared with the time required while working separately.
However, the partnership between the two subsidiary units will not change the competitive dynamics between Volkswagen and Toyota in the passenger-car market. (Read more: Volkswagen & Toyota Units to Co-Develop Autonomous Trucks)
While Volkswagen carries a Zacks Rank #2 (Buy), Toyota has a Zacks Rank #3 (Hold).
2. Per a Reuters report, Genuine Parts Company (GPC - Free Report) will spin off its wholesale distribution business, S.P. Richards. Thereafter, the S.P. Richards business and Essendant will be combined to create a new entity named Essendant. The newly formed unit will be headed by Essendant’s chief executive officer (CEO) Ric Phillips. Rick Toppin, CEO of S.P. Richards, will be the chief operating officer of the new entity. The combination of Essendant and S.P. Richards will result in a more competitive business products distributor with higher scale and service capabilities along with greater ability to support customers.
The deal is structured as a Reverse Morris Trust. The transaction values S.P. Richards at approximately $680 million. Atlanta, GA-based Genuine Parts will receive $347 million in cash while the shareholders of the company will own around 51% of the combined company, post closing. The deal is slated to close before the end of 2018. However, it is subject to regulatory and shareholder approvals, and satisfaction of certain other customary closing conditions.
Notably, Essendant is a wholesale distributor of workplace items whereas S.P. Richards distributes a range of products, including office furniture, computer supplies and school supplies, to resellers in the United States and Canada. (Read more: Genuine Parts’ S.P. Richards Unit to Tie Up With Essendant)
3. General Motors announced that it is laying off around 1,500 workers at its plant in Lordstown, OH, per CNBC. The auto giant took such a decision due to the dramatically slowing demand for compact cars. Notably, the plant only manufactures the Chevy Cruze model and employs around 3,000 workers.
In fact, the demand for sedans has declined steeply in recent times. This year, car sales have declined 13.2% while that of SUVs, crossovers and pickups rose 7%. For Chevy Cruze, the sales decline has been steeper. Per Autodata, Chevy Cruze sales plunged 28% in 2018. In 2017, over 184,000 Cruze models were sold in the United States compared with 273,000 vehicles in 2013.
The facility will be slowing the assembly lines by eliminating one of the two shifts, starting from mid-June. General Motors informed that up to 1,500 workers could be impacted by the decision. (Read more: General Motors to Cut Jobs in Ohio Plant as Car Demand Wanes)
General Motors carries a Zacks Rank #3.
4. Tesla, Inc. (TSLA - Free Report) set a target to manufacture 6,000 Model 3 cars each week by the end of June to meet its weekly target of 5,000 Model 3 units by the end of second-quarter 2018, per Bloomberg. The difference includes a margin for error of the product parts. The news was first tracked by Electrek from an email by the company’s CEO to the employees.
At the beginning of the month, Tesla reported unit productions for the first quarter of 2018. The company manufactured 2,020 Model 3 vehicles per week in the first quarter, thus lagging the target of manufacturing 2,500 Model 3 units per week. This shortfall in unit production prompted the company to set an internal target of 6,000 units to realize the 5k target.
Per the company’s CEO, the recent temporary suspension of Model 3 production is planned to eliminate the bottlenecks that have delayed production. This will help Tesla to reach 3000-4000 Model 3 productions per week in May. Further, a similar suspension is expected at its two factories in California and Nevada to update the units in May. (Read more: Tesla Hikes Model 3 Production Target to 6K per Week)
Tesla carries a Zacks Rank #3.
5. Group 1 Automotive, Inc. acquired a new Toyota sales territory in western Sao Paulo of Brazil. Additionally, the company expanded an existing Honda dealership in Sao Bernardo do Campo, situated in the suburb of Sao Paulo.
The newly acquired business will function under T-Drive Toyota Alphaville and is anticipated to generate roughly $45 million in yearly revenues. With this acquisition, T-Drive Toyota Alphaville became Group 1 Automotive’s fourth Toyota dealership in Brazil. Further, the company was given a few additional Toyota points of representation inside the Sao Paulo market. Names and locations of these points will be announced once those get functional.
