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Zacks Industry Outlook Highlights: Tesla, General Motors, Ford Motor, Honda Motor and Volkswagen AG
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For Immediate Release
Chicago, IL – Dec 21, 2017 – Today, Zacks Equity Research discusses the Industry: Autos, Part 3, including Tesla, Inc. (TSLA - Free Report) , General Motors Company (GM - Free Report) , Ford Motor Company (F - Free Report) , Honda Motor Co., Ltd. (HMC - Free Report) and Volkswagen AG .
The auto industry has been enjoying very strong sales trends lately, but further upside from the lofty levels of 2017 appears hard to come by. The industry is also faced with the challenge of profitably manufacturing electric vehicles.
There are a number of factors that raise concern for the auto sector in both the short and the long run. Below, we discuss a few key challenges that the auto sector might face in the coming months.
EV Race, with No Hint of Profit
In an effort to respond to stringent emission standards and the proposals made by some Asian and European countries to prohibit internal combustion engines driven by fossil fuels, many traditional automakers across the globe have geared up for electric vehicles. However, the new technology is yet to yield profits — the key to the survival of any business entity
Presently, EVs account for less than 1% of U.S. vehicles sales and a small part of total vehicles sold across the globe. EV pioneer Tesla, Inc. is losing money persistently.
Despite these odds, traditional automakers are investing huge amount of money to brace for an all-electric future. These companies are using profits generated from the sale of gasoline-fueled trucks and sport utility vehicles to invest in the expensive EV technology.
Safety Recall Expenses
One serious problem automakers across the globe are facing is huge expenses related to safety recalls. According to the data provided by the U.S. Transportation Department, automakers recalled 53.2 million vehicles in the United States in 2016, setting a new record.
It is expected that in 2017, the recall figures will be very high dueto defective Takata airbag inflators, which caused significant number of recalls between 2014 and 2016.
Many auto giants such as General Motors Company, Ford Motor Company, Honda Motor Co., Ltd. and Volkswagen AG have been facing recall issues in recent times.
U.S. Sales Set to Dip
Following two years of record volumes, most analysts believe that U.S. auto sales have likely declined in 2017 (we will get final December numbers in the next couple of weeks). This will be the first full-year sales decline since the recession. Per the projection given by PricewaterhouseCoopers, auto sales are likely to reach 17.1 million in 2017, down from 17.6 million in 2016. The National Automobile Dealers Association projected 2018 sales of 16.7 million vehicles.
In fact, constrained demand during the recession period, which saw sales picking up in the last few years, seems to have got absorbed now. Sales have been falling as buyers have become more unpredictable despite generous incentives offered on vehicles. Those discounts, which erode profits of automakers, have recently spread to high-margin pickup trucks and SUVs that have created strong demand amid low gas prices.
Declining Used Car Prices
According to the Moody’s report, prices of used cars are declining in the United States, as millions of leases are nearing expiry date. This is not bad news for the customers but definitely not for automakers and dealers. In fact, low prices of used vehicles compel automakers to offer higher discounts to customers on new vehicles, which in turn put strain on their margins.
Rising Delinquency Rates
According to Moody’s, huge competition among banks, finance companies and credit unions have resulted in loosening of the underwriting conditions. Presently, loan terms in the United States are more than six months longer than they were in 2010. Also, lenders are being allowed the facility to roll a significant part of the unpaid balance into new loans. This is leading to rising delinquency and its long-term effect can be serious.
Market Share Concentration
The majority share of the automobile market is held only by a few leading automakers. Moreover, high dependence on these automakers makes auto parts’ suppliers vulnerable to pricing pressure and production cut. Pricing pressure from automakers constricts margins of parts suppliers. Simultaneously, frequent production cuts by automakers in order to cope with market adjustments affect suppliers’ operations.
