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Zacks Industry Outlook Highlights: Tesla, Ford Motor, Honda Motor and Volkswagen
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For Immediate Release
Chicago, IL – April 26, 2018 – Today, Zacks Equity Research discusses the Industry: Autos, Part 3, including Tesla, Inc. (TSLA - Free Report) , Ford Motor Company (F - Free Report) , Honda Motor Co., Ltd. (HMC - Free Report) and Volkswagen AG .
Albeit the recent rise in sales, the auto industry is grappling with a myriad challenges. Trade tensions between China and the United States, shifting preference pattern of the consumers, the compulsion to embrace various changes, and safety recall issues are some of the challenges faced by automakers.
In fact, the industry is going through a transition. The necessity of manufacturing electric vehicles in a profitable way is fast becoming a big challenge for automakers.
In fact, there are a number of factors that raise concerns for the auto sector in both the short and the long run. Below we discuss a few key challenges that the auto sector might face in the coming months.
Safety Recall Expenses
One serious problem automakers across the globe are facing is huge expenses pertaining to safety recalls. According to the data provided by the U.S. Transportation Department, automakers recalled 53.2 million vehicles in the United States in 2016, setting a new record. According to a report by Center for Auto Safety, there about 60 million vehicles on the road that are open to recalls and in need of repairs.
Many auto giants such as Tesla, Inc., Ford Motor Company, Honda Motor Co., Ltd. and Volkswagen AG have been facing recall issues in recent times and incurring huge expenses in this regard.
EV Race, the New Compulsion
In an effort to respond tostrict emission standards and the proposals made by some Asian and European countries to restrict internal combustion engines driven by fossil fuels, many traditional automakers across the globe have geared up for electric vehicles. However, the new technology has yet to yield profits, which holds the key to the survival of any business entity.
Presently, EVs account for less than 1% of U.S. vehicles sales and a small part of total vehicles sold across the globe. EV pioneer Tesla is losing money persistently.
Despite these odds, conventional automakers are pouring in a huge amount of money to brace for an all-electric future. These companies are diverting profits generated from the sale of gasoline-fueled trucks and SUVs to invest in the expensive EV technology.
Price Stability & High Demand for Used Cars
A lucratively priced, high-quality used vehicles inventory has prompted consumers to think over the alternatives to buying new cars. This resulted in higher demand for used vehicles. In fact, a leading rating agency Moody’s has projected that the used car and truck Consumer Price Index will suffer a year-over-year decline of 1.07% in 2019, whereas the decline was 3.63% in 2017. The rating agency further anticipates prices to stabilize in 2020.
The price stability of used cars is not bad news for customers but definitely not good news for automakers and dealers. In fact, low prices of used vehicles compel automakers to offer higher discounts to customers on new vehicles, which in turn strain their margins.
Moreover, per a research report by Technavio, the increased use of dedicated online sites to sell used cars is having a positive impact on the used-car market. The presence of several online car sales sites has enabled buyers to pick a used car through online sites.
Commodity Woes
President Trump has imposed tariffs on two key commodities: steel and aluminum. However, any increase — tariff induced or otherwise — in the prices of these two important metals that the automobile space is crucially dependent on, will leave an adverse impact. In other words, U.S. automotive companies would lose their competitive capabilities to global rivals if tariffs are imposed on steel and aluminum.
Rising Delinquency Rates
According to Moody’s, huge competition in banks, finance companies and credit unions have resulted in loosening of the underwriting conditions. Presently, loan terms in the United States are longer than they were in 2010. Also, lenders are being allowed the facility to roll a significant part of the unpaid balance into new loans. This is leading to rising delinquency and its long-term effect can be serious.
Market Share Concentration
The majority share of the automobile market is held only by a few leading automakers. Moreover, high dependence on these automakers makes auto parts’ suppliers vulnerable to pricing pressure and production cut. Pricing pressure from automakers constricts margins of parts suppliers. Simultaneously, frequent production cuts by automakers in order to cope with market adjustments affect suppliers’ operations.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
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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Zacks Industry Outlook Highlights: Tesla, Ford Motor, Honda Motor and Volkswagen
For Immediate Release
Chicago, IL – April 26, 2018 – Today, Zacks Equity Research discusses the Industry: Autos, Part 3, including Tesla, Inc. (TSLA - Free Report) , Ford Motor Company (F - Free Report) , Honda Motor Co., Ltd. (HMC - Free Report) and Volkswagen AG .