Per management, this acquisition, along with Group 1 Automotive’s existing stores, will generate opportunities and growth potential by offering a large Toyota operating footprint across Brazil’s largest city. Toyota is the largest brand partner for Group 1 Automotive.
The company also reported the relocation of its key Sao Paulo Honda dealership to a larger facility with freeway visibility. This will enable Group 1 Automotive to almost double revenues within a shorter period. In Brazil, the company is the largest seller of Honda cars, which holds four dealerships in the greater Sao Paulo metropolitan area.
Group 1 Automotive carries a Zacks Rank #3.
Performance
Last week, all the stocks, except Toyota, reported a decline. Advance Auto Parts, Inc. (AAP - Free Report) recorded the maximum decline in price.
In the last six months, the maximum rise was recorded by Advance Auto Parts while Harley-Davidson, Inc. (HOG - Free Report) shares declined the most.
Company
Last Week
Last 6 Months
GM
-0.2%
-14.6%
F
-2.2%
-6.4%
TSLA
-2.5%
-15%
TM
1%
4.4%
HMC
-1.6%
14.6%
HOG
-0.4%
-15.4%
AAP
-3.2%
23.8%
AZO
-1.2%
3.2%
What’s Next in the Auto Space?
Watch out for the usual news releases of other auto companies over the next week. Also look for the earnings releases of some important auto companies in the past week.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Auto Stock Roundup: China to Scrap Limit on Foreign Auto JVs, GM to Cut Jobs
Somewhat easing the tension of a trade war, China announced that it will erase the limit on foreign ownership of domestic auto ventures. This will assist foreign automakers to own factories in the country. Notably, this restriction has been in place since 1994, which limits foreign carmakers to own not more than 50% share of any local establishment.
China will lift foreign ownership limit for the wider car market by 2022. This may open up opportunities for U.S. automakers and enable them to earn higher profits. But disentangling the network of collaborations forged with local Chinese companies may not be easy.
The past week also saw General Motors Company (GM - Free Report) announcing layoffs of around 1,500 workers at its plant in Lordstown, OH, per CNBC. The auto giant took such a decision due to the dramatically slowing demand for compact cars.
(Read the previous roundup here: Auto Stock Roundup for Apr 12, 2018)
Recap of the Week’s Most Important Stories
1. Per Reuters, Volkswagen AG’s Truck & Bus GmbH unit agreed to form a strategic alliance with Hino Motors, Ltd., a subsidiary of Toyota Motor Corporation (TM - Free Report) , to develop self-driving capabilities and lower-emission vehicles.
Intended to strengthen their market position as commercial-vehicle manufacturers, the two automakers will join forces to deal with rising investment costs related to the development of autonomous vehicles and new transportation services, including ride sharing.
The combined forces will work on research and development, technology and procurement of gasoline-electric and diesel hybrid engines as well as self-driving technologies. This will enable both the companies to benefit from the economies of scale and come up with innovative products at a faster pace compared with the time required while working separately.
However, the partnership between the two subsidiary units will not change the competitive dynamics between Volkswagen and Toyota in the passenger-car market. (Read more: Volkswagen & Toyota Units to Co-Develop Autonomous Trucks)
While Volkswagen carries a Zacks Rank #2 (Buy), Toyota has a Zacks Rank #3 (Hold).
2. Per a Reuters report, Genuine Parts Company (GPC - Free Report) will spin off its wholesale distribution business, S.P. Richards. Thereafter, the S.P. Richards business and Essendant will be combined to create a new entity named Essendant. The newly formed unit will be headed by Essendant’s chief executive officer (CEO) Ric Phillips. Rick Toppin, CEO of S.P. Richards, will be the chief operating officer of the new entity. The combination of Essendant and S.P. Richards will result in a more competitive business products distributor with higher scale and service capabilities along with greater ability to support customers.
The deal is structured as a Reverse Morris Trust. The transaction values S.P. Richards at approximately $680 million. Atlanta, GA-based Genuine Parts will receive $347 million in cash while the shareholders of the company will own around 51% of the combined company, post closing. The deal is slated to close before the end of 2018. However, it is subject to regulatory and shareholder approvals, and satisfaction of certain other customary closing conditions.
