Are Auto Stocks Benefiting from Tesla’s Slide?

Tesla (TSLA) has dominated the auto-industry conversation in recent years, and that talk has helped push TSLA stock’s value past the likes of industry stalwarts General Motors (GM) and Ford (F). Now that Tesla is having a rough month, other auto stocks are getting a nice bump. It’s probably no coincidence.

In the last month, GM stock is up 16%, Ford stock is up 8.4%, while TSLA stock is down 3%. Here’s what that looks like on a chart:

Traditional auto stocks like GM and Ford have outpaced Tesla by a wide margin over the last month. The reasons behind the slump in Tesla stock have to do with the company’s Model 3 production shortfall in the third quarter. The company produced just 260 Model 3 cars from July through September, well shy of the 1,500 Tesla was expecting. That throws a major wrench into CEO Elon Musk’s plans to produce 20,000 Model 3s per month by December, and 500,000 of them next year.

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Tesla’s loss has been General Motors’ and Ford’s gain, it seems. After all, neither U.S. auto maker has been lighting the world on fire of late: Ford had modest top- and bottom-line gains in the second quarter, while GM actually posted declines in both sales and earnings.

Things are actually supposed to get worse before they get better for GM and Ford, as analysts anticipate sales declines for each company when third-quarter results come out later this month. By contrast, Tesla is expected to grow sales by 26% in the third quarter despite the huge Model 3 shortfall.

That tells you that people invested in the auto industry are simply selling out of TSLA on the bad Model 3 news and buying shares of GM, Ford and other auto stocks to fill the void. Those filling the void include Fiat Chrysler (FCAU) (+13% in the last month), Honda Motor (HMC) (+6.5%), Toyota Motor (TMC) (+6.2%) and Volkswagen (VLKAY) (+9.9%).

Car companies did get a boost in the U.S. last month after major hurricanes in Texas and Florida destroyed hundreds of thousands of vehicles, forcing people (and insurance companies) to buy new ones. As a result, GM, Ford and Toyota all posted double-digit sales growth in September, helping the U.S. auto industry eke out its first year-over-year sales increase in 2017. On the heels of a record-setting 2016 and seven years of growth, U.S. auto sales have apparently peaked. It took two historic hurricanes to stop the bleeding.

So, in the big picture, TSLA stock still looks like a better investment than most traditional automotive stocks. Yes, the major Model 3 production shortfall last quarter is a bit troubling. But it’s not as troubling as eight months of sales declines for the rest of the U.S. auto industry. In reality, TSLA getting knocked back to a one-month low looks more like a buying opportunity over the long term.

GM, Ford and other auto stocks have more short-term momentum. But it may only last until their next earnings report comes out.

Chris Preston

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