GM, Ford and these auto stocks rallied to China's sales tax

General Motors (GM) and Ford engine (F) Monday led a strong recovery in struggling auto stocks, after the announcement that the world 's largest car market could halve its tax on auto sales.

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China's leading economic planning agency plans to cut the car tax by 5 percent to counter a sharp drop in sales, sources told Bloomberg. Chinese car sales fell 11.6 percent to 2.39 million units last month amid a deadly trade war with the United States and slowing economic growth. The country could see its first annual sales fall in more than two decades this year, after years of record growth.

The proposed measure would apply to cars with engines up to 1.6 liters, which represents approximately 70% of total passenger car sales last year.

China's National Development and Reform Commission presented a plan, but no decision has been made.

GM, Ford and Tesla Rally Stocks

GM shares rose 1.5% on the stock market today, briefly surpassing their 50-day moving average for the first time since July. Ford shares surpassed the 50-day mark for the first time since September, rising 3.3%. Fiat Chrysler (FCAU) closed flat and You're here (TSLA) grew 1.8% to build on last week's rally. Volkswagen (VWAGY), which sold nearly 40% of its vehicles in China last year, grew by 0.8%. Companions European builders BMW (BMWYY) and Daimler (DDAIF), which holds stakes in China's luxury car market, closed slightly higher on Monday.

Car parts manufacturers Soar

At the same time, information pointing to a possible tax cut on China has also encouraged auto parts manufacturers. Visteon (VC) increased by 2.3%, Adient (ADNT) 5.4%, Aptiv (APTV) 3.4%, BorgWarner (BWA) 4% and Delphi Technologies (DLPH) 2%.

RBC analysts believe the auto group should recover, "particularly because of the recent negative sentiment and the potential for uncovered coverage." Analysts had previously described the potential stimulus in China as the most likely catalyst for the group.

Automotive stocks with China's largest exposure include GM, Aptiv, Adient, Lear (LEA), Visteon and Garrett Motion (GTX), they added. However, they remain somewhat cautious in the medium term as to the potential action.

"Such a tax cut would probably be over the next six months," wrote RBC analyst, Joseph Spak.

The slowdown in the US and Chinese markets and worries about the global economic outlook have weighed on auto stocks this year.

Ford Restructuring, autonomous driving

Goldman Sachs analysts also said on Monday that investors could see a 40% return on Ford's shares as the automaker restructures and improves its bottom line. The company raised its 12-month price target from $ 9 to $ 12.

Ford's shares rebounded after a nine-year low last week, with better than expected sales in the third quarter. Information pointing to a rapprochement with Volkswagen, regarding autonomous driving and other issues, also improved the sentiment with regard to Ford.

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