Notably, Essendant is a wholesale distributor of workplace items whereas S.P. Richards distributes a range of products, including office furniture, computer supplies and school supplies, to resellers in the United States and Canada. (Read more: Genuine Parts’ S.P. Richards Unit to Tie Up With Essendant)
Genuine Parts carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
3. General Motors announced that it is laying off around 1,500 workers at its plant in Lordstown, OH, per CNBC. The auto giant took such a decision due to the dramatically slowing demand for compact cars. Notably, the plant only manufactures the Chevy Cruze model and employs around 3,000 workers.
In fact, the demand for sedans has declined steeply in recent times. This year, car sales have declined 13.2% while that of SUVs, crossovers and pickups rose 7%. For Chevy Cruze, the sales decline has been steeper. Per Autodata, Chevy Cruze sales plunged 28% in 2018. In 2017, over 184,000 Cruze models were sold in the United States compared with 273,000 vehicles in 2013.
The facility will be slowing the assembly lines by eliminating one of the two shifts, starting from mid-June. General Motors informed that up to 1,500 workers could be impacted by the decision. (Read more: General Motors to Cut Jobs in Ohio Plant as Car Demand Wanes)
General Motors carries a Zacks Rank #3.
4. Tesla, Inc. (TSLA - Free Report) set a target to manufacture 6,000 Model 3 cars each week by the end of June to meet its weekly target of 5,000 Model 3 units by the end of second-quarter 2018, per Bloomberg. The difference includes a margin for error of the product parts. The news was first tracked by Electrek from an email by the company’s CEO to the employees.
At the beginning of the month, Tesla reported unit productions for the first quarter of 2018. The company manufactured 2,020 Model 3 vehicles per week in the first quarter, thus lagging the target of manufacturing 2,500 Model 3 units per week. This shortfall in unit production prompted the company to set an internal target of 6,000 units to realize the 5k target.
Per the company’s CEO, the recent temporary suspension of Model 3 production is planned to eliminate the bottlenecks that have delayed production. This will help Tesla to reach 3000-4000 Model 3 productions per week in May. Further, a similar suspension is expected at its two factories in California and Nevada to update the units in May. (Read more: Tesla Hikes Model 3 Production Target to 6K per Week)
Tesla carries a Zacks Rank #3.
5. Group 1 Automotive, Inc. acquired a new Toyota sales territory in western Sao Paulo of Brazil. Additionally, the company expanded an existing Honda dealership in Sao Bernardo do Campo, situated in the suburb of Sao Paulo.
The newly acquired business will function under T-Drive Toyota Alphaville and is anticipated to generate roughly $45 million in yearly revenues. With this acquisition, T-Drive Toyota Alphaville became Group 1 Automotive’s fourth Toyota dealership in Brazil. Further, the company was given a few additional Toyota points of representation inside the Sao Paulo market. Names and locations of these points will be announced once those get functional.
Per management, this acquisition, along with Group 1 Automotive’s existing stores, will generate opportunities and growth potential by offering a large Toyota operating footprint across Brazil’s largest city. Toyota is the largest brand partner for Group 1 Automotive.
The company also reported the relocation of its key Sao Paulo Honda dealership to a larger facility with freeway visibility. This will enable Group 1 Automotive to almost double revenues within a shorter period. In Brazil, the company is the largest seller of Honda cars, which holds four dealerships in the greater Sao Paulo metropolitan area.
Group 1 Automotive carries a Zacks Rank #3.
Performance
Last week, all the stocks, except Toyota, reported a decline. Advance Auto Parts, Inc. (AAP - Free Report) recorded the maximum decline in price.
In the last six months, the maximum rise was recorded by Advance Auto Parts while Harley-Davidson, Inc. (HOG - Free Report) shares declined the most.
What’s Next in the Auto Space?
Watch out for the usual news releases of other auto companies over the next week. Also look for the earnings releases of some important auto companies in the past week.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>