Morgan Stanley revised its outlook for the US auto industry to “unattractive” from “attractive,” citing headwinds such as rising inventories, affordability concerns and growing competitive pressure from China, the which has turned from a source of demand to a source of global oversupply.
The report highlights that China’s auto industry now produces about 9 million more units than it consumes, putting pressure on global markets. Morgan Stanley warns that this excess capacity is likely to find its way to other regions, intensifying competition for US automakers.
“Even if these units don’t end up directly on US shores, the ‘interchangeability’ of lost share and profit from key US players adds pressure here at home,” Morgan Stanley analysts said in a note on Wednesday.
As part of the sector review, Morgan Stanley downgraded key automakers, including General Motors ( NYSE:GM ) , Ford ( NYSE:F ) and Rivian ( NASDAQ:RIVN ) .
As of 09:30 ET (13:30 GMT), shares of GM, Ford and Rivian were down 3.6%, 2.7% and 4.1% respectively.
GM moved from Equal-weight to Underweight, while its price target was cut from $47 to $42. Shares of Ford and Rivian suffered the same downgrades, with their price targets cut from $16 to $12 and from $16 to $13, respectively.
“Our downgrades on F and GM are supported by our expectation of more share loss by the end of the decade, price/mix headwinds, as well as China, regulatory compliance and EV/AV/ROW risk /Other that may impact profitability leading to lower normalized earnings and valuation,” the analysts noted.
For RIVN, the downward revision reflects “the capital-intensive integration of AV/ADAS that may be required to fulfill the technology bases that attracted Volkswagen as a JV partner.”
As a result, analysts raised their annual estimates for capital spending by $200-$300 million per year starting in 2026.
Along with the downgrades of GM, F and RIVN, Morgan Stanley also cut its ratings on Magna International (NYSE:MGA) and Phinia (PHIN), while upgrading franchise dealers such as Asbury Automotive (NYSE:ABG) among others ) and Lithia Motors (NYSE:LAD).
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Reference;
Karaahmetovic, V. (2024) US car stocks tumble as Morgan Stanley cuts auto industry view to neutral By Investing.com, Investing.com. Investing.com. Available at: https://www.investing.com/news/stock-market-news/us-car-stocks-tumble-as-morgan-stanley-cuts-auto-industry-view-to-neutral-3631653 (Accessed: 25 September 2024).
