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$39 Million Merger Deal That Would Reshape the Auto Industry Is Not Happening

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FCA Withdraws Its Proposal Due to the Interference of the French Government

Only 10 days after announcing the potential merger, the deal that would have created the world’s third largest automaker company with a combined market value of about 35 billion euros ($39 billion) has collapsed. Fiat Chrysler Automobiles (NYSE: FCAU) officially stated it is abandoning its merger proposal made to Renault (OTC:RNLSY). Fiat’s surprise withdrawal came after an hours-long Renault board meeting Wednesday night ended without a decision being made. FCA has explained the reasoning behind its decision to be due to the fact that “the political conditions in France do not currently exist for such a combination to proceed successfully.”  Both FCA and Renault’s shares fell after the announcement.

Political pressure always damages the company’s bottom line – even Volkswagen’s

On the other hand, this shouldn’t be so surprising considering that France has a long history of the government’s influence in business. Germany’s Volkswagen AG (OTC:VWAGY) is also 20% owned by the State of Lower Saxony, and is facing the same issues caused by demands of the government. Such demands can never be beneficial for any company’s bottom line. Even Renault could achieve a better return on shareholder value if it did not have to adhere to the request to maintain more jobs than the company itself requires.  This would not be the case if governments did not own stakes in industrial companies and even President Emmanuel Macron promised a broadly market-friendly agenda, one which we are not currently seeing.

FCA

Before FCA’s former CEO Sergio Marchionne died last year, the world’s third-biggest automaker after Toyota and Volkswagen was publicly seeking mergers and alliances with its peers. Even with General Motors (NYSE:GM) that is also in need of help in R&D sharing to face the new electric future, but there were no takers. The question now is will the company continue to aggressively pursue this alliance-seeking quest.

Both FCA and Renault are facing great risk brought by the uncertain, all-electric and automated future. If the merger had taken place, FCA would benefit from Renault’s superior electric drive technology. Renault would also win with the profitability of FCA’s well-established Jeep and RAM brands. Not to mention the billions in savings that could be gained when it comes to purchasing costs.

FCA’s shares lost about 50% of its value last year. But, the news of the potential merger didn’t bring any benefit to the company either. It already has a history of an unsuccessful negotiation with Peugeot Société Anonyme (PSA) Group (OTC:PEUGF), who is also partially owned by the French government. But perhaps the biggest problem that FCA is facing is how to deal with emission standards that are only getting stricter.

PSA Group

The French government owns 13% of the second largest auto-manufacturing company in Europe. The Peugeot and Citroën maker was supposedly attracted to FCA because the French company needed a U.S. presence to advance its global position. This is not the case for Renault because its alliance with Nissan resulted in significant U.S. sales. Many analysts believe that Fiat Chrysler (FCA) could now go back to negotiating with PSA especially if Nissan Motor Co. (OTC:NSANY) was the obstacle that caused them to withdraw. After all, PSA’s shares were up 1.5% after the collapse of the deal was announced. This is more than a sharp contrast to Renault whose shares slumped 6.6% and FCA’s shares which fell in Milan.

What about Nissan?

Renault owns a large stake in Nissan and this global alliance is 20 years old. Nissan initially stated it would be absent from the board meeting to vote on the merger proposal so its significance in the rejection did not seem to be significant. But, according to Forbes, reports have resurfaced that Nissan was not keen on sharing its intellectual properties that are jointly owned with Renault. Especially with a rival that it competes against in North America, Europe and Latin America. A weaker FCA is actually good for Nissan when it comes to those markets. But the withdrawal of FCA can also add a good deal of stress between Nissan and Renault, especially after the chairman of the alliance and CEO of Renault Carlos Ghosn went to jail last November as he was charged for financial crimes. Nissan executives even helped Japanese prosecutors make their case against Ghosn.

Toyota Motor Corporation (NYSE:TM)

Unlike the majority of its automotive peers, the Japanese giant is known for its strength and stability that persevered through time. At the recently held Toyota Hybrid Electric Technology Conference, it was made clear where the company is headed when it comes to the shift to an all-electric future. During its announcement of quarter results, Toyota did not seem to have a clear EV plan. But even investors didn’t doubt that the company will be at the forefront during the electrification shift and it proved so on this event. The company decided to first further amplify the presence of its hybrid EVs. Given the current limitations of the charging infrastructure, it makes more sense for hybrid EVs like the Prius to bridge the gap to fully-electric future models. Despite its decreasing North America sales, Toyota seems to have it all figured out.

