Auto Stocks Find Another Gear After Volkswagen Self-Driving Investment

Volkswagen Self-Driving Investment

With the global autonomous vehicle market size projected to increase from $54 billion in 2019 to $557 billion by 2026 and electric vehicle (EV) sales to reach $567 billion by 2025, it's little wonder that major automotive manufacturers continue to make significant investments and form strategic partnerships to develop these revolutionary technologies.

German automaker Volkswagen AG (VWAGY) announced on Friday, July 12, that it plans to expand its technology and platform-sharing alliance with Ford Motor Company (F) by investing $2.6 billion in Ford's self-driving services (SDS) partner Argo AI to develop autonomous vehicles and EVs. Under the deal, Volkswagen will commit $1 billion in funding and contribute its $1.6 billion Autonomous Intelligent Driving (AID) company as well as purchase $500 million worth of Argo AI shares from Ford over three years.

"While Ford and Volkswagen remain independent and fiercely competitive in the marketplace, teaming up and working with Argo AI on this important technology allows us to deliver unmatched capability, scale, and geographic reach," Ford Chief Executive Officer Jim Hackett said ahead of a joint news conference in New York, per Bloomberg.

News of the expanded strategic alliance drove leading auto stocks higher late last week, which may pave the way for further gains in the week ahead. Traders should monitor these three automakers that have made significant inroads into this exciting space. Let's look at each company in more detail and work through several trading ideas.

Ford Motor Company (F)

Ford Motor Company manufactures, sells, and services a range of cars, trucks, sport utility vehicles, and EVs worldwide. As well as Ford's alliance with Volkswagen, the company expanded its electrification efforts earlier this year when it invested $500 million in electric vehicle startup Rivian to build a battery-powered car using Rivian's flexible skateboard platform. Investment bank Morgan Stanley (MS) estimates that battery-electric cars could account for 90% of all vehicle sales by 2050. Trading at $10.49 with a market capitalization of $41.85 billion and offering a 5.89% dividend yield, Ford stock has returned 41.05% year to date (YTD), outperforming the auto manufacturers industry average by 31.27% over the same period as of July 15, 2019.

Ford shares added the majority of its YTD gain between January and April. Since topping analysts' earnings expectations on April 25, the stock has traded within a one-point range and formed a "golden cross" signal on the chart, confirming the emergence of a new uptrend. Price surged 2.94% Friday to break out from a tight pennant pattern, suggesting upside continuation. Those who take a trade should consider exiting at either the January or June 2018 swing high. Think about positioning a stop-loss order beneath the pennant's lower trendline to protect downside risk.

General Motors Company (GM)

With a market cap of $55.62 billion, General Motors Company (GM) builds and markets cars, trucks, crossovers, and auto parts globally. The company's self-driving division Cruise plans to double its headcount during 2019 to beef up its autonomous vehicle business. Furthermore, General Motors aims to launch a self-driving taxi service before the end of the year, having already teamed up with ride-sharing company Lyft, Inc. (LYFT) to offer rides from its autonomous fleet. In January, the company allied with DoorDash to test a food delivery service in San Francisco using autonomous vehicles. As of July 15, 2019, General Motors stock issues a dividend yield of almost 4% and is trading up 19.49% on the year.

General Motors' share price drove higher in the first two months of the year but has lost some traction since. The automaker's stock plunged below the 200-day simple moving average (SMA) in May before staging an impressive recovery in June. In Friday's trading session, the price broke above a two-week flag pattern that hints of further upside. Those who open a long position should set a take-profit order between $42 and $43, where the price encounters significant resistance from several swing high peaks over the past two years. Traders could place a stop under Friday's low at $38.52 or beneath this month's low at $37.58, depending on risk tolerance.

Fiat Chrysler Automobiles N.V. (FCAU)

Fiat Chrysler Automobiles N.V. (FCAU) engineers, manufactures and markets vehicles, associated components, and production systems. Its well-known brands include Abarth, Alfa Romeo, Chrysler, Dodge, Fiat, Lancia, Maserati, and Ram. The Netherlands-based car marker announced in June that it has struck a deal with autonomous vehicle technology startup Aurora to develop self-driving commercial vehicles, specifically its line of Ram Truck vehicles. Last month, Fiat Chrysler withdrew from a merger with French automaker Renault that it initially explored to develop global vehicle platforms. The company's stock has a market value of $27.93 billion and is up nearly 13% YTD as of July 15, 2019. Investors also receive an attractive 5.20% dividend yield.

The significant December and March swing lows appear to have installed a bottoming pattern on Fiat Chrysler's chart. Although the price has traded within a range for most of this year, it recently broke above a downtrend line stretching back to April 2018 that could trigger additional buying. Traders who enter here should anticipate a move to the $16 level – an area where the stock finds overhead resistance from a horizontal line that connects a series of previous price action. Implement risk management by cutting losses if the stock fails to hold above the 200-day SMA.