Tesla Motors Inc (NASDAQ:TSLA) Hit The Brakes Before Buying it and these These 4 Companies
The heart of corporate America was once tied to the state of the American auto industry. With the success of international automakers and the downfall during the financial crisis, American autos had fallen by the wayside. However, the bounceback over the past year have some believing that the auto industry is poised to retake the top spot in corporate America. American auto sales reached a record high last year as weak oil prices drove demand for high margin trucks and SUVs. Expectations this year have been muted though. Household names like General Motors and Ford are expecting relatively flat revenue growth while they continue to turn a profit. Tesla Motors Inc (NASDAQ:TSLA) , on the other hand, is expecting robust revenue growth coupled with another quarter of unprofitability. If four wheels are too much for you, motorcycle manufacturer, Harley Davidson continues to be overlooked despite exceeding expectations in 2015. Despite how earnings have played out, shareholders have been punished for investing in American automotives.
General Motors (GM) Consumer Discretionary – Automobiles
Here’s a round up of hedge funds’ May returns
Tyro Absolute Return Fund was down 1.5% for May. The fund's main contributors in May were Super Micro Computer, which gained 1.6%, Shyft Group, which was up 1%, and GCI Liberty, which gained 1%. Detractors in May include Recro Pharma, which fell 2.6%, index shorts and hedges, which declined 2%, and DXC Technology, which was Read More
General Motors is the poster child of the Motor City and the American automotive industry. Its success and failure are largely tied to how the economy views the state of automakers. General Motors, along with Ford, has been at the forefront of the historic sales set in 2015. They continue to grow and gain retail share in the U.S. while outpacing the industry in international markets. Weak oil prices have helped move high margin, gas guzzling SUVs, trucks and luxury vehicles in the past year. More importantly, GM’s continued success is allowing them to invest in advanced technology and innovations to compete with Tesla. General Motor is also having its hand at the wildly popular ride sharing economy. Earlier this year the company invested $500 million into Lyft with the hope of launching a self driving car service in the near future. As oil prices pick up in the second half of the year, General Motors might see pressure on margins and sales. The Estimize community is still optimistic GM will deliver strong Q2 earnings. Analysts are calling for earnings per share of $1.51 on $39.11 billion in revenue, a 28% increase on the bottom line and 3% on the top. While earnings might look appealing, the stock is down double digits in the past 12 months with limited signs of improving.
Ford Motor Co. (F) Consumer Discretionary – Automobiles
Ford Motors is perhaps the most iconic automaker in American history. It was started by Henry on the premise that the assembly line could create an affordable car for consumers. The concept not only revolutionized the automobile industry but influenced significant changes in all of manufacturing. It hasn’t been smooth sailing for Ford, though, and after the bailout in 2008 it took the company nearly 7 years to bounce back. Last year was one of the best in recent history as Ford reported double digit bottom line gains and high single digit revenue growth in each quarter. Unfortunately its gains might be short lived. Amongst the American automakers, Ford has the biggest presence in the United Kingdom and will be hit the hardest from the Brexit. The stock is down 10% since the announcement and if forward guidance indicates this is a bigger problem share could tumble further. Ford along with Ebay and Xerox were amongst the most vulnerable companies to the Brexit decision. This quarter the Estimize consensus is calling for earnings per share of 62 cents on $36.81 billion , 26% higher on the bottom line and a 1% decline on the top. Ford stock, like GM, has struggled to make gains despite a recent surge in earnings.
Harley-Davidson (HOG) Consumer Discretionary – Automobiles
Motorcycles have always been a niche market, dominated by Harley-Davidson. Harley, like the automakers, has had its ups and downs in recent years as demand for its traditional cruisers suffer. A large motorcycle has simply not appealed to younger riders who prefer quick sports bikes. Still, Harley has consistently been able to turn positive top and bottom line growth. The company has been focused on new marketing initiatives and product innovations. In the first quarter Harley began shipping two new powerful cruisers which have crossover appeal to older and younger riders. In March, the company launched a new marketing campaign which debuted during the NCAA Basketball tournament. As the new initiatives take hold, earnings and sales will see more robust growth. The Estimize consensus is looking for Harley to report positive year over growth on both the top and bottom line. However, estimates have dropped in recent month, possibly reflecting a negative sentiment towards the motorcycle company.
Tesla (TSLA) Consumer Discretionary – Automobiles
Many are quick to call Tesla a technology company, but when it comes down to it, they make cars. The company has garnered a glut of media attention for the ideas of its CEO, Elon Musk, and the success of its vehicles. Model S vehicles have been successful in their short shelf life and with new products on the way, revenue has a lot of room to grow. In the next few years, consumers should start to see the Model X and 3 take the streets. The Model 3 is Tesla’s attempt at creating an inexpensive electric car that a larger demographic of people can afford. Pre-orders have already eclipsed 500,000 for the vehicle, causing Tesla to issue $2 billion in new shares to meet the production demand. Early indications are that the company is ahead of production goals for the second quarter. It’s important to note, however, that Tesla has failed to turn a profit. Each vehicle that has sped off the showroom floor has resulted in another loss for the company. Expectations suggest that they will continue to struggle to show a profit. As of now the Estimize consensus data is looking for more of the same from Tesla; a strong top line coupled with weak bottom line.