Industry: Autos, Part 3
Link: https://www.zacks.com/commentary/159729/autos-hit-safety-recalls-commodity-woes-used-car-demand
Albeit the recent rise in sales, the auto industry is grappling with a myriad challenges. Trade tensions between China and the United States, shifting preference pattern of the consumers, the compulsion to embrace various changes, and safety recall issues are some of the challenges faced by automakers.
In fact, the industry is going through a transition. The necessity of manufacturing electric vehicles in a profitable way is fast becoming a big challenge for automakers.
In fact, there are a number of factors that raise concerns for the auto sector in both the short and the long run. Below we discuss a few key challenges that the auto sector might face in the coming months.
Safety Recall Expenses
One serious problem automakers across the globe are facing is huge expenses pertaining to safety recalls. According to the data provided by the U.S. Transportation Department, automakers recalled 53.2 million vehicles in the United States in 2016, setting a new record. According to a report by Center for Auto Safety, there about 60 million vehicles on the road that are open to recalls and in need of repairs.
Many auto giants such as Tesla, Inc., Ford Motor Company, Honda Motor Co., Ltd. and Volkswagen AG have been facing recall issues in recent times and incurring huge expenses in this regard.
EV Race, the New Compulsion
In an effort to respond tostrict emission standards and the proposals made by some Asian and European countries to restrict internal combustion engines driven by fossil fuels, many traditional automakers across the globe have geared up for electric vehicles. However, the new technology has yet to yield profits, which holds the key to the survival of any business entity.
Presently, EVs account for less than 1% of U.S. vehicles sales and a small part of total vehicles sold across the globe. EV pioneer Tesla is losing money persistently.
Despite these odds, conventional automakers are pouring in a huge amount of money to brace for an all-electric future. These companies are diverting profits generated from the sale of gasoline-fueled trucks and SUVs to invest in the expensive EV technology.
Price Stability & High Demand for Used Cars
A lucratively priced, high-quality used vehicles inventory has prompted consumers to think over the alternatives to buying new cars. This resulted in higher demand for used vehicles. In fact, a leading rating agency Moody’s has projected that the used car and truck Consumer Price Index will suffer a year-over-year decline of 1.07% in 2019, whereas the decline was 3.63% in 2017. The rating agency further anticipates prices to stabilize in 2020.
The price stability of used cars is not bad news for customers but definitely not good news for automakers and dealers. In fact, low prices of used vehicles compel automakers to offer higher discounts to customers on new vehicles, which in turn strain their margins.
Moreover, per a research report by Technavio, the increased use of dedicated online sites to sell used cars is having a positive impact on the used-car market. The presence of several online car sales sites has enabled buyers to pick a used car through online sites.
Commodity Woes
President Trump has imposed tariffs on two key commodities: steel and aluminum. However, any increase — tariff induced or otherwise — in the prices of these two important metals that the automobile space is crucially dependent on, will leave an adverse impact. In other words, U.S. automotive companies would lose their competitive capabilities to global rivals if tariffs are imposed on steel and aluminum.
Rising Delinquency Rates
According to Moody’s, huge competition in banks, finance companies and credit unions have resulted in loosening of the underwriting conditions. Presently, loan terms in the United States are longer than they were in 2010. Also, lenders are being allowed the facility to roll a significant part of the unpaid balance into new loans. This is leading to rising delinquency and its long-term effect can be serious.
Market Share Concentration
The majority share of the automobile market is held only by a few leading automakers. Moreover, high dependence on these automakers makes auto parts’ suppliers vulnerable to pricing pressure and production cut. Pricing pressure from automakers constricts margins of parts suppliers. Simultaneously, frequent production cuts by automakers in order to cope with market adjustments affect suppliers’ operations.
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
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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.