Industry Insights: The Evolution of the Automotive Industry – Current Events, Auto Stocks & An Emerging Sector.
Start your engines as we take a look at the automotive industry and recap some recent earnings, auto stocks, current events, and the emerging EV sector.
Automotive Retailers Experience Bumps in the Road
On Tuesday, the automotive parts and accessories retailer, Autozone (AZO) announced its Q4 earnings which beat EPS estimates (EPS $46.46 vs FactSet $45.17) and Revenues (Revenue $5.69B vs FactSet $5.61B) for the quarter. However, investors seemed to care more about the lower-than-expected commercial domestic growth (Domestic Comps 1.7% vs FactSet 2.4%) the company reported. On its earnings call, management expressed its dissatisfaction with performance related to current commercial growth however, continued to reaffirm their goal of double-digit growth in commercial, with plans to improve it. Additionally, AZO cited challenges in the Midwest and Northeast (specifically, in undercar categories), growth potential in Mexico and Brazil, and plans to improve store growth even with higher construction costs and interest rates. As of close on Tuesday the stock was down ~2%.
Last week, Advance Auto Parts (AAP) credit rating was adjusted by S&P Global Ratings down a level from BBB- to BB+, pushing it into junk status. “Advance Auto’s sales have remained mostly stagnant over the preceding 18 months. Consequently, the company has lost some of its market share and has seen a weakening in its competitive position”, S&P Global noted. The company disappointed on its Q2 earnings in August and appointed new CEO, Shane O’Kelly who took the reins on September 11th. The company is down ~60% YTD.
Heading into Day Five: United Autoworkers Union Ready to “Revv” Up Strike Efforts
The United Autoworkers Strike is now into its 5th day as UAW President Fain threatens to target more factories if “serious progress” has not been made by Friday at noon. The UAW who is going up against Detroit’s Big Three, Ford Motor Company (F), General Motors Company (GM) and Stellantis N.V. (STLA) is asking for a 36% pay increase over a 4-year contract. However, the two parties remain far apart on an agreement. STLA offered a 21% increase over four years, with an immediate 10% bump when a new contract is signed, which the UAW rejected. Cost of living adjustments from automakers stopped in 2008, after Chrysler and GM declared bankruptcy. Adjusting for inflation, autoworkers have seen their average wages fall by ~19.3%, since 2008, according to senior economist Adam Hersch of the Economic Policy Institute. Further north, Canadian autoworkers have extended negotiations with Ford which has delayed a possible strike. How this will impact business performance for Detroit’s Big Three remains to be seen. One thing is for certain, the longer the strike the more impact it will have on the automakers’ bottom lines and overall, will slow economic growth.
Emerging Electric Vehicles Stay in the Left Lane
One segment of the automotive industry that is not experiencing reverberations is the electric vehicle companies as manufacturing shifts from IC engines to EV batteries. The most well known in the industry, Telsa (TSLA) is up ~146% YTD as Elon looks to build his next Gigafactory in possibly Canada, Mexico, India or China. The microcap manufacturer of heavy-duty commercial battery-electric vehicles, Nikola Corporation (NKLA) experienced a three-day run as CEO Stephen Girsky addressed investor concerns with the company last week and announced that they should be delivering their hydrogen-fuel-cell electric trucks in late September and early October. Along with expansion of dealer sales into Canada in a partnership with ITD Industries, Nikola Corp appointed Mary Chan as their new COO. The company has traded up ~75% over the past five days from $0.80 to ~$1.53. NKLA is featured in the Prism MarketView Emerging EV Index.
It is an interesting time for the automotives industry as the shift to electric becomes more prominent and the space continues to evolve. Additionally, telling will be the negotiations that are reached for Detroit’s Big Three, as well as, how auto parts retailers adapt to these changing times.