Big 3 stocks waver despite record profits

Michael Martinez
The Detroit News

A tweet from Tesla Motors CEO Elon Musk is enough to send the upstart automaker’s stock surging, but when General Motors Co. and Ford Motor Co. post record profits, Wall Street punishes them.

The financial market’s response to the companies couldn’t be more stark. Analysts and industry experts say investors don’t believe traditional automakers have transformed their companies in an era of dramatic technological changes, and they’re concerned the money will stop flowing in the next inevitable downturn.

“We joked ... that if GM, or Ford for that matter, found a multibillion-dollar treasure chest of gold bars under their HQ, the stocks would likely trade down on the news, as the trite response would again be ‘as good as it gets,’ ” Brian A. Johnson, an analyst with Barclays, wrote Thursday in an investor note.

“It’s increasingly clear that strong results today in autoland are basically meaningless for stock prices,” he said.

“If a company posts a beat or issues impressive guidance, it’s viewed as unsustainable or unrealistic. If a company posts an inline result or even has a whiff of an issue, it’s big trouble for the stocks, as it’s surely a sign of more pain to come.”

The latest example: On Feb. 3, GM’s stock slid nearly 4 percent immediately after the automaker announced a record $9.7 billion 2015 net income; it closed down 2.5 percent, at $28.92 per share. GM’s stock is down 18 percent since the start of the year.

The week before, Ford’s stock immediately dropped nearly 5 percent, and closed the day down 1.2 percent, after the company earned the most money in its 112-year history and said it would reward shareholders with a $1 billion special dividend. Its stock is down 19.4 percent for the year.

Both automakers issued cautionary notes at the time, which likely sent the stocks tumbling: The low end of Ford’s predicted 2016 North America profit margins is 9.5 percent, which would be a decrease from 2015; GM said that while it expects a continued strong industry, it likely has plateaued.

Entire market down

Many industry analysts expect 2016 new-vehicle sales to top 2015, which would make for a second consecutive year of record sales and a seventh consecutive year of annual increases. But after 2016, sales growth is expected to slow.

The entire stock market is down — the Dow is off 8 percent year-to-date, and the Standard & Poor’s 500 is off 9.4 percent — but GM and Ford have had a tougher 2016.

Tesla’s shares rose on Feb. 1 even after Morgan Stanley analyst Adam Jonas downgraded his outlook on the company. Last March, when Musk tweeted: “Major new Tesla product line — not a car — will be unveiled at our Hawthorne Design Studio on Thurs 8pm, April 30,” its stock jumped about 3 percent.

Tesla’s stock price is about five times greater than at the start of 2013, although it has plunged in recent months since reaching a high of $286.65 last July. It’s down 38.2 percent for the year to $148.25.

The company has yet to make a profit selling cars and has experienced numerous product-launch delays.

But investors are still excited by the prospect of a technologically advanced company challenging the well-established players.

“Investors generally don’t see car-making as a very attractive business,” Johnson said. “The product is not overly differentiated, there is excess capacity and intense competition, and disruptive technologies pose a host of secular threats. We also appreciate OEMs won’t get credit until we’ve gone through another down portion of a cycle and have seen the OEMs both survive and remain profitable.”

Wall Street doubts persists

Wall Street has yet to buy in to Ford or GM’s efforts in the mobility and autonomous space. In reality, both companies are leaders in those categories.

GM last month invested half a billion dollars in ride-sharing service Lyft. It acquired the assets of failed ride-sharing service Sidecar and formed its own car-sharing pilot program, called Maven, which it will launch in Ann Arbor. It also has car-sharing services in New York and Germany, and plans to expand a similar program to Chicago.

Also last month, GM created a dedicated team for testing self-driving cars.

“We’ll continue to strengthen our core business and we will also continue to invest in game-changers that are necessary for GM to lead the future of personal mobility,” Chairman and CEO Mary Barra said Wednesday on a conference call with investors.

Likewise, Ford has launched a number of car-sharing pilots overseas, and an Uber-like shuttle service for employees of its Dearborn campus.

In the area of autonomous-driving development, Ford said at last month’s Detroit auto show it would triple its fleet of driverless Fusions, which it claims would give it the biggest autonomous fleet in the industry. It said it’s been testing those cars in snow and ice, another industry first.

President and CEO Mark Fields has said Ford will “change pretty dramatically” as it becomes not just an auto-producing company, but also a mobility company.

Wall Street isn’t convinced. After Ford’s presentation to investors at the Deutsche Bank conference during the auto show, Jonas likened the automaker’s forward-looking talk to similar comments made by Kodak and Blockbuster before they ultimately failed.

But Harry Wilson, a former Obama administration auto adviser who last year pressured GM to buy back billions in stock, said last month in Detroit that Detroit automakers don’t get enough acknowledgment for what they have accomplished: “The market fundamentally misunderstands how different these businesses are than they were pre-crisis.”

Stock price lags ‘frustrating’

Fiat Chrysler Automobiles NV is a much smaller company with a shorter track record than its Detroit-based rivals.

Its market capitalization ($8.45 billion) is about one-fifth the size of Ford ($45.7 billion) and GM ($44.1 billion). Stock of the relatively new company — created by the merger of Fiat and Chrysler Corp. after the Chrysler bankruptcy — was first listed on the New York Stock Exchange in October 2014.

On Jan. 27, the Italian-American company said it earned about $410 million in 2015, a substantial decrease from the previous year. That same day, CEO Sergio Marchionne unveiled a revised five-year plan, and Fiat Chrysler stock rose slightly, about 1.4 percent.

Both GM and Ford executives have said in recent months that they’ll continue to execute their business plans and eventually expect their stock prices to rise.

Speaking to The Detroit News last month in Las Vegas, Fields called Ford’s relatively sluggish stock price “frustrating.”

“We have to continue to focus on the key elements that drive stock price — and that’s revenue growth, operating margin expansion and a healthy dividend that’s sustainable through an economic cycle,” he said then.

“We’re doing that and we’re going to keep working at it. At some point, I’m confident we’ll get rewarded for that.”

GM President Dan Ammann last month did admit that “the prospects of our company are not yet fully reflected in our stock price.” Chief Financial Officer Chuck Stevens said this week that GM would continue to focus on putting out good products and rewarding shareholders.

Johnson was less than optimistic.

“We’re not really clear on where the bottom is for the OEMs,” he said in the note.

“The situation is quite confusing. But in this market, we’re not really sure what the path for improvement is for the stocks.”

mmartinez@detroitnews.com

(313) 222-2401

Twitter.com/MikeMartinez_DN

Staff Writer Michael Wayland contributed.