Copyright © Daniel Cullinane CPA.
Car sales fell 16% in January, down to 2.37 million according to the China Association of Automobile Manufacturers (CAAM). China is the world’s largest car market after it passed the U.S. a decade ago. Sales in the country are absolutely essential to the financial strength of some of the world’s largest car companies.
Among the companies most at risk are VW and General Motors Company (NYSE: GM) VW is the market share leader in China at 16%, followed by GM at 14%. No other foreign manufacturers have numbers anywhere close to these. However, China has become the market on which almost every big manufacturer has bet much of its future fortunes.
China’s car sales have become more important as U.S.industry sales have flattened. Last year, car sales in the U.S. were 17.1 million. Few industry observers believe that 2019 will match that number. Most believe American sales will drop over the next two or three years.
America’s two largest car companies have already drawn investor skepticism. Over the last year, GM’s stock is down 4%. Shares in Ford Motor Company (NYSE: F) are off 20% during the same period.
Whatever hope that China sales would improve in 2019 has been mostly dashed by its slowing economy and the threat that a trade war with the U.S. will harm industrial output and consumer spending. China’s middle-class numbers 400 million people, well above the total U.S population of 323 million.
Whatever hope car companies had that 2019 would be a strong year can leave those hope behind now that China has posted its January figure
The European Automobile Manufacturers Association (ACEA) on Friday reported new vehicle registration totals in the European Union (EU) for the month of January. Sales declined by 4.6% year over year in the month. Registrations (sales) fell for the fifth consecutive month.
Despite the year-over-year slump, EU sales of 1.2 million units in January was the second-highest total on record for the month. Sales fell in all five of the EU’s five major markets: Spain by 8%, Italy by 7.5%, the United Kingdom by 1.6%, Germany by 1.4% and France by 1.1%.
Of the Detroit Three, Fiat Chrysler Automobiles N.V. (NYSE: FCAU) saw its January market share in the EU dip from 6.7% in 2018 to 6.0%. Unit sales totaled 71,310, down by 14.9% year over year. Sales of the Fiat brand fell by 19.6%, while Jeep sales dropped by 1.9%.
Ford Motor Co. (NYSE: F) sold 77,222 units in January, a year-over-year decline of 6.5% for the month. The company’s January market share rang in at 6.5%, down from 6.6% a year ago.
General Motors Co. (NYSE: GM) left the European auto market in 2017 but announced this morning that it would be selling electric bicycles in three EU countries with deliveries beginning next quarter.
The top-selling maker in the EU is Volkswagen, which sold 288,266 vehicles in January, down 6.5% year over year for the month. VW’s market share for the month totaled 24.1%, down from 24.6% in January 2018.
PSA Group, makers of Peugeot, Citroen and other brands, posted a January sales decline of 1.9% to 204,199 units. The company’s market share increased from 16.6% to 17.1% for the month.
Renault Group posted a volume decline of 0.7% to 115,794 units in January, and its year-over-year share increased from 9.3% to 9.7%.
BMW Group’s market share ticked up year over year from 5.8% to 5.9% in January. The company sold 70,942 units last month, down by 2.7% compared with year-ago January sales of 72,883.
Daimler posted a market share increase last month, rising from 5.8% in January 2018 to 6.0%, with sales totaling 71,152 units. On a volume basis, sales slipped by 1.3% year over year.
Toyota Motor Corp. (NYSE: TM) posted market share of 5.3% in January, down by 0.1 percentage points compared with a year ago. Sales volume dropped by 5.4% to 63,584 units.
For the month of January, Germany was the volume leader with more than 265,000 units sold, down 1.4% year over year for the month. France posted January sales of just over 155,000, down 1.1% for the month. In the United Kingdom, monthly sales dropped by 1.6% to 161,000 units. Italy saw unit sales tumble by 7.5% in January to just under 165,000.
EUROPE CAR SALES
Just as the fortunes of rival Airbus are shaken by the end of the most ambitious airplane program in its history, Boeing Co. (NYSE: BA) has made an unprecedented run at the record books of its own. Boeing shares are up 30% in less than a month and a half, pacing well ahead of the other components of the Dow (DJIA) and the average which is up just 11%.
Airbus believed it could build and successfully market a new generation of what the Boeing 747 was–a jumbo jet at the center of the long haul commercial air fleet for five decades. Cancellation of the A380 by Airbus killed the future of a plane that held as many as 500 seats. Airlines found that smaller more fuel-efficient planes made them more money. Boeing has its competition at the jumbo end of the market
Boeing had to do more than fight its way through the competition to post a strong rally. Investors have worried that a trade war with China would cut Boeing sales there. China is well along the path that leads to being the world’s largest commercial airplane market. The Chinese have not attacked the American airplane industry as a pawn in the trade game, so Boeing may be safe
Boeing continues to top Airbus in deliveries. According to earlier 24/7 Wall St. reporting, “Boeing delivered 906 commercial aircraft in 2018. Airbus delivered 763. Just as important, Boeing’s net orders were 894 commercial aircraft to Airbus’s 747.” The future may be even better. 24/7 reported, “The company’s widely followed 20-year forecast of global commercial airplanes shows that 42,730 new jets will be needed over the period. The value of these will be $6.3 trillion.”
