After reading tons of posts on Tesla Motors (TSLA), and tracking its 300%-plus growth ride since last six months, it seems irresistible to talk about auto stocks and not mention Tesla. But the bigger question for now is whether this growth ride will continue?
Fusion Research believes that TSLA's current valuation is more than just a secular growth story. No doubt that it is a great company, and its achievements are well listed and known. However, TSLA in the current scenario can be the next bubble to burst. We recommend investors avoid any new positions in this stock, and those who are holding the stock to sell and enjoy the profits.
What can be the other option?
According to Polk automotive information and marketing solutions, car sales in the U.S. are expected to grow 6.6% this year to approximately 15.3 million cars, and further, could reach 15.8 million cars by 2014. Automakers in the U.S. plan to launch 43 new cars, SUVs, and pickup trucks while redesigning 60 others in the next two years. This also indicates that new car buyers will have options like never before, and there will be tough competition among automakers.
General Motors (GM) is one such company trying to grab the biggest piece of this growing pie with plans to drive ahead of the highly competitive market. Will its strategies and growth prospects be enough to lead it to grab the biggest piece of the pie?
New launch will bring additional revenue
General Motors launched the all-new 2014 Chevrolet Silverado 1500 in July this year. The 2014 Silverado 1500 is the latest model of the General Motors' Silverado and is the company's best selling vehicle in the U.S. The 2014 model has the new EcoTec3 engine, which offers the best fuel economy of any pickup in its class and also increases the loading and towing capabilities. The year-to-date rise in sales of Silverado's earlier models is up 24% from total sales in 2012, reaching 242,586 pickups. The reason behind this upsurge is the recovery of the housing market in the U.S. February construction beginning on new homes rose around 28% year-over-year to an annual rate of 917,000 houses based on improved construction spending. An improving housing market boosts the demand for pickup trucks from homebuilders, since trucks are widely used for the transport of home building tools and equipment.
Looking at this improvement in the housing market, General Motors plans to invest heavily in its marketing strategies compared to the $350 million it spent on Silverado's marketing campaign last year. The new model will have a starting price of $32,710, and the company expects it will increase Silverado sales compared to its sales in 2012.
On the other hand, this fall Ford Motor (F) will launch the CNG model of its F-150 pickup truck in the U.S. This model comes with dual-fuel CNG/liquid gas options for buyers. This option equips the truck to run on both liquefied petroleum gasoline and compressed natural gas through separate fueling systems. Ford is launching this model to take advantage of the increasing pickup truck sales in the U.S., and it will give buyers the option to save on fuel costs since CNG is cheaper. It is the bestselling pickup truck in the U.S. market and holds the number one position in terms of both popularity and sales. Ford sold 367,000 F-series trucks in the first half of this year and it expects to observe an increase in sales of the F series pickup trucks.
Price cut might increase sales
General Motors will launch the 2014 Chevrolet Volt hybrid in the U.S. market by the end of August 2013. The 2014 Volt will provide buyers with an impressive fuel economy of 98 miles per gallon equivalent, or MPGe (electric) on battery power. Talking about its mileage on gasoline, it comes out to be 35 miles in the city and 40 miles on the highway. This amounts to savings of approximately $900 in annual fuel cost when compared to gasoline cost. This new model will come with a 1 liter three-cylinder engine, which is made entirely from aluminum and is 20% more fuel efficient than engines in the earlier models. Also with a drained battery, the new model boasts around 43 miles compared to 35 miles in the 2013 variant.
Toyota Motors' (TM) hybrid Prius is the Volt's biggest competitor. Prius is currently the bestselling hybrid car in the U.S. Toyota made 143,508 U.S. Prius deliveries through the end of July, and it has a starting price of $32,810. Currently in its third generation, the Toyota Prius gets an Environmental Protection Agency, or EPA, rated 51 miles per gallon in the city and 48 mpg on the highway. Toyota has also added three models to the Prius family, including a plug-in hybrid variant, last year. The Prius Plug-in variant comes with ''recharge-at-home'' capability and a lithium-ion battery pack that offers higher capacity and improved efficiency. The company plans to sell 250,000 Priuses in the U.S. this year, which will be a 5.6% increase over 2012.
To compete with the Prius, General Motors recently announced that it will reduce the price of the 2014 Chevrolet Volt by $5,000 compared to the 2013 model. Prices for the 2014 model will start at $34,995 compared to its previous model's starting price of $39,995. The company is targeting to sell 500,000 cars by 2017, with the Volt as its flagship car to help it achieve this target. The company is anticipating that it will boost the revenue from its cars segment to $31.7 billion and $33 billion in the fiscal years 2013 and 2014, respectively, from $30.8 billion in the previous fiscal year.
With new launches in both its pickup trucks and hybrid segments, General Motors has an excellent opportunity to secure revenue growth in the years to come. The 2014 Chevrolet Silverado could help the company take the number one spot from Ford in the pickup truck segment. The Volt might also prove to be tough competition for the bestselling Prius. These developments will eventually have positive effects on its balance sheet and stock price movement. The stock has provided 57.20% returns to its shareholders in the past one year -- this impressive performance is expected to continue in the years to come based on its various new launches and long-term sales target.