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F, GM, FCAU, TSLA, RACE: Automakers Tanking in Q3?

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Automakers are seeing mixed performance figures in the current quarter. Since July 1, Ford (F) and Ferrari (RACE) have seen their stocks fall. However, General Motors (GM), Fiat Chrysler Automobiles (FCAU), and Tesla’s (TSLA) stocks have risen.

Although automakers’ stocks posted mixed performance in July, they slumped in August. So far in September, they have been recovering. The slide in automakers’ stocks earlier in the quarter resulted from their second-quarter earnings, declining equity markets, and rising geopolitical risks.

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In the third quarter so far, General Motors, Fiat, and Tesla’s stocks have risen 2.7%, 1.7%, and 3.7%, respectively. However, Ford and Ferrari have fallen 6.7% and 0.4%, respectively. Ford stock has fallen the most among its peers. The company is facing heat from multiple fronts, including the trade war, recession fears, the California fuel economy deal, and earnings. We’ll discuss these factors below.

Escalating trade war impacted automakers

In the third quarter, the trade war between the US and China intensified as both countries levied tariffs and counter-tariffs. Plus, China is planning to resume duties on US auto parts and components. As a result, President Donald Trump urged US companies to look for an alternative to China. These developments impacted auto stocks, as automakers have significant operations in China and plan to expand their foothold in the Chinese markets.

Ford is in the midst of its restructuring plan in the country, called Ford China 2.0. Ford aims to become profitable in China, and it’s planning to launch a series of models in the region. Similarly, General Motors plans to launch new models in China in Q3 and Q4.

Tesla is on track for the production of Model 3 from its Chinese plant at the end of the year. To learn more, please read Ford, GM, Tesla Slump as US-China Trade War Escalates.

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Automakers face Trump’s heat

Trump also plans to launch an antitrust probe against four automakers—Ford, Honda, BMW, and Volkswagen—that have voluntarily agreed to California’s fuel economy standards. Trump had also tweeted an attack on Ford after it agreed to cooperate with California. To learn more, please read Ford Earns Trump’s Ire by Siding with California.

Trump also recently met with GM CEO Mary Barra to discuss a variety of issues, including fuel standards.

Recession fears impacted auto industry stocks

In the quarter, the bond market yield curve inverted, which is usually an indicator of an economic recession. Morgan Stanley previously hinted of a downturn on an inversion of the yield curve, and Barclays declared an industrial recession.

Because Ford has high exposure to the American market, a recession could impact the company’s sales in the region. North American markets contributed $24.0 billion to Ford’s automotive revenues of $35.8 billion in the second quarter.

Similarly, General Motors earns most of its revenues from its American region. In the second quarter, North America added $28 billion to its $36 billion in sales.

Please read How Could a Recession Affect the US Auto Industry for more details.

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Latest earnings affected stocks

Automakers posted mixed performance in their latest earnings. While Ford, Tesla, and Fiat missed Wall Street analysts’ earnings estimates, General Motors and Ferrari surpassed their estimates.

Ford stock slumped after its EPS of $0.28 fell short of analysts’ estimate of $0.31. Similarly, Tesla stock plunged after it reported a higher-than-expected adjusted loss. However, Fiat stock surged despite an earnings miss. Fiat’s EPS of 0.59 euros stood lower than analysts’ estimate of 0.61 euros.

Further, General Motors stock rose after its EPS of $1.64 exceeded analysts’ estimate of $1.44. Ferrari’s EPS of 0.96 euros surpassed its estimate of 0.93 euros. However, Ferrari stock fell, as the company didn’t raise its full-year guidance. To learn more about Ferrari’s outlook, read Has Ferrari Stock Become Recession Proof in 2019?

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