By Morgan Stanley revised its outlook on the US auto industry, lowering its assessment from ‘Attractive’ to ‘In-Line’, and downgraded major US automakers including General Motors, Ford, and Rivian as part of the exercise.
This adjustment reflects increasing competitive pressures from China, rising inventory levels, and affordability concerns impacting domestic automakers.
Chinese oversupply pressures global markets
The report points to China’s automotive industry, which now produces roughly 9 million more vehicles than it consumes, creating a global oversupply.
This excess capacity is expected to intensify competition in international markets, including the US with Morgan Stanley analysts noting,
Even if these units don’t end up directly on US shores, the ‘fungibility’ of lost share and profit by key US players adds pressure here at home.
The swift ascent of China’s domestic electric vehicle (EV) manufacturers, including BYD and Xpeng, has been placing global automotive giants at a disadvantage.
An indication of the mounting difficulties traditional automakers are encountering came earlier this month when Volkswagen announced it might consider closing plants in Germany for the first time in its history to reduce costs.
Downgrades for GM, Ford, and Rivian
As part of the revision, Morgan Stanley downgraded several key automakers.
General Motors’ stock rating was reduced to Underweight from Equal Weight, with its price target cut from $47 to $42.
Ford saw a similar adjustment, with its target price lowered from $16 to $12. Analysts said,
Our downgrades to Ford and GM are underpinned by our expectation for greater share loss through the end of the decade, price/mix headwinds, and China risk.
Rivian’s stock rating was reduced to Equal Weight, with a revised price target of $13, down from $16.
For Rivian, Morgan Stanley analyst Adam Jonas boosted his estimate of capital spending by up to $300 million per year due to the “capital intensity” of developing autonomous vehicles and advanced driver-assistance systems.
The downgrades reflect concerns over rising competition from Chinese automakers, regulatory compliance issues, and potential challenges in the electric and autonomous vehicle markets.
Share prices tumble
Shares of all three automakers- Ford, GM and Rivian plunged on Tuesday.
GM share price was down by 5.6%, Ford was down by 4.46% and Rivian was down by 4.86%.
While GM has rallied by more than 25% year to date, both Ford and Rivian have declined by nearly 15% and about 47%, respectively during the same period.
While automakers faced downgrades, franchise dealerships such as Asbury Automotive (ABG) and Lithia Motors (LAD) received upgrades.
Morgan Stanley’s revised view suggests these companies are better positioned to navigate the evolving landscape of the auto sector, despite broader challenges.
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