Ford, GM and Different Carmakers Face 50% Revenue Droop Subsequent 12 months, UBS Analysts Say

(Bloomberg) — Shares of automakers Ford Motor Co. and Normal Motors Co. took a beating Monday as outlook for the trade darkened additional with not less than two Wall Road analysts predicting earnings will fall steeply subsequent 12 months.

Income for US and European automotive corporations are set to drop by half subsequent 12 months as weakening demand results in an oversupply of automobiles, UBS Group AG analysts led by Patrick Hummel wrote in a observe on Monday. In the meantime, RBC Capital Markets analyst Joseph Spak stated 2023 estimates for the sector have to “transfer materially decrease.”

Ford shares sank 7.8% to $11.25 in New York, whereas GM shares dropped as a lot as 5.6% to $31.74. Monday’s decline provides to an already tough 12 months for the 2 carmakers, whose shares have tumbled greater than 45% to date, as traders involved in regards to the many challenges of the trade — together with supply-chain shortages, rising prices and a cash-strapped shopper — exited the shares.

“Demand destruction is not a imprecise danger, however has began to change into a actuality,” UBS analysts stated. They downgraded their inventory scores on Volkswagen AG, Normal Motors Co. and Renault SA to impartial and lower Ford Motor Co. to promote.

A 3-year run of “unprecedented” pricing and margins is about to finish abruptly, with a glut of vehicles starting to emerge as quickly as three months from now, the analysts added.

For electric-vehicle maker Tesla Inc., whose third-quarter deliveries did not match as much as expectations, each UBS and RBC analysts struck a extra benign observe. UBS sees the Elon Musk-led firm persevering with its “aggressive” development via chopping costs and leveraging prices, whereas RBC’s Spak stated it is extremely well-positioned mid-term because the low-cost EV supplier.

Nonetheless, demand developments might be a key merchandise to look at for Tesla as nicely, Spak added. Tesla shares have been dowwn 1.5% at $219.79.

A number of threats confront the trade, with strained shoppers looking for to downgrade and rising inventories that may depart automakers unable to move on inflationary pressures, the UBS analysts stated. In September, Ford warned of how rising prices have been affecting its earnings, prompting its inventory to plunge. European auto shares have surrendered their post-pandemic features.

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The nearer time period outlook is extra constructive, with the third quarter anticipated to be one other robust one for many producers, the analysts wrote. Some corporations could present improved margins, with Mercedes-Benz Group AG amongst those who may enhance their forecast. VW, BMW AG and Ford are prone to present a unfavorable earnings pattern.

Nonetheless, the main target might be on commentaries for the remainder of the 12 months and 2023, analysts from each UBS and RBC stated. Buyers are prone to overlook excellent news as they give attention to the headwinds mendacity forward for the sector, UBS analysts added.

UBS favors automakers with luxurious publicity, like Mercedes-Benz, because of the larger resilience of higher-income family spending, and elements suppliers with a dominant market place and pricing energy, resembling Autoliv Inc. and Valeo SA.

(Updates all through, provides RBC feedback, particulars.)

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