Aftermath

The FCA-Renault collapsed deal could also contribute to financial markets’ frustration with France as well as amplify tensions between France and Italy. What is certain is that interesting times are ahead and both FCA and Renault surely envy Toyota’s perspective. Besides FCA’s continuing struggle, this failure also leaves Renault locked into Europe’s stagnant mass-market for cars. Also, it has surely frightened other potential suitors.

 

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Earnings

Toyota’s News: Redesigned Corolla, New Investments and Partnerships

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Toyota Stock Market News

Toyota Motor Corporation (NYSE: TM) is managing something other automakers only dream of. The company is honouring its values while achieving sustainable growth for over a decade. The dependable Japanese giant continues to deliver on its promises as it prepares for an electric future.

A new sturdy yet sporty Corolla

On September 17th, the company announced a completely redesigned Corolla that now goes beyond just being a practical buying decision. The newly evolved Corolla has a sporty design, offering pleasurable driving and advanced safety equipment. Being built on Toyota New Global Architecture (TNGA), Corolla is ready to evolve to meet customers’ needs, according to Yasushi Ueda, chief engineer in charge of development.

Since its debut in 1966, this car is nothing less than adored by consumers all over the world and now, it will have its first hybrid version available to U.S. customers.

Hybrid strategy is actually paying off

Just like Honda Motor Co. (NYSE:HMC) with its 2020 CR-V Hybrid, Toyota is using its hybrid technology to position itself for future growth and transition to an all-electric future, despite the fact these energy saving vehicles do not qualify for government subsidies. But, this strategy is paying off as hybrid demand skyrocketed and the company proudly revealed in February that Lexus reached its 10 millionth vehicle sales milestone since its launch, with its 2018 sales performance achieving several ‘best-ever records’. And it is thanks to these figures that the Chinese government is also starting to see the potential of such vehicles so things can only get even better for Toyota. As the saying goes, persistence is the key to success and these two companies have been quite brave in sticking to HEVs.

New Investment – $391 Million Goes to Texas’ San Antonio Plant

This will be Toyota’s first expansion in nine years at the plant that produces its Tundra and Tacoma pickup trucks. It is the part of the company’s strategy to invest $13 billion in its U.S. operations over the period of five years, ending in 2021.

Future Investment – $243.29 million to Produce New Vehicle in Sao Paulo

Toyota is also about to get an even stronger presence in Brazil as it will hire 300 new employees at the Sorocaba Plant to start the production of a new vehicle.

Partnership

And let’s not forget the ground-breaking partnership of Japan’s leading automakers that was revealed in August as Toyota and Suzuki Motor Co. (OTC: SZKMF) announced they will collaborate on developing autonomous car technology. This deal is cementing the bond that the two automakers kicked-off in 2016. They might seem like an odd couple as Suzuki is a everything but a big player, yet its strong presence in India is only one of the things that will greatly benefit Toyota. Although Suzuki admitted defeat on the world’s biggest playgrounds, China and the U.S., it cracked the code for emerging markets. And this is exactly where future global sales growth is expected to come from.

Inventing a car that will run forever?

According to Bloomberg, Toyota aims to go far further than electric by teaming up with Sharp Corporation (OTC:SHCAY) and Japanese governmental organization NEDO that encourages the development of innovative technologies. Considering that Toyota is a company that has even used the economic crisis and recession to only come out stronger, it’s not unlikely that it is set to out do the impossible by mixing the most efficient batteries with solar panels. The company’s strong financial performance and track record show that if anyone can do it, it’s Toyota Motor Co.

 

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Nike Exceeds Wall Street Expectations With Q1 Earnings for FY2020

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Direct-to-consumer sales and digital momentum strategies did the trick for Nike

When Nike (NYSE:NKE) released its better-than-expected first quarter of the fiscal 2020 results late Tuesday. Naturally shares jumped more than 5% to reach $91.80. The reported revenue increased 7.2% year comparing to last year, achieving $10.7 billion, greater than the expected $10.44 billion. Net income soared more than 28%, making adjusted earnings per share $0.86, also smashing expectations of $0.70 per share.

