Car Stocks Beyond Self-Driving Cars and Electric Vehicles
This article delves into the factors influencing the car stocks market, including growth opportunities, stock ratings, and investor sentiment. It highlights the impact of factors such as electrification and automated driving on traditional automakers...
Troy D. Hanson
September 13, 2023
While self-driving cars and electric vehicles dominate the discourse around car stocks, there are other factors at play that can significantly impact the market. Analyst Joseph Spak from UBS prefers traditional automakers Ford Motor (F) and General Motors (GM) over Tesla (TSLA) in the current landscape.
Spak, an experienced automotive analyst formerly with RBC, recently launched coverage of the automotive sector. His approach focuses on growth opportunities, such as the increasing popularity of electrification, software-enabled vehicles, and automated driving. However, Spak acknowledges the cyclical nature of the industry and how it can overshadow these factors.
Spak remains optimistic about the growth of battery-powered cars, predicting that global annual sales of battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs) will match sales of gasoline-powered cars by the end of the decade. This translates to approximately 45 million units for BEVs and PHEVs combined, matching the sales volume of gasoline-powered cars each year.
While this trend bodes well for Tesla, Spak anticipates slower-than-expected growth for the EV manufacturer in 2024. He estimates Tesla's sales for that year to be around 2.2 million units, slightly lower than the Street's projection of 2.3 million units. In 2022, Tesla sold 1.3 million EVs and is set to sell approximately 1.8 million units this year. Spak believes there will be a more opportune entry point for investors with 2024 shaping up to be a below-trend growth year.
Currently, Spak rates Tesla stock as a Hold, with a price target of $290. In his previous role at RBC in early January, he rated Tesla stock as a Buy. Since then, several developments have occurred, including price cuts by Tesla and a substantial increase in the company's share price.
Analysis of the Automotive Industry
Stock Ratings and Targets
Analyst John Spak rates both GM and Ford stocks as Buy, with price targets of $44 and $15 respectively. Despite factors such as EV growth, high interest rates, and peaking new-vehicle pricing, Spak believes that the UAW strike has created a more attractive risk/reward profile for investors.
UAW Strike and Historical Performance
Spak predicts a UAW strike is likely, citing the previous strike against GM in 2019. Interestingly, GM stock underperformed in the lead-up to the previous strike but started to outperform just before it ended. This pattern could be repeating in 2023. Currently, GM stock has declined by approximately 17% over the past two months due to concerns over labor negotiations.
Valuation and Investor Sentiment
Despite the negative sentiment surrounding the automotive industry, many analysts believe that a lot of bad news is already factored into the stock prices. GM stock currently trades at less than 5 times the estimated 2024 earnings, compared to about 7 times earlier in 2023. Similarly, Ford stock is trading at less than 7 times earnings, compared to closer to 9 times earlier this year.
Current Stock Performance
As of Wednesday's premarket trading, GM stock is up 0.8% at $33.75, while Ford stock is up 1.9% at $12.68. On the other hand, both the S&P 500 and Nasdaq Composite futures are down about 0.1%. Tesla stock is also up around 0.3% at $268.20 per share.
Since the beginning of the year, Tesla stock has experienced a staggering increase of approximately 117%. Meanwhile, Ford stock has seen a modest gain of around 7%, while GM stock has declined by roughly 1%.
Analyst Ratings and Price Targets
Among analysts covering the automotive companies, approximately 56% and 39% rate GM and Ford shares as Buy, respectively. This compares to an average Buy-rating ratio of around 55% for stocks in the S&P 500. The average price target for GM stock is approximately $49, while the average target price for Ford stock is about $15.
In conclusion, the current state of the automotive industry is uncertain due to factors such as EV growth, high interest rates, and potential labor strikes. However, analysts believe that much of the negative news is already priced into the stocks of GM and Ford. Investors should closely monitor the developments surrounding the UAW strike and consider the attractive risk/reward profile presented by these stocks.