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3 Auto Biggies Poised for Q4 Earnings Beat Despite Chip Crisis

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The fourth-quarter earnings season for the Auto-Tires-Trucks sector kicks off today. We know that the auto space has been reeling under a major supply-demand imbalance for around a year now owing to microchip deficit. The shortage of semiconductor supply dragged down the top and bottom lines of many automakers in the third quarter. Per the Zacks Earnings Trend report, the auto sector’s revenues and earnings witnessed a year-over-year decline of 2.6% and 12.3%, respectively, for Q3. Will Q4 be any better? Well, per the latest Earnings Trend report dated Jan 19, the auto sector’s earnings for Q4 are expected to edge up 0.9% on a year-over-year basis. As for the revenues, they are estimated to inch down a mere 0.1% year over year.

Factors Shaping Auto Sector’s Q4 Results

Although buyers’ appetite for personal vehicles was quite strong in the quarter under discussion, the industry was unable to meet the mounting demand. Vehicle sales of various auto majors were weighed down by manufacturing inefficiencies and tight inventory owing to chip shortage. Low sales volumes are likely to have a negative impact on fourth-quarter results. Nonetheless, rising prices of vehicles (both new and old) are likely to have offset the low volumes to a large extent. Amid the supply-demand mismatch and tight inventory levels, prices of new and used cars hit the roof.

In the light of chip crunch, automakers have been prioritizing resources toward high-margin and more popular vehicles like electric cars. Rising deliveries of new energy vehicles (including all-electric, hybrids and fuel-cell) are expected to have fueled revenues. Also, a shift toward digital shopping is likely to have aided sales. The launch of a simple, secure and user-friendly online platform is expected to have helped in seamless end-to-end digitization of the companies’ sales processes.

Meanwhile, the companies are likely to be hurt by production inefficiencies, a tight labor market, high raw material costs and logistical challenges. Many auto biggies announced in their last earnings call that they expect Q4 commodity prices to be higher than Q3 levels.

All in all, while soaring commodity costs and limited vehicle supply amid the chip crunch are likely to negatively impact results, the rising average price of vehicles and high deliveries of electric cars would have partly counterbalanced the headwinds.

Selecting Potential Winners

Amid this backdrop, it is wise to select auto stocks that are well positioned to beat on earnings in their upcoming releases. While it is not possible to be absolutely sure about such outperformers, our proprietary methodology — Earnings ESP — makes it relatively simple. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. Earnings ESP shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Our research shows that for stocks with the above-mentioned combination, the chances of an earnings beat are as high as 70%.

Below we present three auto giants that have the right combination of elements to pull off earnings beat for the fourth quarter:

Our Picks

Tesla (TSLA - Free Report) : Tesla has an Earnings ESP of +4.69% and a Zacks Rank #1. This electric vehicle (EV) behemoth is scheduled to release fourth-quarter results on Jan 26. The Zacks Consensus Estimate for Tesla’s to-be-reported quarter’s earnings and revenues is pegged at $2.11 per share and $16.07 billion, respectively. TSLA surpassed earnings estimates in three of the trailing four quarters and missed on one occasion, with an average surprise of 25.4%.

We believe the rising demand for Models 3 and Y is expected to buoy TSLA’s Q4 results. Tesla delivered 308,600 units in fourth-quarter 2021, surging 71% from the fourth quarter of 2020. Deliveries also breezed past the previous high of 241,300 in third-quarter 2021. In fact, fourth-quarter 2021 marked the sixth consecutive quarter of record deliveries by the world's most valuable automaker. The Zacks Consensus Estimate for automotive revenues for the quarter under discussion is pegged at $13,728 million, calling for a year-over-year jump of 47.5%. 

General Motors (GM - Free Report) : General Motors has an Earnings ESP of +12.02% and a Zacks Rank #2. The U.S. auto giant is slated to report fourth-quarter earnings on Feb 1. The Zacks Consensus Estimate for GM’s to-be-reported quarter’s earnings and revenues is pegged at $1.04 per share and $29.35 billion, respectively. General Motors surpassed estimates in the last four quarters, with an average of 46.5%.

General Motors’ U.S. sales came in at 440,745 vehicles in the fourth quarter, down 43% and 1.4% on a yearly and sequential basis, respectively. Nevertheless, high average prices of vehicles are anticipated to aid Q4 revenues. In China, the company delivered more than 740,000 vehicles in the fourth quarter, higher than 623,000 vehicles in the third quarter. High deliveries of GM’s Hong Guang MINI EV in China are expected to have aided sales. The Zacks Consensus Estimate for General Motors’ overall Q4 revenues is pegged at $29,345 million, indicating an increase from $26,779 million generated in Q3.

Ford (F - Free Report) : Ford has an Earnings ESP of +6.83% and a Zacks Rank #1. This legacy automaker is set to unveil fourth-quarter numbers on Feb 3. The Zacks Consensus Estimate for Ford’s to-be-reported quarter’s earnings and revenues is pegged at 40 cents per share and $35.96 billion, respectively. F surpassed estimates in the last four quarters, with an average of 335.6%.

Markedly, Ford emerged as the best-selling U.S. automaker in fourth-quarter 2021. It sold 508,451 vehicles in the United States, marking a 26.8% sequential increase. The figure, however, declined from the year-ago sales of 542,749 units. Nonetheless, high prices of vehicles are likely to have fueled the top line. The Zacks Consensus Estimate for Ford’s revenues in the North America segment (which forms the major chunk of overall revenues) is pegged at $26.1 billion, suggesting growth from $22 billion and $24 billion generated in the year-ago period and the last reported quarter, respectively.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.


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