Boeing’s strength in the defense industry puts another leg on its business stool to balance commercial aviation. 24/7 reporters recently wrote “Boeing’s other large business, which builds jets, helicopters and missiles, has thrived due to the increase in defense spending both in the United States and overseas. Boeing’s Defence, Space and Security revenue rose 13% to $5.7 billion in the third quarter of 2018 over the same period a year ago.”
Finally, there is the strength of Boeing’s numbers. According to 24/7: Boeing’s entire revenue for the period was $25.1 billion, up 4%. Boeing also bumped guidance higher, posting:
The company’s revenue guidance increased $1.0 billion to between $98.0 and $100.0 billion, driven by defense volume and services growth, inclusive of the KLX acquisition.
FEBRUARY NEWSLETTER 7
After years of growth, smartphone sales have started to slow worldwide. This means production will drop sharply in the first quarter of 2019, bad news for several companies, in particularly Apple Inc. (NASDAQ: AAPL).
Research firm TrendForce expects production in the first quarter to fall 10% to 307 million units. Part of the reason is that global sales in the fourth quarter of 2018 were slow and manufacturers have excess inventory. Several brands will continue to dominate the market worldwide as they jockey for market share based mostly on new features and prices.
TrendForce management said:
The latest first-quarter production figures from the major smartphone makers indicate that the top six brands by production volume for 1Q19, in order, will be Samsung, Huawei, Apple, Xiaomi, OPPO, and Vivo. The leader Samsung has begun adjusting its product strategy since 2H18 in order to challenge the Chinese brands head on in the market segment for economically priced but high-spec devices. For now, the Galaxy J devices still account for nearly 50% of Samsung’s total smartphone production. They will continue to be the pillar that maintains the overall production level in the near future. TrendForce forecasts that Samsung’s total volume for 1Q19 will reach 70 million units.
In terms of global market share, Samsung is expected to be the clear leader. TrendForce forecasts Samsung will increase the production of the Galaxy A phones to gradually shift the Galaxy J devices as the brand’s mainstream offerings. It is also expected to be more aggressive in the huge India market with sales of its Galaxy M. The new mix of products is meant to hold off market share growth by the largest Chinese manufacturers. Samsung’s market share in the first quarter is still expected to fall to 18.6% to from 22.8% in the fourth quarter.
Apple’s share is expected to crater, from 18.3% in the fourth quarter to 13.5% in the current quarter. Apple has announced a decline in expected sales. This is based largely on problems in China. However, Apple has struggled in India as well.
The manufacturers that are expected to do the best in the first quarter are the four largest in China, although some will suffer modest losses of market share. Huawei will take Apple’s place as the number two smartphone company based on global market share, but that share will drop slightly from 15.8% in the fourth quarter to 15.0%. Huawei may hit sales problems in many established markets has the United States goes after the company for intellectual property theft.
Among the other Chinese manufacturers, Xiaoma’s share is expected to move from 7.9% of the global market to 8.5% in the first quarter. Like the other large Chinese companies, most of its sales are in its home market. Production market share for Oppo is expected to drop very slightly from 7.6% to 7.4%. Vivo’s share should be 6.4% in the current quarter, up from 6.3% in the final quarter of last year.
Finally, TrendForce noted that these brand leaders:
… will continue to pursue hardware optimization in the immediate term, mainly focusing on these four main areas: display (i.e. high-resolution displays and all-screen design), camera (i.e. high-resolution multi-lens cameras and in-display cameras), biometric recognition (i.e. in-display fingerprint sensors), and memory (i.e. high-density solutions).
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Apple Inc. (NASDAQ: AAPL) is scheduled to release its fiscal first-quarter financial results after the markets close on Tuesday. Thomson Reuters consensus estimates call for $4.17 in earnings per share (EPS) and $84.0 billion in revenue. The same period of last year reportedly had $3.89 in EPS and $88.29 billion in revenue.
The company had been touted by analysts as having weak iPhone sales before the holidays, but after the first trading day of 2019, Tim Cook dropped the bomb in a rare warning signaling that things were even worse than analysts had forecast. Instead of only seeing firms cutting price targets and maintaining Buy ratings, there were actual downgrades this time around.
While Apple’s woes look tied to iPhone worries and China growth slowing, the reality is that the Apple ecosystem of technology suppliers has in many cases been feeling the heat as well. If Wall Street is only willing to value Apple at roughly 13 times expected 2019 earnings, that is not a ringing endorsement for the technology sector as a whole, considering that Apple had been the first company to ever reach the $1 trillion valuation mark, before sliding in 2018.
Overall, Apple has underperformed the broad markets, with its stock down about 1% year to date. In the past 52 weeks, the stock is down closer to 9%.
A few analysts weighed in on Apple ahead of the results:
RBC has a Buy rating with a $185 price target.
UBS Group has a Buy rating and a $180 price target.
Rosenblatt Securities has a Hold rating with a $165 target.
DA Davidson has a Buy rating with a $245 price target.
Canaccord Genuity has a Buy rating.
JPMorgan has a Buy rating and a $228 price target.
HSBC has a Hold rating with a $160 price target.
Shares of Apple were last seen trading at $155.75, in a 52-week range of $142.00 to $233.47. The consensus analyst price target is $178.14.
Daniel Cullinane CPA
25 Plaza 5 25th fl Jersey City NJ phone 732-516-1648 fax 732-516-9778
2500 Plaza 5 25th fl Jersey City NJ 07311 phone 732-516-1648 fax 732-516-9778