Analyst Ditches Automakers For Auto Dealers, Parts Companies
Analysts at Morgan Stanley sparked a shakeup across auto stocks Wednesday as the firm moved to the sidelines on automakers and turned more positive on dealers and parts companies.
What Happened: Morgan Stanley analyst Adam Jonas downgraded Ford Motor Co (NYSE:F), General Motors Co (NYSE:GM) and Rivian Automotive Inc (NASDAQ:RIVN) on Wednesday as he cut his overall U.S. auto industry outlook from Attractive to In Line.
Jonas’ more sour view of the auto industry landscape is being driven by a combination of factors he believes may not be fully understood by the market, including climbing inventories, vehicle affordability challenges, rising credit losses and delinquencies and growth slowdowns in China.
“In addition, our previous attractive industry view was supported by our expectation of significant strategic changes such as lower capex and potential consolidation (M&A/partnership) to improve capital efficiency. While there has been some modicum of progress, it has failed to meet our expectations,” the Morgan Stanley analyst said in a new note to clients.
Jonas also noted Morgan Stanley had been optimistic about automakers getting a boost for being AI enablers, but that concerns about the significant capital requirements for AI development now counter thesis.
Finally, investors are looking for an opportunity in the market driven by the Federal Reserve’s rate-cutting cycle, but although rate cuts can provide “temporary” relief for automakers, cuts are not likely to drive material outperformance, Jonas said.
The Morgan Stanley analyst highlighted data showing that although U.S. auto stocks have modestly outperformed on average in the six months following a rate cut, they have historically underperformed over the subsequent six-month period.
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