On Monday, General Motors Company (GM) reported that China sales fell 15% to 3.09 million vehicles in 2019, marking the second year of significant declines. Ford Motor Company (F) fared a little better than its rival, with sales dropping 3.2% to 2.41 million vehicles. A weakening Chinese economy and heavy competition in key product lines were blamed for the shortfalls, which triggered lower stock prices in both American manufacturers.
Meanwhile, Tesla, Inc.'s (TSLA) new Chinese factory is up and running, with CEO Elon Musk promising healthy sales and rapid expansion in coming years. The contrast between his unbridled optimism and the dismal performance of his competitors is hard to reconcile, but blame should be placed squarely on GM and Ford for mishandling one of the great profit opportunities in the history of capitalism.
It may be time for activist investors to shake these rust belt relics from their lethargy and force them to step up their international game. A stronger commitment to electric vehicles and a carbon-neutral footprint would mark an excellent first step, but aggressive plans to counter the Tesla juggernaut will also be required, or these American icons can look forward to even greater market share losses around the world in coming years.
GM Long-Term Chart (2010 – 2020)
GM’s current stock came public at $35.30 in November 2010, within 15 cents of Tuesday's closing price, and topped out near $40 in January 2011. The subsequent downtrend completed a double bottom reversal in the upper teens in 2012, giving way to a rally impulse that stalled less than three points above the prior peak in 2014. The stock dropped into the mid-$20s in 2015, posting a higher low, ahead of a healthy uptick that completed a round trip into the 2013 high in 2017.
An immediate breakout gathered little momentum, hitting an all-time high at 46.76 a few months later. The stock has performed poorly since that time, carving a decline to a two-year low near $30, followed by more than a year of narrow indecisive action in the lower half of the three-year trading range. This congestion has taken the shape of a symmetrical triangle that should yield a strong 2020 trend move, higher or lower.
GM shareholders have missed one of the strongest bull markets in history, even though most analysts believe that CEO Mary Barra has done a decent job at the helm. It will be hard to bet with the bulls in coming months because auto sales are highly cyclical, and we've now entered the second decade of the current economic expansion. Long-term price history is also flashing a major warning signal, with two breakouts in the past six years failing to gain traction.
F Long-Term Chart (1998 – 2020)
Ford stock carved a broad topping pattern in the $30s between 1998 and 2001, finally breaking down and entering a steep downtrend that continued into 2008's all-time low at $1.01. The 2001 breakdown into the teens established a massive resistance level that has denied five breakout attempts in the past 19 years. The stock carved a final trip into this barrier in 2014 and turned lower, entering a slow-motion decline that has now entered its sixth year.
The 2018 breakdown through the 2011 and 2012 lows near $10 may be significant, establishing a barrier that looks like the 2001 breakdown. The stock has been testing the underside of new resistance for the past 17 months and, so far at least, has held above 2018's nine-year low at $7.41. Remaining bulls should head for the hills if that level breaks because subsequent downside could eventually test the low posted during the 2008 economic collapse.
The Bottom Line
Ford and General Motors reported significant declines in 2019 China sales and could lose additional market share to Tesla in coming years.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.