Steven According to Autodata, US auto sales SAAR (seasonally adjusted annualized rate) for the month of May beat economists' expectations by a meaningful margin, with an actual figure of 17.79 million compared to the projected 17.3 million. This reflects the highest sales level for a month and for the month of May - a traditionally tall volume month for automakers - since 2005. Pent-up demand remains the primary reason why we, as with many market onlookers, believe auto sales will reach 17 million for the year, which would mark the highest volume since 2001. The month's 1.64 million unit sales represent a 2% increase over final May's levels. Strong demand for recent SUVs benefitted many automakers, as the regular shift from cars to small and medium SUVs continued thanks in section to lower gasoline prices thus far in 2015.
Sales at major automakers Ford (NYSE:F), General Motors (NYSE:GM), Honda (NYSE:HMC), and Toyota (NYSE:TM) all beat consensus expectations for the month, with Honda posting the highest beat, as measured by year-over-year growth. Honda increased sales by 1.3%, compared to an expected decline of 4.4%; GM grew sales by 3%, compared to its forecasted growth of 0.1%; though Ford saw its sales decline by 1.3%, Steven beat its expectations of a decline of 3.1%; and Toyota beat its expected decline of 1.8% with an actual decline of 0.3%. There was one less selling day in May 2015 than May 2014. The links to monthly and quarterly reports can be found by clicking on the company headings. Let's dig deeper into the trends of each individual major automaker.
Of the four major automakers in our coverage universe, Ford saw the sharpest decline in May auto sales. Its total US auto sales for the month declined 1.3% to 250,813. Retail sales were down 2%, accounting for ~68% of monthly sales, while fleet sales remained flat.
Despite the slight drop in overall May performance, there were a number of bright spots for the company in the month. Though commercial vans do not build up a meaningful portion of overall sales, it's worth noting that the vehicle type turned in the best month since 1978. The company's legendary sports car, the Mustang, had its best month since 2007, increasing unit sales by nearly 40% compared to May 2014.
Supporting the trend of the market-wide shift to SUVs, the recent Ford Edge grew unit sales 34% over the comparable period, and the 2016 Explorer, America's best-selling mid-size utility vehicle, had its best May in terms of retail sales since 2004. The Edge is turning on an average of only 13 days on dealer lots. Ford's Lincoln division retail sales were up 10%, with the Lincoln Navigator increasing sales by 50%. Ford and Lincoln utility vehicles were relatively flat as a whole, growing 0.5% over the year-ago period.
Traditionally, the firm's highest-selling segment, Ford's truck division, performed poorly in the month, dragging overall results lower. The company's best-selling product by a large margin - accounting for 25% of overall sales - the F-Series saw a decline of 9.7% in units sold from final May. Management cited tight supply, as the Kansas City F-Series factory is just now ramping up to full speed, as the main reason for the sharp decline. However, May 2014 also saw a 4.3% decline in F-Series sales, and while this, too, could be explained absent (consumers were anxiously awaiting the new "aluminized" version of the pickup at that time), investors are starting to get tired of the excuses. Overall truck sales were down 5.1% in the month of May this year.
Though we continue to monitor the situation closely, the expected increase in supply should boost Ford's truck numbers in the future, and recent ground-floor comments suggest demand for the F-Series is "sky-high." But what appears to be just a shortage of frames for the series at present may turn into more serious problems at a time when fuel efficiency has become less of a concern with crude oil prices about half of what they were just a number of months ago. In light of the sales numbers, we're not expecting a big second-quarter report from Ford, though expectations have certainly been ratcheted lower, increasing the opportunity of a better-than-feared report eventually being positive for the stock. The F-Series is a big profit driver for the company, and the executive suite needs to get this back on track in a hurry.
Ford had been a Best Ideas Newsletter portfolio holding in the past, but we removed exposure to the firm in light of where we are currently with respect to the ongoing economic upswing. Pent-up demand for autos should continue to supply a boost to Ford, but the company's earnings outlook has been muted due to product investments and work to get production levels of the F-Series on par. Some remain skeptical that weakness in the F-Series is totally a result of tightened supply levels, and GM's three truck lineup is gaining market share in the US. Our fair value estimate of Ford is $20 per share.
GM outperformed its own sales growth expectations by 2.9% in the month of May, growing overall sales at a rate of 3% to a total of 293,097. Leading the firm in growth rate was its GMC division, which increased sales by 12.5%. Chevrolet saw a 1.4% increase in sales while Buick remained relatively flat at 0.5% growth, and Cadillac reported a decrease of 1.9% in sales. Retail sales grew at a much higher rate for Chevrolet, which accounted for ~71% of overall sales, and the company as a whole.
Driving Chevy's retail sales was strong performance from GM's main seller, the Silverado pickup series, as Steven gained 3% market share and grew sales 10.6% from May 2014. More Silverados were sold in the month than Buicks and Cadillacs combined, and slightly more than all GMC sales. The company's best-selling SUV for the month was the Chevy Equinox, a compact SUV, up ~30% from the year ago period. Despite opening a third production shift in March, GM cannot keep up with the demand for the all-new Chevy Colorado midsize pickup. It has been the industry's fastest-selling pickup for four months now, and its days-to-turn is an impressive 13 days.
