Ford, GM downgraded at UBS amid anticipated demand destruction (NYSE:F)

Ford (NYSE:F) and Basic Motors Firm (NYSE:GM) have been downgraded at UBS as a possible recession reels in gross sales forecasts for each automakers.

The rising dangers of recession, particularly in Europe, drew concern from the financial institution’s analysts with every anticipated to really feel important impacts on each high and backside traces in coming quarters. The near-term dangers of slumping client demand for autos overshadows the upside offered by the 2 automakers’ EV efforts, in accordance with the evaluation.

“Whereas we proceed to love GM’s EV momentum in 2023 with a robust (IRA-compliant) launch pipeline, the general sector outlook for 2023 is deteriorating quick in order that demand destruction appears inevitable at a time when provide is enhancing,” the downgrade notice mentioned. “We count on EPS to greater than halve subsequent 12 months.”

As such, the financial institution suggested shoppers that they’re greatest served on the sidelines and downgraded shares to “Impartial” and trimmed its worth goal to $38 from $56.

“Mass-market publicity in [North America] and China isn’t the place we wish to be for the subsequent 12 months from a top-down perspective, due to doubtless demand destruction, quickly shrinking pricing energy and product combine, and headwinds for GM Monetary from rising rates of interest & credit score danger and falling residual values,” the crew mentioned.

Nonetheless, the financial institution famous its “relative desire over Ford stays.” Certainly, Ford (F) was downgraded alongside GM with the ranking decreased to “Promote” from a previous “Impartial.”

“Ford (F) ranks behind Stellantis (STLA) and GM when it comes to North American EBIT margins and in gentle of the doubtless recession, has the very best danger of testing break-even factors, in our view,” the downgrade said. “The European enterprise may change into loss-making in opposition to a troublesome macro backdrop, a possible setback to restructuring achievements made.”

Particularly, the financial institution doesn’t see important upside for the EV enterprise within the close to time period, particularly as competitors heats up. Additional, the auto producer’s AV/ADAS strides are seen as lagging nicely behind these of Basic Motors (GM).

“We count on F’s efficiency to be dominated by EPS revisions within the coming quarters. With a market cap just like GM however with a slower 2023 EV momentum, a decrease anticipated profitability & FCF, a laggard place in AV and in localizing EV provide chains, we count on F to underperform GM, and we see absolute draw back,” the notice concluded. “In a nutshell, Ford has one of many least engaging danger/reward profiles amongst Western OEMs on a 12-month view, which is why we downgrade to Promote.”

The downgrade included a worth goal minimize from $13 to $10. Shares of Ford (F) fell 7.5% shortly after Monday’s market open whereas GM (GM) shares sank 5.64%.

Learn extra on Morgan Stanley’s current transfer to an reverse opinion on the 2 automakers.