Strong Stocks that Should Be in the News
Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has nearly tripled the market from 1988 through 2015. Its average gain has been a stellar +26% per year.See these high-potential stocks free >>.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights: Tesla, General Motors, Ford Motor, Honda Motor and Volkswagen AG
For Immediate Release
Chicago, IL – Dec 21, 2017 – Today, Zacks Equity Research discusses the Industry: Autos, Part 3, including Tesla, Inc. (TSLA - Free Report) , General Motors Company (GM - Free Report) , Ford Motor Company (F - Free Report) , Honda Motor Co., Ltd. (HMC - Free Report) and Volkswagen AG .
Industry: Autos, Part 3
Link: https://www.zacks.com/commentary/140597/auto-sector-grapples-with-peak-us-sales-safety-recalls
The auto industry has been enjoying very strong sales trends lately, but further upside from the lofty levels of 2017 appears hard to come by. The industry is also faced with the challenge of profitably manufacturing electric vehicles.
There are a number of factors that raise concern for the auto sector in both the short and the long run. Below, we discuss a few key challenges that the auto sector might face in the coming months.
EV Race, with No Hint of Profit
In an effort to respond to stringent emission standards and the proposals made by some Asian and European countries to prohibit internal combustion engines driven by fossil fuels, many traditional automakers across the globe have geared up for electric vehicles. However, the new technology is yet to yield profits — the key to the survival of any business entity
Presently, EVs account for less than 1% of U.S. vehicles sales and a small part of total vehicles sold across the globe. EV pioneer Tesla, Inc. is losing money persistently.
Despite these odds, traditional automakers are investing huge amount of money to brace for an all-electric future. These companies are using profits generated from the sale of gasoline-fueled trucks and sport utility vehicles to invest in the expensive EV technology.
Safety Recall Expenses
One serious problem automakers across the globe are facing is huge expenses related to safety recalls. According to the data provided by the U.S. Transportation Department, automakers recalled 53.2 million vehicles in the United States in 2016, setting a new record.
It is expected that in 2017, the recall figures will be very high dueto defective Takata airbag inflators, which caused significant number of recalls between 2014 and 2016.
Many auto giants such as General Motors Company, Ford Motor Company, Honda Motor Co., Ltd. and Volkswagen AG have been facing recall issues in recent times.
U.S. Sales Set to Dip
Following two years of record volumes, most analysts believe that U.S. auto sales have likely declined in 2017 (we will get final December numbers in the next couple of weeks). This will be the first full-year sales decline since the recession. Per the projection given by PricewaterhouseCoopers, auto sales are likely to reach 17.1 million in 2017, down from 17.6 million in 2016. The National Automobile Dealers Association projected 2018 sales of 16.7 million vehicles.
In fact, constrained demand during the recession period, which saw sales picking up in the last few years, seems to have got absorbed now. Sales have been falling as buyers have become more unpredictable despite generous incentives offered on vehicles. Those discounts, which erode profits of automakers, have recently spread to high-margin pickup trucks and SUVs that have created strong demand amid low gas prices.
Declining Used Car Prices
According to the Moody’s report, prices of used cars are declining in the United States, as millions of leases are nearing expiry date. This is not bad news for the customers but definitely not for automakers and dealers. In fact, low prices of used vehicles compel automakers to offer higher discounts to customers on new vehicles, which in turn put strain on their margins.
Rising Delinquency Rates
According to Moody’s, huge competition among banks, finance companies and credit unions have resulted in loosening of the underwriting conditions. Presently, loan terms in the United States are more than six months longer than they were in 2010. Also, lenders are being allowed the facility to roll a significant part of the unpaid balance into new loans. This is leading to rising delinquency and its long-term effect can be serious.
Market Share Concentration
The majority share of the automobile market is held only by a few leading automakers. Moreover, high dependence on these automakers makes auto parts’ suppliers vulnerable to pricing pressure and production cut. Pricing pressure from automakers constricts margins of parts suppliers. Simultaneously, frequent production cuts by automakers in order to cope with market adjustments affect suppliers’ operations.
Strong Stocks that Should Be in the News
Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has nearly tripled the market from 1988 through 2015. Its average gain has been a stellar +26% per year.See these high-potential stocks free >>.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.