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Car stocks roundup: Strong China demand fuels Q3 recovery

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  • European car makers BMW and Ferrari have witnessed strong demand for luxury vehicles in Q3
  • Fiat Chrysler and PSA are set to get the green light from the EU for their $38 billion merger
  • Japanese car makers Honda and Toyota recorded robust demand in the third quarter

Strong demand for new vehicles in China has facilitated a faster-than-expected recovery in the car market. Nearly all major carmakers topped analysts’ expectations for the third quarter to facilitate a great buying interest. 

Robust demand for luxury vehicles helps BMW 

BMW (ETR: BMW) saw its profit rise by 10% in the third quarter on a stronger-than-expected demand in China. The German giant saw its quarterly profit before taxes rise by 9.6% to 2.46 billion euros.

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“After a more stable phase in the economic environment in the third quarter, the pandemic is now clearly regaining momentum,” BMW said.

“If the pandemic takes an even more serious course and the global economy experiences a perceptible downturn, the risk exposure could be considerable, particularly on the demand side.”

EBIT margin jumped to 6.7%, from -10.4% in the previous quarter and 6.6% last year. Strong numbers came as a result of higher deliveries, which rose by 9.8% in the quarter.

BMW share price closed the week 8.35% higher to erase last week’s losses. 

Shares of Ferrari erupt higher 

Ferrari (BMV: RACE) share price rallied over 14% to record the best week in a few years. The maker of luxury vehicles upgraded its adjusted core earnings to 1.125 billion euros in 2020, slightly higher than the previous guidance range of 1.075-1.125 billion euros.

“Solid proof that we are now running on all cylinders. We’ll enter 2021 with a very strong order book, we should have a pretty strong year,” Louis Camilleri, the CEO of Ferrari said.

Ferrari saw its shipments fall by 6.5% in the third quarter, although deliveries of F8 Spider and the 812 GTS rallied. Read here on how to choose winning stocks.

PSA and FCA to win EU approval

Similar to Ferrari and BMW, shares of PSA Group (EPA: UG) rallied nearly 7% higher after the owner of Peugeot, Citroen and Opel brands posted revenue of €15.45 billion million in the third quarter, slightly lower than €15.58 from a year ago. 

The French carmaker shipped 589,000 vehicles globally as total inventories now stand at 428,000 vehicles as of the end of September.

PSA Group forecasts a decline of 25% in car sales for Europe, a 30% drop in Latin America, as well as 20% and 10% in Russia and China, respectively. The automaker said it will continue to prioritize profitability and cash generation.

Reuters reported two weeks ago Fiat Chrysler (NYSE: FCAU) and PSA are set to get the green light from the EU for their $38 billion merger. 

Similar to its partner PSA, Fiat Chrysler returned to profitability on the high demand for pickup trucks and Jeeps. As a result, the company reinstated its profit guidance for the full-year period, subject to limited impact from the second wave of the pandemic.

Available liquidity is reported at 27.1 billion euros as factories are now operating close to pre-pandemic.

Shares of FCA soared 8.54% to print the highest levels recorded in eight months. 

Toyota’s full-year guidance nearly doubled

Toyota Motor Co (T: 7203) reported an operating profit of 506 billion yen ($4.9 billion) from 662.4 billion ($6.4 billion) from last year. The company substantially hiked its outlook for full-year operating earnings.

“If you compare the second quarter to the first you can see a dramatic recovery,” CEO Kenta Kon said.

Toyota now expects a full-year operating profit of 1.3 trillion yen for the fiscal year ending March 2021, much higher than the previous forecast of 500 billion yen, but still significantly lower than the last-year’s profit of 2.47 trillion yen. Analysts expected guidance of 1.25 trillion yen.

“Investors are looking at how Toyota is faring overseas and given the yen’s appreciation (versus the dollar) and a resurgence of the coronavirus, we have to consider the (profit forecast) revision cautiously,” said Kazuo Kamiya from Nomura Securities. 

Honda echoes Toyota’s results

In a similar manner to its Japanese rival Toyota, Honda Motor Co (T: 7267) hiked the full-year operating profit of 420 billion yen ($4.05 billion), which is more than double of 200 billion yen communicated earlier. Surveyed analysts projected 254.6 billion yen profit guidance. 

Honda witnessed its operating profit rise to 283 billion yen, which is also higher than 220 billion yen a year ago. Due to strong demand in China, Honda now expects to ship 4.6 million cars compared to 4.5 million announced earlier. Last year, Honda shipped 4.79 million cars.

Honda share price gained 6.34% to return to trade above 2500. 

Suzuki suffers from weak sales in India

Unlike its main competitors, Suzuki Motor Corp (T: 7269) said it expects its operating profit to fall by around 25% to 160 billion yen ($1.54 billion) for the full-year to end-March 2021.

For the quarter ending September 30, Suzuki posted an operating profit of 73.6 billion yen to beat 55.9 billion yen reported in 2019. As for the shipment forecast of 2.38 million cars, this is 16.6% lower than a year ago. 

Suzuki said it suffered in the past quarter as its sales in India plunged by 36% to 432,000 vehicles, while markets in Japan, Indonesia and Europe also didn’t do very well.

“We don’t know what will happen with the coronavirus in India or what measures the government will implement, so that makes the market difficult to predict,” said Toshihiro Suzuki, the President of Suzuki.

Still, Suzuki stock price rallied nearly 12% to trade above 5000 for the first time since February. 

Summary

Both European and Japanese carmakers returned to profitability and most of them upgraded their full-year profitability guidance after witnessing a strong surge in demand in China.