Nike managed to achieve a turnaround

The biggest contributor to total sales was Nike’s North American segment that increased 4% comparing to last year. But China sales also continue to grow and by double digit percentages: 22% to be exact, topping $1.68 billion. Overall, these are fantastic news for investors. Especially since the company’s rare earnings miss for the final quarter of the previous fiscal year. The company attributed this to increased marketing costs and a higher tax rate. But highly anticipated new product launches and solid results for continuing lines, along with efforts to draw new customers to the Nike SNKRS app, did their magic.

Digital momentum is key

Digital movement is transforming and amplifying everything Nike does and in Q1, Nike Digital grew 42% on a currency neutral basis. This growth is driven by enhanced digital services and the international expansion of its app ecosystem. Moreover, The Nike app and SNKRS app are now both live in over 20 countries, with more expansion coming throughout the year.

There are literally no weak spots for investors

Arguably, there are no weak spots for prudent investors to dig in as far as this quarter’s report is concerned. The company is literally firing on all cylinders. The company’s management attributes these results to “the depth and balance of the company’s complete offense, building on the strengths of its foundational business drivers and capitalizing on the untapped dimensions of its portfolio”. Management has also dismissed any concerns that US-China trade conflicts could harm its operations, disclosing no impact has been seen up to date.

Nike showed it can even handle the increased tariffs

Earlier this year Nike joined over 200 other footwear companies urging President Trump not to increase tariffs on footwear imported from China, calling the move “catastrophic for our consumers, our companies, and the American economy as a whole.” But while those tariffs are certainly catastrophic for small players, Nike seems more than capable of mitigating the consequences of this added expense.

Poor macroeconomic conditions are only masking Nike’s true power

The company made it clear that its figures would have been even stronger had it not been for macroeconomic challenges which are manifesting through tariffs and foreign-exchange rates. They implied that the weakening economic climate is essentially masking Nike’s true strength. And in addition to children, women are also a big opportunity for the company that Nike will continue exploiting. This is why Nike expects better-than-planned growth in its higher-margin NIKE Direct channels and international segments and consequently, its full-year gross margin. One thing is for sure: Nike has turned itself into so much more than a ‘sneaker-company’.

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Apple Will Be Making Its MacBook Pros in the US

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With a newly granted “federal product exclusion,” enabling it to import some Mac Pro parts without paying tariffs, Apple (NASDAQ: AAPL) will be able to save enough money to make US assembly worthwhile. The company announced on Monday that it will manufacture the new version of its Mac Pro desktop computer in Austin, Texas. It’s also a big political win for Apple, since President Trump has for years called on the company to make more products in the US. Tim Cook clearly made a compelling case during his meetings with President Trump. Apple described the decision to keep Mac Pro production in Austin as part of its “commitment to US economic growth.”

Macroeconomic climate is not favourable

The September figures around the world are simply awful. The uncertainty brought on by intensifying trade wars, the outlook for the car industry and Brexit are paralyzing investors, with September seeing some of the worst performance since the financial crisis in 2009, leading many to worry about whether yet another crisis is upon us. On a brighter note, Apple’s stock went up 0.2% after Bloomberg reported that ten of its 15 requests for an exemption from tariffs on imports from China had been approved.

New investments

Apple previously disclosed plans to spend $350 billion in the U.S. by 2023, a figure that includes new and existing investments. Its Apple TV+ is set to launch on November 1, with stars like Oprah Winfrey bringing her famed book club streaming show to the company’s subscription service. Among documentaries that will be released, there will even be a multi-series about mental health, featuring no other than Prince Harry himself. Apple’s subscription service will cost only $4.99 a month and will be available in 100 countries and regions at launch. Also, customers who buy a new Apple device will also get a free year of Apple TV+.

Competitors

Netflix (NASDAQ: NFLX) is still the leader when it comes to U.S. streaming, along with Amazon Prime (NASDAQ:AMZN), AT&T’s HBO (NYSE: T) and upcoming Disney+ (NYSE:DIS), it is certain that competition will be intense. Netflix’s stock has been dropping since July, which was the first time the number of subscribers fell. Moreover, Netflix’s stock price has now officially wiped out any gains it’s made over the year so far and both Disney and Apple have a shot at beating Netflix at its own game.

Apple is still facing impending import duties and innovation difficulties

Let’s not forget that the company still faces import duties scheduled for Dec. 15 that could affect nearly all of its major products including iPhones, iPads, MacBooks and Apple Watches. And more importantly, it is thought by many as facing an innovation problem so it heavily relies on customer loyalty that will continue driving its sales. We’ll just have to wait for November 1st launch of Apple TV+ to see the impact of Apple’s new streaming subscription service.

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