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Auto Roundup: CMI Hikes Dividend, SMP to Buy Nissens & More
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Last week, China Passenger Car Association released vehicle sales data for the month of June and the first half of 2024. Vehicle sales in China dropped in June due to concerns related to weak consumer demand. Retail passenger car sales fell 6.7% year on year to 1.77 million units but increased 3.2% from May. Sales in the first half of the year rose 3.3% to 9.84 million units. New energy vehicle (“NEV”) sales surged 28.6% to 856,000 units, driven by high demand and price cuts. Car exports in June were 378,000 units, up 28% year on year, with NEV exports increasing 12.3%, bolstered by demand for small EVs overseas.
On the news front, leading engine manufacturer and global power solutions provider Cummins (CMI - Free Report) approved a quarterly dividend hike. Auto equipment provider Standard Motor Products (SMP - Free Report) announced its decision to buy Nissens Automotive. Both companies share a similar strategy of offering full-line, professional-grade products and have complementary portfolios while operating in different geographic markets.
Italian American automaker Stellantis (STLA - Free Report) is rapidly responding to the demand surge in Europe for hybrid models, particularly those with the latest eDCT advanced hybrid technology. It targets to increase the hybrid model line-upin Europe to 36 by 2026. U.S. legacy automaker General Motors (GM - Free Report) unveiled its vehicle sales data in China for the second quarter of 2024.
German auto giant Volkswagen (VWAGY - Free Report) is mulling the closure of its Audi plant in Brussels amid sluggish sales of Audi Q8 e-tron. Automakers are grappling with declining demand for EVs, with European brands particularly challenged by a surge of affordable and state-subsidized EVs from China.
Last Week’s Top Stories
Cummins raised its quarterly dividend by 8.3% to $1.82 per share. This marks the 15th consecutive year of payout hike. The dividend will be paid on Sep 5, 2024, to shareholders as of Aug 23, 2024. Currently, the company's dividend yield stands at around 2.4%. Over the past five years, CMI has raised its dividend six times, with a five-year annualized dividend growth rate of 6.53%. The payout ratio of 35% looks sustainable. Reasonable debt levels and solid operational efficiency allow management to return value to shareholders. Cummins returned $921 million to shareholders via dividends last year.
The company boasts an “A” credit rating from S&P Global Ratings. CMI’s return on equity of 25% compares favorably with the auto sector’s 11%, underscoring management's operational efficiency and ensuring continued payouts. As part of its commitment to increase shareholder value, Cummins sticks to its plan of returning nearly 50% of its operating cash flow to shareholders.
Standard Motor is set to acquire Nissens, a leading European manufacturer and supplier of aftermarket engine cooling and air conditioning products, for around $388 million in cash. Nissens, owned by Nordic private equity firm Axcel and the Nissen family, has annual revenues of about $260 million with a mid-teens EBITDA margin. The acquisition will expand SMP’s range of powertrain-neutral products. The company intends to keep Nissens functioning as an independent unit while utilizing the combined strengths of both companies to achieve cost savings and increase revenues.
This deal is expected to strengthen SMP’s position, allowing growth through cross-selling, cost reduction via combined resources and enhanced operational excellence. The transaction values Nissens at about 7.5x adjusted EBITDA, considering estimated cost synergies of $10 million. The acquisition is expected to boost SMP’s GAAP EPS in the first full year and should be completed in the second half of 2024, pending regulatory approvals.
Stellantis announced that it will offer 30 hybrid models this year and aims to introduce six more by 2026. These hybrids provide an exceptional driving experience with lower CO2 emissions at a more affordable price than fully electric and plug-in hybrid vehicles. Stellantis has achieved a 41% rise in sales of hybrid models year to date in the EU30 region in 2024 compared with the same period in 2023. Stellantis produces hybrid vehicles in more than 70% of its plants in Europe, with eDCT production in Metz, France and Turin, Italy, through the eTransmissions joint venture.
The company is ramping up its hybrid solution with the new eDCT technology, which is being implemented across a wide range of models to make it accessible to more customers. This technology allows the internal combustion engine to remain off during low-speed driving, reducing CO2 emissions and fuel consumption.The eDCT-based hybrid powertrain system is designed for optimal fuel efficiency, achieving up to a 20% reduction in CO2 emissions compared to a combustion engine with an automatic transmission. The eDCT concept can also support plug-in EVs due to a high commonality of components.
