Send me real-time posts from this site at my email
Motley Fool

General Motors Announcement Sends American Axle Stock 13% Lower

What happened

Shares of American Axle & Manufacturing Holdings (NYSE: AXL), a Detroit-based global tier 1 automotive supplier of driveline and metal forming solutions, are down over 13% after an announcement from General Motors (NYSE: GM) that could signal trouble for AAM.

So what

AAM investors likely already know how important a customer General Motors is to the supplier. In fact, AAM sales to GM were roughly 37% of the supplier's consolidated net sales in 2019, 41% in 2018 and 47% in 2017. That decline isn't all a bad thing, considering AAM would prefer to have a wide range of large customers and for the supplier to be less dependent on GM for financial success. But GM's announcement that it plans to develop and produce a family of electric vehicle drive systems and motors could signal that the largest Detroit automaker will be making more of its drive systems in-house, rather than using suppliers such as AAM. In fact, the following quote from GM should have AAM investors feeling a little anxious about future business between the two.

Image source: Getty Images.

"As with other propulsion systems that are complex, capital intensive and contain a great deal of intellectual property, we're always better off making them ourselves," said Adam Kwiatkowski, executive chief engineer of global electrical propulsion, in a press release. "GM's full lineup of EVs should benefit from the simultaneous engineering of Ultium Drive. Our commitment to increased vertical integration is expected to bring additional cost efficiency to the performance equation."

Now what

Investors will have to wait for the dust to settle to see the full implications and direct impacts of GM's decision to focus on manufacturing its new family of drive systems. But one thing is very clear: That's a chunk of future business that AAM would have preferred to have, and investors have reason to be concerned about overall business from its most important customer down the road, especially as the automotive industry is dealing with plateauing North American sales and COVID-19 implications.

10 stocks we like better than American Axle & Manufacturing
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and American Axle & Manufacturing wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of August 1, 2020

Daniel Miller owns shares of General Motors. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


Popular posts

Welcome! Is it your First time here?

What are you looking for? Select your points of interest to improve your first-time experience:

Apply & Continue