Auto Roundup: GM’s $918M Investment, STLA-Terrafame Deal & More – January 23, 2023

Auto Roundup: GM’s $918M Investment, STLA-Terrafame Deal & More – January 23, 2023

Last week, the European Automobile Manufacturers Association (“ACEA”) released data on passenger car registrations for December 2022. The European Union (“EU”) passenger vehicle market soared 12.8% last month to 896,967 units, marking the fifth straight month of growth. Registrations in Italy and Germany witnessed a year-over-year rise of 21% and 38.1%, respectively. Meanwhile, Spain and France saw registrations decline 14.1% and 0.1%, respectively. For full-year 2022, new car registrations contracted 4.6% to 9,255,930 units, owing to supply chain snarls and chip concerns. During the first 12 months, three of the major EU markets witnessed a decline in registrations, including Italy (9.7%), France (7.8%), Spain (5.4%); while Germany’s sales rose 1.1% year over year.

On the news front, General Motors (GM Free Report) intends to invest around $1 billion for the production of its next-gen V-8 engines as well as certain components for its electric vehicles (EVs). In a telling sign that gas-powered vehicles are here for the foreseeable future, the bulk of the investment is directed toward the production of V-8 engines. Having said that, GM remains committed to fully electrify its portfolio by 2035. But until the EV technology is completely perfected, the legacy automaker is balancing its existing line up of ICE vehicles and emerging EVs.

Stellantis (STLA Free Report) inked a deal with Terrafame Ltd. in a bid to boost its global value chain for EV production in sync with its Dare Forward 2030 targets. Japan’s auto biggie Toyota (TM Free Report) notified its production target for February. Allison Transmission (ALSN Free Report) joined forces with Larson and Turbo to provide its transmission propulsion solution to The Indian Army’s new Futuristic Infantry Combat Vehicle. Lastly, China’s EV maker NIO Inc. (NIO Free Report) and one of the leading battery manufacturers in the world Contemporary Amperex Technology Co Ltd. (“CATL”) deepened their partnership to develop a battery supply system that is more efficient and capable.

While STLA sports a Zacks Rank #1 (Strong Buy), TM and ALSN carry a Zacks Rank #3 (Hold); while GM and NIO are #4 Ranked (Sell) currently.

You can see the complete list of today’s Zacks Rank #1 stocks here.

Last Week’s Top Stories

General Motors announced an investment of $918 million in four of its facilities in the United States. The investment will aid in the production of the company’s sixth-generation V-8 engine. The latest outlay brings the total investment of General Motors to more than $37 billion since 2013. Investment in Flint, Bay City, Defiance and Rochester facilities to build V-8 engine is aimed at strengthening GM’s portfolio of pickups and SUVs as well as supporting its electrification strides. Here are the details of the investment.

General Motors will invest $579 million at the Flint plant in Michigan for assembling small-block V-8 gas engines used in some of the most profitable offerings of the company. Around $216 million will go to the Bay City plant in Michigan for the production of camshafts, connecting rods and other components supporting next-gen V-8 engine production. Then, another $55 million will be allocated for casting developments for both ICE and EVs at the Defiance factory in Ohio. Finally, $68 million will be invested in the Rochester plant in New York for developing battery pack cooling lines for EV production and building intake manifolds and fuel rails V-8 engines. 

Stellantis signed an agreement with Terrafame, per which the latter will supply the auto giant with nickel sulphate to be used in EV batteries. Terrafame is to supply nickel sulphate to Stellantis beginning from 2025 for five years. Based in Finland, Terrafame operates a leading battery chemicals plant for EV batteries. Its production technology is such that the amount of carbon footprint emitted by Terrafame’s nickel sulphate production is among the lowest in the industry.

Stellantis’ CEO Tavares said, “This agreement is part of the key battery material sourcing to fit with our electrified vehicle battery pack needs.” Stellantis targets to become carbon net zero by 2038. Per its Dare Forward 2030 plan, Stellantis aims for 100% of its passenger car sales in Europe to be electric by 2030. It targets 50% of its passenger car sales in the United States to be battery-powered by 2030. To meet its goals, it intends to spend €30 billion through 2025 in electrification and software development.

Toyota announced plans to manufacture around 750,000 vehicles in February, including 300,000 units in Japan and 450,000 units overseas. Despite continued supply chain snarls, February production targets indicate an increase from 700,000 units planned for January. In fact, the company’s production target of 10.6 million vehicles during 2023 suggests an increase from pre-pandemic levels as well. Notably, Toyota manufactured 9.05 million vehicles in 2019.

While Toyota expects output recovery in 2023, it also warns that the final shipments could be 10% lower if chip crunch and supply chain problems persist. While the firm’s production challenges owing to chip deficit have been ebbing, supply shortage is still a challenge that Toyota needs to overcome, especially in its domestic market. In fact, owing to semiconductor shortage, the auto biggie limited orders for nine models under its Lexus division. Lexus dealers are also experiencing long wait times for vehicles in Japan.

Allison Transmission has collaborated with Larsen and Toubro (L&T) to provide its 3040 MX TM propulsion solution for the Indian Army’s Futuristic Infantry Combat Vehicle (FICV) prototype. Allison and L&T have partnered on select wheeled and tracked vehicles in the past and are building on the partnership for one of India’s premier modernization programs. Allison will manage engineering design, development and demonstration of the 3040 MX for the FICV prototype vehicles through 2024.

The Indian Army’s new FICV includes Allison’s 3040 MX propulsion solution. The U.S. Army’s newest tank, the Mobile Protected Firepower Light Tank, is equipped with Allison’s 3040 MX propulsion solution.Allison’s 3040 MX is based on X300 propulsion solution and boasts advanced electronic system controls for better performance and additional functionality. Vice President for Allison’s Defense Programs, Dana Pittard, said, “The FICV is one of several programs that will continue to support Allison’s international defense business over the next several decades and represents our commitment to the Indian defense sector.”

NIO signed a five-year strategic cooperation agreement with CATL to step up battery innovation and EV adoption. The two companies will leverage their respective strengths to create a more advanced and efficient battery supply system, leading to a more satisfying experience for EV drivers. The agreement seeks to strengthen the companies’ existing ties in order to improve battery supply chains, expand to new markets and advance technological cooperation in new brands and projects.

Neither of the companies has shared any additional details of their agreement now. While CATL is currently focused on the expansion of its battery production outside China, NIO also looks to expand EV sales and deliveries to new markets. Late last month, NIO slashed its fourth-quarter 2022 delivery outlook taking into account supply chain snarls amid the resurgence of COVID in China. Early this month, NIO announced its fourth-quarter delivery updates. NIO delivered 40,052 vehicles in the fourth quarter of 2022, up 60% year over year. In fact, this marked record-high quarterly deliveries but missed the company’s initial delivery expectations of 43,000-48,000 vehicles.

Price Performance

The following table shows the price movement of some of the major auto players over the last week and six-month period.

Zacks Investment Research
Image Source: Zacks Investment Research

What’s Next in the Auto Space?

Industry watchers will keep a tab on December commercial vehicle registrations to be released by the ACEA soon. Also, fourth-quarter 2022 earnings of the auto sector are slated to kick off this week. 

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