What happened?
Shares of multiple automotive stocks moved higher Monday, including Visteon Corp. (NASDAQ: VC) jumping as high as 10% and Stoneridge, Inc. (SRI 1.14%) holding on to 11% gains at close, after the industry finally received good news from China.
So what
Bloomberg News reported that China is considering a 50% tax cut to lower a vehicle purchase tax from 10% down to 5%. The tax benefit would apply to cars with engines no larger than 1.6 liters, as the country is still battling pollution issues, and it's intended to revive the country's stalling automotive sales. In fact, China's vehicle sales were down 10% during the third quarter and are facing the first potential annual decline in more than two decades after the trade war has dented consumer spending. "This is definitely good news and a message the market has been waiting for," said Juergen Pieper, a Frankfurt-based analyst with Bankhaus Metzler, according to Bloomberg.
Image source: Getty Images.
Now what
Multiple parts suppliers moved higher on the news because reviving the world's largest automotive market is obviously good news. Also moving higher on the news were major automakers with a substantial presence in China, such as Volkswagen AG and General Motors. Shares of Ford Motor Company (F 0.45%) also moved higher as a majority of its product portfolio would be available for the tax cut. Even Baird analyst David Leiker raised his rating on the auto suppliers sector from neutral to positive.
There's certainly reason for investors to rejoice as China has previously made similar purchase tax cuts that instantly boosted the market. If the decision is made final, it could boost China's auto market for one to two years: In the past, the government increased the tax by 250 basis points annually until it reached the original 10% level. We'll have to wait and see if that's the plan going forward, but in a year filled with negative trade war news, this was a breath of fresh air for auto investors.