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Auto Stock Roundup: HOG to Shift Production to Escape EU Tariff, F & TM in Focus

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Harley-Davidson, Inc. (HOG - Free Report) recently announced that it will shift some of its production out of the United States to avoid EU (European Union) tariffs. The automaker’s decision came after Trump’s announcement of imposing tariffs on steel and aluminum, imported from the EU. In retaliation, the EU levied tariffs on U.S. goods, including motorcycles.

Understandably, this tariff war has raised concerns among automakers. In fact, not only the automakers but the overall auto sector — including auto manufacturers, dealers, and auto parts and transportation companies — will be hit.

Other than tariff-induced activities, the week saw Toyota Motor Corporation’s (TM - Free Report) luxury brand, Lexus, making the announcement to recall around 121,000 cars to fix fuel leaks that can cause a fire. Also, the week witnessed Ford Motor Company (F - Free Report) inking a deal with China’s Internet search company, Baidu Inc. The companies will co-develop artificial intelligence and smart connectivity solutions for cars.

(Read the previous roundup here: Auto Stock Roundup for Jun 21, 2018)

Recap of the Week’s Most Important Stories

1.    Harley-Davidson reported its plan to shift the manufacturing of its motorcycles in the United States — which are sold in European Union (EU) — to international facilities. The decision has been taken after the EU hiked import tariffs to 31% for products manufactured in the United States, effective Jun 22, 2018.

The hike in import tariffs has been levied by the EU as a counter strike for raising tariffs on steel and aluminum exported from the EU to the United States.

Harley-Davidson expects the increased tariffs to raise costs of up to $2,200 per average motorcycle if the company continues to ship motorcycles from the United States to the EU countries. Further, it has no plan to transfer the increased costs to wholesale or retail customers. Per the company, passing on the costs to dealers and retail customers might have a long-term negative impact on its business in the European region.

Harley-Davidson will have to bear the rise in costs due to increased tariffs, which will result in incremental costs of roughly $30-$45 million for the rest of 2018. Moreover, as the company has to ramp up production at its international facilities, it has to make investments to upgrade facilities, which are expected to take at least 9-18 months to be fully ready. (Read more: Harley to Shift Production to Escape EU Tariff Hike)

Harley-Davidson currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

2.    Toyota’s luxury brand, Lexus announced the recall of around 121,000 cars to fix fuel leaks that can cause a fire, per Associated Press. The majority of the recalls include cars in the United States. This is a blow to the Japanese auto giant, which has already been grappling with several recall issues.

According to Toyota, the fuel injection system, which is composed of diaphragm material, may harden over time, leading to a fuel leakage. The company has assured that the dealers are going to replace the fuel delivery pipe with a new one, which has improved parts, at no cost.

Toyota is one of the leading automakers in the world, in terms of sales and production. In the past few years, the company has been recalling vehicles in large numbers. Recalls not only affect the company’s reputation adversely but also result in considerable expenses and lower vehicle resale value. In January 2018, Toyota announced a recall of 601,300 vehicles due to flawed Takata airbags. The recall comprised of Toyota and Lexus models. The latest case of recall includes certain 2006 through 2013 IS350 cars, 2010 through 2014 IS350C, and 2007 through 2011 GS350 and GS450h. All contain 3.5-liter V6 gasoline engines. (Read more: Toyota’s Lexus to Recall 121,000 Cars to Fix Fuel Leaks)

Toyota currently sports a Zacks Rank #1.

3.    Per Reuters, Volkswagen AG (VLKAY - Free Report) plans to close its Germany-based Wolfsburg factory for one to two days per week, between August and September. During the production halt, the company will deal with problems caused by engine emission tests. Except for Wolfsburg hub, facilities at Zwickau and Emden will also remain closed for a few days.

A new Worldwide Harmonised Light Vehicle Test Procedure (“WLTP”), which works on real-driving information, has found higher carbon dioxide emission readings in a few vehicles. The new readings have deferred official road certification for those vehicles and thus, sales.

These delays have deterred the company to be on track with the production of some of its vehicle models at different hubs. Further, Volkswagen has witnessed a probable dip in sales due to stricter emission tests. Last week, Daimler AG blamed WLTP and trade wars for lowering its income guidance. (Read more: Volkswagen Plans Production Halt to Tackle WLTP)

Volkswagen currently has a Zacks Rank #4 (Sell).

4.    Dana Incorporated (DAN - Free Report) announced a joint venture (JV) partnership with Canada's largest electricity producer, Hydro-Quebec. Per the announcement, Hydro-Québec’s subsidiary TM4 Inc. will supply electric motors, power inverters and control systems to Dana.

Additionally, Dana will hold the majority share of TM4 against a payment of CA$165 million (US$127 million) and Hydro-Québec will keep 45% stake.

Established in 1998 by Hydro-Québec, TM4 designs and manufactures electric motors, generators, power electronics and control systems for electric vehicles (EVs), making it suitable for Dana’s range of electric gearboxes and thermal-management technologies for batteries, motors, and inverters. The collaboration will position Dana as the sole provider of complete gearboxes, motor, inverter and thermal-management capability for electrified vehicles.

Per management, the JV will help the company to gain a leading position in mechanical power conveyance and thermal-management technology. TM4’s skilled production of electric motors and its distribution will cater Dana’s customers at the end markets. (Read more: Dana & Hydro-Quebec Set to Form JV Partnership for EVs)

Dana currently has a Zacks Rank #3.

5.    Ford announced that it has signed a letter of intent (LOI) with Baidu, Inc. to co-develop artificial intelligence (AI) and connectivity solutions for Ford’s vehicles in China. Baidu offers a Chinese internet searching platform.

By combining Baidu's innovative AI technology and Ford’s engineering expertise, the team aspires to transform the mobility system and produce the next-generation in-vehicle experience for consumers in China. Based on Baidu’s DuerOS conversational AI platform, Ford will develop in-vehicle infotainment systems and digital services. The DuerOS platform has features to recognize voice and image, enabling vehicle owners to control and communicate with their cars in their native language, without any difficulty to access information and services.

Further, both the companies aim to set up a joint-lab to look for innovation opportunities across automotive and mobility businesses in China. In order to focus more on digital marketing, Ford and Baidu will also assess prospects in technologies and big data.

Per management, the collaboration is in sync with the company’s 'In China, For China' strategy. Through this partnership, Ford aims to offer smart products and solutions to its customers.

Ford currently has a Zacks Rank #3.

Performance

Last week, all these stocks witnessed a decline in price, with the maximum decline recorded by Harley-Davidson.

In the past six months, maximum rise has been recorded by Advance Auto Parts, Inc. (AAP - Free Report) while shares of Harley-Davidson have declined the most.

CompanyLast WeekLast 6 Months
GM-3.8%-1.5%
F-3.8%-8.6%
TSLA-4.9%10.7%
TM-5.4%0.0%
HMC-5.6%-14.1%
HOG-8.8%-18.1%
AAP-3.4%34.8%
AZO-3%-5.9%


What’s Next in the Auto Space?

Watch out for the usual news releases of other auto companies over the next week.

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