General Motors and its joint venture delivered around 373,000 vehicles in China in the second quarter, down 29% year over year. Despite this overall decline, the Detroit-based automaker’s new energy vehicle sales rose 24% year over year, representing a record 38% of GM's overall China deliveries for the quarter. General Motors and other U.S. automakers have been struggling in China amid increased price competition from local automakers.
All of GM's brands in China saw significant declines. Buick deliveries were about 81,000, down from 136,000 in the previous year. Chevrolet delivered almost 10,000 vehicles, down year over year from 48,000. Cadillac delivered about 29,000 vehicles, down year over year from 55,000. SAIC-GM-Wuling Automobile, a joint venture between GM, SAIC Motor and Guangxi Auto, delivered 252,000 cars, down from 286,000 a year prior.
Volkswagen is contemplating the closure of an Audi plant in Brussels due to weak demand for the Audi Q8 e-tron, an all-electric model launched in 2019. Consequently, the company revised its forecast for operating return on sales to a range of 6.5-7%, down from the previous estimate of 7-7.5%. If Volkswagen proceeds with the plant closure, it would be the second after the 1988 shutdown of its Westmoreland County, PA facility. The potential closure or repurposing of the Brussels site could cost the company up to $2.81 billion in operating profit for fiscal 2024.
In a separate development, VWAGY has obtained the rights to produce solid-state batteries developed with QuantumScape. Volkswagen plans to incorporate this technology into more of its vehicles. Pending technological advancements and royalty payments, Volkswagen's battery unit, PowerCo, will be licensed to mass-produce these batteries based on QuantumScape technology. It can manufacture up to 40 gigawatt-hours (GWh) annually, with an option to double this capacity to 80 GWh, enough to equip around one million vehicles each year.
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?
Second-quarter 2024 earnings for the auto sector are slated to kick off this week, with Autoliv set to report on Jul 19. Industry watchers will also keep a tab on EU vehicle sales for the month of June and the first half of 2024.
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Auto Roundup: CMI Hikes Dividend, SMP to Buy Nissens & More
Last week, China Passenger Car Association released vehicle sales data for the month of June and the first half of 2024. Vehicle sales in China dropped in June due to concerns related to weak consumer demand. Retail passenger car sales fell 6.7% year on year to 1.77 million units but increased 3.2% from May. Sales in the first half of the year rose 3.3% to 9.84 million units. New energy vehicle (“NEV”) sales surged 28.6% to 856,000 units, driven by high demand and price cuts. Car exports in June were 378,000 units, up 28% year on year, with NEV exports increasing 12.3%, bolstered by demand for small EVs overseas.
On the news front, leading engine manufacturer and global power solutions provider Cummins (CMI - Free Report) approved a quarterly dividend hike. Auto equipment provider Standard Motor Products (SMP - Free Report) announced its decision to buy Nissens Automotive. Both companies share a similar strategy of offering full-line, professional-grade products and have complementary portfolios while operating in different geographic markets.
Italian American automaker Stellantis (STLA - Free Report) is rapidly responding to the demand surge in Europe for hybrid models, particularly those with the latest eDCT advanced hybrid technology. It targets to increase the hybrid model line-upin Europe to 36 by 2026. U.S. legacy automaker General Motors (GM - Free Report) unveiled its vehicle sales data in China for the second quarter of 2024.
German auto giant Volkswagen (VWAGY - Free Report) is mulling the closure of its Audi plant in Brussels amid sluggish sales of Audi Q8 e-tron. Automakers are grappling with declining demand for EVs, with European brands particularly challenged by a surge of affordable and state-subsidized EVs from China.
Last Week’s Top Stories
Cummins raised its quarterly dividend by 8.3% to $1.82 per share. This marks the 15th consecutive year of payout hike. The dividend will be paid on Sep 5, 2024, to shareholders as of Aug 23, 2024. Currently, the company's dividend yield stands at around 2.4%. Over the past five years, CMI has raised its dividend six times, with a five-year annualized dividend growth rate of 6.53%. The payout ratio of 35% looks sustainable. Reasonable debt levels and solid operational efficiency allow management to return value to shareholders. Cummins returned $921 million to shareholders via dividends last year.
