Supply chain disruptions and chip shortages continue to roil the automotive space. Last week, Honda (HMC Quick QuoteHMC - Free Report) notified its intention to slash output by 40% in Japan in early September. Per reports, the company is also considering shifting its supply chain away from China. Meanwhile,Honda’s closest peer Toyota (TM Quick QuoteTM - Free Report) is doubling down on its hybrid bet in India. As India tightens fuel efficiency and emission targets for carmakers, hybrids will help Toyota meet its regulatory requirements as credits earned will offset the production of fossil-fuel vehicles.

In another major announcement, U.S. legacy automaker Ford (F Quick QuoteF - Free Report) announced workforce downsizing by almost 3,000 as part of its cost-reduction efforts and restructuring plan that focuses on shifting to an EV-defined future that reduces dependency on labor. Auto parts retailer Advance Auto Parts, Inc. (AAP Quick QuoteAAP - Free Report) also made it to the headlines as it unveiled its quarterly results and cut its 2022 projections.

While Toyota, Honda and Ford carry a Zacks Rank #3 (Hold), Advance Auto holds a Zacks Rank #4 (Sell) now.

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

Recap of Last Week’s Major News

Honda announced its plans to cut production by 40% early next month owing to the chip crisis, logistical challenges and persistent supply chain disruptions. The company’s assembly plant in Saitama prefecture in Japan will slash output by nearly 40%.Two lines at its Suzuka plant will also trim production plans by 30% in early September.The temporary suspension of operations at these factories is set to impact the production of the Vezel sports utility vehicle, the Stepwgn minivan and the Civic compact car.

In another development, the Japanese auto giant is considering setting up a separate supply chain outside China to reduce its dependence on the country. It is believed that HMC would maintain its supply chain in China for the domestic market while having another one in parallel. Honda’s supply chain is heavily China-dependent. Last year, almost 40% of Honda’s automobile production took place in China. But the recent resurgence of Covid-led restrictions in China resulted in supply snarls that significantly lowered output for Honda. The company’s global production plunged 54% year over year in April, primarily because of logistical issues. In light of such supply chain snafus, Honda is contemplating diversifying its manufacturing outside China.

Toyota announced that it is rebooting its strategy for India by doubling down on a bet that emerging markets will generate demand for hybrids if provided at the right price.Toyota wants more first-time buyers in India to own full hybrids as an initial step toward mass electrification. Gradually, it would bolster local sourcing, and production will be competitive.Toyota’s hybrid Camry sedan performance, since its India debut in 2013, has not been impressive. Sales numbers for the vehicle have remained low partly due to a sticker price that was more than eight times the annual income of a middle-class family in the country.

Now, TM is keen to play the game differently with lower-cost hybrids. It intends to bring down the cost of full-hybrid powertrains by manufacturing them domestically in India.Toyota plans to use the clout of its cooperation with partner Suzuki Motor and reap the benefit of the latter’s low-cost engineering know-how and mild hybrid technology. Toyota's first new hybrid to hit India’s roads will be the Urban Cruiser Hyryder, a compact SUV. Its price is expected to be around $25,000, which is less than half the price of the Camry. Suzuki and Toyota together will sell the Hyryder.

Advance Auto reported adjusted earnings of $3.74 per share for second-quarter 2022 (ended Jul 16, 2022), up 10% from the year-ago quarter figure. The reported figure was in line with the Zacks Consensus Estimate. The company generated net revenues of $2,665.4 million, falling short of the Zacks Consensus Estimate of $2,748 million but edging up 0.6% from the year-ago reported figure.

Discouragingly, Advance Auto has trimmed its 2022 guidance. It estimates full-year net sales in the band of $11-$11.2 billion, down from the previous guided range of $11.2-$11.5 billion. Comparable store sales are now envisioned to decline up to 1% as against the prior forecast of 1-3% growth. Adjusted operating income margin is envisioned in the range of 9.8-10%, down from the prior estimate of 10-10.2%. Adjusted EPS is now forecast between $12.75 and $13.25, down from the previously guided range of $13.30-$13.85. The auto parts retailer now intends to buy back stocks worth $500-$600 million in 2022. It aims to open 125-150 new stores this year.

Ford stated its decision to downsize its workforce by 3,000 as part of intensive cost-reduction and restructuring efforts. The move will impact salaried and contract workers. Most of the reduction will be in the United States, Canada and the Ford Business Services operation in India. Of the 3,000 employees, 2,000 are salaried employees and 1,000 are agency personnel.

F opined that its focus on the electrification-driven restructuring efforts has necessitated the re-deployment of its resources to become on par with competitors. Many job positions have skills that have become redundant over time. Therefore, it intends to shuffle its workforce to make it more competitive and dynamic.Ford’s hunger to generate revenues through digital software and connected services requires it to streamline its workforce with the people having the right set of skills.

Price Performance

The following table shows the price movement of some of the major auto players over the last week and six-month period.

Image Source: Zacks Investment Research

What’s Next in the Auto Space?

Industry watchers will keep a tab on August U.S. vehicle sales. Also, stay tuned for any updates on how automakers will tackle the semiconductor shortage and make changes in their business operations.