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Zacks Investment Ideas feature highlights: General Motors, Ford and Tesla

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For Immediate Release

Chicago, IL – November 1, 2018 – Today, Zacks Investment Ideas feature highlights Features: General Motors (GM - Free Report) ), Ford (F - Free Report) ) and Tesla (TSLA - Free Report) ).

U.S. Automakers Showing Strong Results

General Motors was the latest U.S. automaker to post positive results Wednesday before the markets opened, reporting Q3 earnings of $1.87/share on revenues of $35.8B. The Zacks Consensus Estimates had been for $34.2B in revenues and $1.26/share in earnings.

GM shares – which have seen their value fall by a third since June – railed more than 7% on the news.

Last week we saw positive results from Ford with a big increase in revenues and net earnings that were essentially in line with estimates helping to lift shares more than 16% off of the multi-year lows seen earlier in October.

Electric automaker Tesla turned in a blowout third quarter last week with earnings of $2.90/share handily topping consensus estimate of a loss of $(0.51)/share. Record deliveries of the mas-market Model 3 sedans – along with high average selling prices, improved automotive gross margins and reduced operating expenses – allowed the company to make good on CEO Elon Musk’s promise to be both cash flow positive and profitable on a net basis in Q3.

Tesla shares are up more than 30% in the last two weeks.

Fewer Cars at Higher Prices

GM explained that although the number of cars sold has declined somewhat over the past year, they were more than able to make up for the shortfall by selling a larger number of higher-end and heavily-optioned vehicles. Automakers typically enjoy considerably better margins on larger and more expensive cars and trucks.

While US unit sales at GM declined 11% year-over-year, US auto revenues grew 11%. It was much the same story for GM in China with unit sales off 15% but net profits up 20%.

Low unemployment, easier access to credit and the benefits of the recent tax cuts have pushed consumer confidence to a 17-year high, and Americans appear willing to commit to large purchases like automobiles The trend leans toward splurging on an upgrade from the autos they currently drive. Sales of GM’s new line of full-sized pickup trucks continues to grow since they were introduced earlier this year.

GM also affirmed previous guidance, saying that they expect full year 2018 earnings to be at the high end of the range of $5.80-$6.20/share.

Getting Leaner

Cost cutting has also been a major focus at all three companies. Tesla made significant reductions in non-production staff in 2018 and severely restricted non-essential purchases, both of which contributed to the overall decrease in operating expenses even as they doubled the number of autos produced.

Ford has also been reducing staff this year and though they have not released specific numbers, analysts expect that layoffs could add up to over 10% of the company’s 202,000 employees over the next two years.

Along with Wednesday’s earnings report, GM also announced that it would be offering voluntary buyout offers to 18,000 long-term employees in North America in an attempt to reduce headcount and payroll expenses without having to resort to involuntary layoffs. GM had previously targeted $6.5B in cost efficiencies in 2018 and CFO Dhivya Suryadevera confirmed Wednesday that the company is on track to achieve that goal.

At all three automakers, improvements in process and technology have reduced the man-hours necessary to produce autos. After several lean years, it appears that the new “Big 3” has emerged much leaner and more profitable. (It’s arguable that Chrysler, as a fully owned subsidiary of Italy’s Fiat Group, is no longer truly an American automaker).

A combination of improved operations and strong economic conditions in the US promise to keep more good times coming for US automakers.

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