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Challenges in the Auto Industry Despite Potential Good News


Despite the potential positive news for the auto industry in the new year, investors are not convinced. Even with the prospect of declining interest rates and a new labor deal that brings certainty about costs, Wall Street is downgrading shares of U.S. car manufacturers.

On Wednesday, UBS analyst Joseph Spak downgraded Ford Motor stock from Buy to Hold. Although his target price remained at $12, the share price rebounded from November lows of around $10, which were set around the time the United Auto Workers union ratified a new labor contract with the Big Three car makers. Currently trading at $11.26, Ford’s shares were down 1.8% in midday trading, while the S&P 500 and Dow Jones Industrial Average were slightly lower.

While lower interest rates and reduced uncertainty about labor are considered positives, there are still challenges ahead. New car prices are declining, and the transition to electric vehicles requires significant investment.

UBS analyst Joseph Spak expressed optimism about CEO Jim Farley’s vision for the future of Ford but noted that it may take several years to realize the benefits of those plans. Instead, Spak prefers General Motors’ shares and rates them as a Buy.

In addition to established manufacturers, two electric vehicle (EV) start-ups also faced downgrades. Deutsche Bank analyst Emmanuel Rosner downgraded Rivian Automotive stock from Buy to Hold, with a lowered price target of $19 compared to the previous $29 per share. Rivian shares dropped 4.9% in early trading, reaching $16.94.

Rosner expressed doubts about volume and gross margin expectations for Rivian and highlighted various uncertainties following the announcement of their R2 vehicle unveiling, including timing of capital needs, production ramp, and profitability.

The R2: Rivian’s Next Step in Car Building

Rivian, the electric vehicle (EV) manufacturer, is making strides in expanding its product lineup with the introduction of the R2 platform. This new platform will serve as the foundation for a range of vehicles that are expected to be more affordable than the current R1S and R1T models.

Fisker Stock Takes a Hit

Meanwhile, Fisker, another player in the EV market, is facing a downturn. Its stock has fallen by 11%, reaching a value of just 86 cents per share. This decline came after TD Cowen analyst Jeffrey Osborne downgraded his rating for the company from Buy to Hold. Moreover, he lowered his target price for Fisker’s shares from $11 to $1.

Osborne cited the company’s struggle to meet delivery expectations and the overall softening of the EV market as reasons for his revised stance. Although the EV industry witnessed solid growth in 2023, with total sales reaching approximately 8.7 million units (a 33% increase from the previous year), it is worth noting that the rate of growth is slowing down. Additionally, more EV models are being introduced to the market, intensifying competition.

Fisker Faces Braking Investigation

Adding to Fisker’s challenges is an ongoing investigation by the National Highway Traffic Safety Administration (NHTSA) regarding complaints about braking issues. It is crucial to remember that investigations are an inevitable part of the automotive industry, often leading to recalls. However, for a relatively young company like Fisker, these investigations and recalls can unsettle investors.

Analysts Weigh In

Following Osborne’s downgrade, only 15% of analysts covering Fisker now rate its shares as Buy. In contrast, the average Buy-rating ratio for stocks in the S&P 500 stands at approximately 55%. According to FactSet, the average analyst price target for Fisker’s shares is approximately $2.75.

Comparatively, the sentiment toward other automotive manufacturers is more positive. Roughly 40% of analysts covering Ford’s stock rate it as Buy, with an average price target of $13. Additionally, 63% of analysts covering Rivian rate its shares as Buy, and the average price target for the company is approximately $25 per share.

While the EV market continues to evolve and face challenges, Rivian’s expansion into the R2 platform demonstrates its commitment to providing more accessible options for consumers in the future.

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