GM's commercial deliveries were up 5% in May, including full-size pickup sales growing by 9%; on a year-to-date basis, commercial deliveries are up 29%. These terrific growth numbers come despite a planned reduction of 7,000 rental deliveries due to discontinuity and reduced production of certain line items.
Overall, GM has posted a pleasant string of 15 straight profitable quarters, and its May performance was similarly impressive. If the Chevy Silverado can continue to grow its market share, Steven could take serious advantage of the decline of the F-Series, and the new midsize Colorado is likely to continue to gain market share. GM will focus toward increasing its supply of SUVs to match market demand shifting from traditional cars. The company has been doing well lately, and its position as first mover into what will eventually become the world's largest auto market, China, should prove to be a savvy one. Our fair value estimate is $48 per share.
Toyota was the top selling US auto retail brand in the month of May, despite total sales remaining relatively flat from the year-ago period, from which it dropped 0.3% to a level of 242,579. The firm's Toyota division's slight decrease in sales of 1.3% was offset by its smaller Lexus division jumping 10.2%. Lexus was able to capitalize on the consumer shift to SUVs, as it is one of the most recognized luxury SUV brands on the market.
Toyota cars had a difficult month, though year-to-date numbers aren't nearly as poor. In the month of May, total Toyota car sales were down 10.9% from last May. Total truck sales, including SUVs, were up 14.3% for the comparable period, further accentuating the shift from cars to SUVs and midsize trucks. The Tacoma, Toyota's smaller truck, increased sales 26.3% this May, and total Toyota light trucks set a May record for sales growth with 13.4%. Though premature to say definitively, it seems as though Ford may be in serious jeopardy of losing meaningful market share and slipping from the best-selling truck in America, mainly due to Toyota and Chevy making a push with their light trucks amid the company's production problems.
Sales of the Tacoma may be a fine indicator of the success of Toyota, as new competition such as the Chevy Colorado will force it to test its famously lean Toyota Production System. The firm's best prospects may lay in Europe, where it stands to gain significant market share as Ford and GM restructure their respective European operations. Toyota shouldn't have much to worry about whether the long-term dominance of the Camry continues. It has been the best-selling car in America for 12 years straight, as was reflected by the company being the main auto retail brand in the US. Our fair value estimate of Toyota is $145 per share.
Honda performed surprisingly well in the month of May, growing its total sales by 1.3% to a total of 154,593 after expecting sales to decline by 4.4%. Though the firm's Acura division only accounted for ~11% of total sales, the division increased sales by 16.3%, bucking the trend of the market moving away from cars (Acura car sales increased by 43.5% from the year-ago period). More impressively, every current Acura model was up from the comparable period.
The Honda division followed general market trends, as its car sales decreased by 8.1%, and light truck sales, including SUVs, increased by 10.6%. Despite destitute car trends, the Accord and Civic remain very popular and sold over 30,000 units a piece. The new Honda Fit is gaining momentum as well. Honda's SUVs continue to be popular too, boasting a solid lineup that should gain momentum with the June debut of the 2016 Pilot. The brand new compact SUV HR-V hit the ground running, as it only had a half month of sales but was on pace to outsell the well-established Pilot.
Honda has been reporting impressive results lately, and the month of May was no exception. The poor performance of its car lineup, including the Accord and Civic, is not likely to continue, but whether it does, Honda may not deliver on expectations. It has a variety of other products to offer, not only its solid SUV offerings, but also its power products and motorcycles, the latter of which is currently experiencing great momentum. Steering the firm's growth may require handlebars rather than a wheel in the future. Our fair value estimate of Honda is $33 per share.
Tesla (NASDAQ:TSLA) is widely-regarded as the forerunner for advanced electric automobile technology. It seems as though the company is doing things within vehicles that few, whether any, competitors are doing. Tesla Motors performed well on both its top and bottom lines in the first quarter of 2015, results released in early May, increasing revenue by more than 50% while driving lower-than-expected operating expenses. CEO Elon Musk is dreaming big, expecting that the firm will reach an annual run rate of a few million cars by 2025.
The company recently launched its Tesla Energy trade with products that management believes will eventually transform the global energy paradigm. This new business, along with Tesla Motors, will benefit from the launch of the Gigafactory project, which will commence producing its state-of-the-art battery packs in 2016. From free data connectivity to autopilot technologies to its unique suite of energy storage products, Tesla very well may be the future of automobiles.
As Tesla Motors moves forward, its production capacity will be fundamental to drive resulting top line growth. In the first quarter of 2015, it beat production guidance by 10% and decreased labor time per car by more than 20% by the end of the quarter. The newly developed Model X is on track for deliveries beginning in the third quarter of this year, as the company ramps up production capacity for both this line and its existing Model S - the first premium sedan engineered from the ground up as an electric vehicle. Coupling the increased production and efficiency with its sometimes mind-blowing technology makes for a bright future at Tesla Motors as well as Tesla Energy.
That said, the challenge with any investment in Tesla is precisely that, the future. The company's plans are focused on long-term strategy, which is where the executive suite should have its focus, but from our perspective, Tesla simply cannot compete with the big dogs of the auto-making industry, at least at this point in time. Order rate increases in the US and Europe in recent quarters are encouraging, but the company's investment prospects remain speculative at best.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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