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Auto Stock Roundup: General Motors Recalls, Toyota Forms JV, Tesla Sells Bonds for Model 3

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The reporting cycle is nearing its end and majority of auto companies have already announced results for the quarter ended Jun 30, 2017. Nevertheless, auto stocks are still struggling amid slowing demand, which has left auto manufacturers with high levels of glut. Auto majors such as General Motors Company GM and Ford Motor Co. F have plans of producing fewer vehicles in the second half of the year.

Moreover, amid declining demand in their home market, U.S. automakers are facing a slowdown in China, the biggest automotive market in the world. Here, General Motors sells more cars than it does in North America.

The Commerce Department reported that wholesale inventories increased 0.7% in May and rose 0.6% in June. This has prompted automakers to manage inventory carefully amid slow domestic demand.

(Read the previous roundup here: Auto Stock Roundup for Aug 3, 2017)

Recap of the Week’s Most Important Stories

1. Per Reuters, General Motors is recalling roughly 800,000 pickup trucks, worldwide. The recall includes 2014 models of Chevrolet Silverado 1500 as well as GMC Sierra 1500 that could lead to loss of power steering.

Per company reports, the 2014 model trucks can come across as a temporary loss of power steering, majorly during low-speed turning maneuvers. The recall includes vehicles of approximately 690,000 from the U.S., 80,000 from Canada and approximately, 25,000 vehicles from other markets, globally (read more: General Motors Recalls 800K Trucks for Faulty Steering).

Currently, General Motors has a Zacks Rank # 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

2. Toyota Motor Corporation TM has entered into an agreement with Mazda Motor Corporation to set up a new joint venture. Per the deal, the two will collaborate to build a vehicle manufacturing plant in the U.S.

An investment of $1.6 billion will be made to construct the plant with an annual production capacity of around 300,000 vehicles. The hub is expected to start operations in 2021 and create up to 4,000 jobs.

Focusing on the North American market, Toyota will be independently manufacturing Corolla model in the new plant, whereas Mazda will be producing cross-over models for the same target market (read more: Toyota Inks Deal With Mazda for Car Plant in the U.S.).

Currently, Toyota has a Zacks Rank # 3.

3. Tesla Inc. TSLA plans to raise $1.5 billion by offering senior notes due 2025. The company intends to use the proceeds of these notes offering to support the production of its latest Model 3 sedan and other corporate objectives.

In the second quarter, Tesla made total cash investment of $1.16 billion for development of Model 3’s capacity and to amplify its battery output. Launched in Jul 2017, the price of the new sedan vehicle starts at $35,000.

The company aims at steadily speeding up Model 3 sedan’s production to 1,500 vehicles in third-quarter 2017 and achieving a run rate of 5,000 and 10,000 units per week in 2017 and 2018, respectively. Also, Tesla expects a positive gross margin in the fourth quarter and sets a target margin of 25% in 2018 from the newly launched model (read more: Tesla to Raise $1.5 Billion for Model 3 Production).

Currently, Tesla has a Zacks Rank # 3.

4. In a significant development, AutoZone, Inc. AZO has been awarded a contract as the provider for automotive parts and supplies by Region 4 Education Service Center, Houston, TX. This exclusive, multi-year contract testifies the strength of the Memphis, TN-based company’s automotive products, technology solutions, and team.

The contract is available through the National Intergovernmental Purchasing Alliance (National IPA), the cooperative purchasing organization. The agreement also empowers Elk Grove, CA-based ALLDATA LLC, a subsidiary of AutoZone, to provide its automotive diagnostic and repair solutions for purchase by the National IPA participants. Notably, there are 48,000 public agencies and educational institutions that are participants of National IPA. These participants include states and state agencies such as municipalities, townships and counties, public and private pre-K, primary and higher educational institutions and systems, special districts (e.g. fire, water, sewer, etc.) and charitable organizations. These agencies are allowed to purchase parts, supplies and products of AutoZone and ALLDATA products at a contracted price without furnishing a Request for Proposal (RFP). This eliminates the arduous and time-taking solicitation process (read more: AutoZone Chosen by Region 4 Center as Parts Provider).

Currently, AutoZone has a Zacks Rank # 4 (Sell).

5. Lear Corporation LEA has announced the inking of a new credit agreement. The Southfield, MI-based company has entered into an agreement to refinance its existing credit facilities. This move is expected to enhance the financial flexibility of Lear Corporation and position it well to take advantage of conducive market conditions.

Lear Corporation is a leading global supplier of automotive seating systems, electrical distribution systems and electronics. The new credit arrangements include $1.75 billion revolving credit facility and a $250 million term-loan facility. The company has taken these financial steps to extend the maturity date of its existing facilities. Both the revolving credit facility and the term-loan facility are now slated to mature on Aug 8, 2022. The new facilities also contain revised covenants, which will provide Lear Corporation with greater operating flexibility than its earlier credit facility (read more: Lear Corporation Refinances Existing Credit Facilities).

Currently, Lear Corporation has a Zacks Rank # 3.

Performance

Among these stocks, Tesla and General Motors recorded positive price movement in the last one week. Shares of Tesla increased 11.5% in the last week, whereas Advance Auto Parts, Inc. AAP registered the maximum decrease.

In the last six months, Tesla in the only stock stocks whose price has risen, while Advance Auto Parts registered the steepest decline.

CompanyLast WeekLast 6 Months
GM1.3%-0.6%
F-1.3%-13.0%
TSLA11.5%29.5%
TM-1.0%-0.9%
HMC-3.4%-13.3%
HOG0.0%-16.4%
AAP-4.6%-32.8%
AZO-1.8%-27.6%

What’s Next in the Auto Space?

The earnings season for the quarter ending on Jun 30, 2017 is still underway. One important auto company slated to report their earnings in the next few days include Advance Auto Parts.

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