The company boasts an “A” credit rating from S&P Global Ratings. CMI’s return on equity of 25% compares favorably with the auto sector’s 11%, underscoring management's operational efficiency and ensuring continued payouts. As part of its commitment to increase shareholder value, Cummins sticks to its plan of returning nearly 50% of its operating cash flow to shareholders.
Cummins currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Standard Motor is set to acquire Nissens, a leading European manufacturer and supplier of aftermarket engine cooling and air conditioning products, for around $388 million in cash. Nissens, owned by Nordic private equity firm Axcel and the Nissen family, has annual revenues of about $260 million with a mid-teens EBITDA margin. The acquisition will expand SMP’s range of powertrain-neutral products. The company intends to keep Nissens functioning as an independent unit while utilizing the combined strengths of both companies to achieve cost savings and increase revenues.
This deal is expected to strengthen SMP’s position, allowing growth through cross-selling, cost reduction via combined resources and enhanced operational excellence. The transaction values Nissens at about 7.5x adjusted EBITDA, considering estimated cost synergies of $10 million. The acquisition is expected to boost SMP’s GAAP EPS in the first full year and should be completed in the second half of 2024, pending regulatory approvals.
Stellantis announced that it will offer 30 hybrid models this year and aims to introduce six more by 2026. These hybrids provide an exceptional driving experience with lower CO2 emissions at a more affordable price than fully electric and plug-in hybrid vehicles. Stellantis has achieved a 41% rise in sales of hybrid models year to date in the EU30 region in 2024 compared with the same period in 2023. Stellantis produces hybrid vehicles in more than 70% of its plants in Europe, with eDCT production in Metz, France and Turin, Italy, through the eTransmissions joint venture.
The company is ramping up its hybrid solution with the new eDCT technology, which is being implemented across a wide range of models to make it accessible to more customers. This technology allows the internal combustion engine to remain off during low-speed driving, reducing CO2 emissions and fuel consumption.The eDCT-based hybrid powertrain system is designed for optimal fuel efficiency, achieving up to a 20% reduction in CO2 emissions compared to a combustion engine with an automatic transmission. The eDCT concept can also support plug-in EVs due to a high commonality of components.
General Motors and its joint venture delivered around 373,000 vehicles in China in the second quarter, down 29% year over year. Despite this overall decline, the Detroit-based automaker’s new energy vehicle sales rose 24% year over year, representing a record 38% of GM's overall China deliveries for the quarter. General Motors and other U.S. automakers have been struggling in China amid increased price competition from local automakers.
All of GM's brands in China saw significant declines. Buick deliveries were about 81,000, down from 136,000 in the previous year. Chevrolet delivered almost 10,000 vehicles, down year over year from 48,000. Cadillac delivered about 29,000 vehicles, down year over year from 55,000. SAIC-GM-Wuling Automobile, a joint venture between GM, SAIC Motor and Guangxi Auto, delivered 252,000 cars, down from 286,000 a year prior.
Volkswagen is contemplating the closure of an Audi plant in Brussels due to weak demand for the Audi Q8 e-tron, an all-electric model launched in 2019. Consequently, the company revised its forecast for operating return on sales to a range of 6.5-7%, down from the previous estimate of 7-7.5%. If Volkswagen proceeds with the plant closure, it would be the second after the 1988 shutdown of its Westmoreland County, PA facility. The potential closure or repurposing of the Brussels site could cost the company up to $2.81 billion in operating profit for fiscal 2024.
In a separate development, VWAGY has obtained the rights to produce solid-state batteries developed with QuantumScape. Volkswagen plans to incorporate this technology into more of its vehicles. Pending technological advancements and royalty payments, Volkswagen's battery unit, PowerCo, will be licensed to mass-produce these batteries based on QuantumScape technology. It can manufacture up to 40 gigawatt-hours (GWh) annually, with an option to double this capacity to 80 GWh, enough to equip around one million vehicles each year.
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?
Second-quarter 2024 earnings for the auto sector are slated to kick off this week, with Autoliv set to report on Jul 19. Industry watchers will also keep a tab on EU vehicle sales for the month of June and the first half of 2024.