The US automotive industry is at a crossroads, torn between the comfort of traditional gas-guzzlers and the promise of electric vehicles. While SUVs and trucks continue to rake in profits, the shift to EVs is happening at a snail’s pace, with losses mounting and sales growth stagnating. Morgan Stanley analyst Adam Jonas has sounded the alarm, downgrading Rivian Automotive, Ford Motor Company, and General Motors, citing a perfect storm of challenges facing the industry.
Jonas has slashed his outlook for the US auto industry, shifting from “attractive” to “in-line”, a clear indication that investors should temper their expectations. One major concern is the rising inventory levels at US dealerships, which historically puts downward pressure on new vehicle prices. However, this could actually be a blessing in disguise, as relief on pricing could stimulate demand.
Another red flag is the slowing growth in China, where American automakers are struggling to keep pace with the rapid transition to EVs. In July, EVs accounted for over 50% of new passenger car sales in China, leaving US manufacturers in the dust. Meanwhile, Bank of America analyst John Murphy remains optimistic, believing that a rate cut could provide a much-needed boost to new vehicle sales.
Despite the doom and gloom, much of the pessimism is already reflected in the stock prices of Ford and GM, with their price-to-earnings ratios hovering around 10 and 5 times, respectively. Jonas’ downgrades may be a wake-up call, but investors should take them with a grain of salt. The transition to EVs will be a long and bumpy ride, but those with a long-term horizon may find opportunities in the chaos.
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