It’s great to finally welcome the traditional big automakers to the electric vehicle revolution. While we’ve all been watching Tesla Motors steal the show here for a very long time, we finally believe that old-timers like GM and Ford are pulling themselves off the bench.
Better late to the party than never; particularly since this party is the party of the century.
The party is so big, in fact, that Barclays analysts this week felt prompted to predict that accelerated EV adoption, as well as higher fuel efficiency, could reduce global oil demand by 3.5 million bpd by 2025. This would equate to around the daily output of OPEC’s third-biggest producer currently, Iran, whose crude oil production is now some 3.8 million bpd.
The EVs market is now much more crowded than it was just a couple of years ago—and finally it’s not just Tesla that is making headway with electric cars. Legacy automakers, including Detroit’s biggest, have unveiled plans to ramp up EV production and increase offerings to various car market segments.
Tesla’s (NASDAQ:TSLA) stock, for example, defies traditional market wisdom, rising even after the company misses—by miles—its production targets. Nothing seems to chip away at the positive sentiment surrounding Tesla.
Now, after a long run of marvelling at Tesla’s stock and bemoaning the poor performance of our traditional automakers, we’re seeing some promise for Big Auto.
This week we’re looking at two auto stocks that have been languishing in the dust of Tesla’s EV prowess, and one supplier of systems and battery packs for EVs and hybrids that offers wider exposure to this industry.
#1 Ford Motor Company (NYSE:F) has enjoyed a good week—finally, and this is the cheapest stock you can buy in the Big Auto world. Ford shares had gained 2.34 percent this week, opening at $12.20 on Friday. The stock has risen 8.79 percent over the past three months, and 1 percent year to date. The 52-week range is $10.47-$13.27. It’s been struggling to break (or even near) that 52-week high, but now it’s showing signs of momentum.
So what gives?
First of all, Ford announced strong car sales figures for September, and an update on its strategic ‘fitness’ push to cut costs, shift to making more SUVs and trucks, and accelerate “work on smart, connected vehicles, including AVs and EVs and digital services to thrive in emerging transportation operating system.”
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Ford raced well ahead the analyst consensus with the Q2 figures, and the experts have raised their Q3 and Q4 earnings expectations for Ford over the past three months.
On Tuesday, it helped that Ford told investors that it plans to cut $14 billion in costs over the next five years and shift investment away from traditional cars and towards electric and hybrids.
It’s taken a long time to hear this from Ford, which, according to VP Jimmy Settles in a call with investors, is because Ford’s been doing due diligence “to find out how much it [electrification] means to us”.
Investors seem to be taking this as Ford’s definitive push into EVs. It’s belated, but welcome.
#2 General Motors (NYSE:GM), another of Detroit’s car manufacturers, is also racing to develop electric and autonomous vehicles. Like Ford, GM also unveiled an updated EV-geared strategy this week and reported strong September car sales, the best September U.S. retail performance since 2007.
At the beginning of this week, Mark Reuss, General Motors executive vice president of Product Development, Purchasing and Supply Chain, said: “General Motors believes in an all-electric future.”
“Although that future won’t happen overnight, GM is committed to driving increased usage and acceptance of electric vehicles through no-compromise solutions that meet our customers’ needs,” Reuss noted.
Over the next 18 months, GM plans to introduce two new all-electric vehicles based off learnings from the Chevrolet Bolt. Those two new all-EVs will be the first of at least 20 new all-electric vehicles that will launch by 2023, the company said.
GM’s shares rallied 10.97 percent over the past five days, to open at $44.04 on Friday. The stock has gained 21.11 percent in one month, and more than 25 percent in the past three months and year-to-date. The 52-week range $30.21-$45.17.
Over the past few weeks, the GM stock rally was also fueled by speculation that it could spin off its mobility business, and a report by Deutsche Bank analyst Rod Lache that “GM’s AVs will be ready for commercial deployment, without human drivers, much sooner than widely expected,” probably within quarters rather than in years.
In addition, Deutsche Bank and Morgan Stanley believe that the GM stock is undervalued.
Referring to both GM and Ford, Miller Tabak’s equity strategist Matt Maley likes both stocks for the longer term, but cautioned, for the shorter term, that the two stocks may take a little bit of a breather after the recent runs, and said that they looked overbought. Mark Tepper, founder and president at Strategic Wealth Partners, tells CNBC that GM is certainly cheap compared to Tesla, with GM’s forward price/earnings ratio of under seven. The recent jump in carmakers’ car sales and share prices has to do with the hurricanes to some extent, but the rally is really a “story about consumer strength”, with “debt-to-incomes at near-historic lows,” Tepper said.
So in the past weeks, the two biggest Detroit carmakers have been enjoying good stock market runs, thanks to increased sales, more aggressive EV plans, and the investor notion that they are now in the race to compete with Tesla in earnest.
But when it comes to EVs, GM is demonstrating much more determination than Ford—at least for now.
#3 Magna International Inc. (NYSE:MGA)
This is where investors can find some broader exposure to a very hot market.
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Canadian car parts manufacturer Magna offers integration of all-electric and/or hybrid vehicles, electric and/or hybrid modules including powertrains, gearboxes, power electronics, and chargers.
At the end of August, Magna unveiled MAX4, a fully integrated, customizable and scalable autonomous driving sensing and compute platform. It can enable up to Level 4 autonomous driving capabilities in both urban and highway environments, the company said.
Over the past five days, Magna’s stock has gained 1.5 percent to open at $54.28 on Friday. Shares have risen 11.81 percent in the past month, 17.89 percent in the past three months, and more than 25 percent year-to-date. The 52-week range $36.77-$54.73.
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The current consensus analyst rating on Magna’s shares is “overweight”, and analysts have raised their Q3 and Q4 earnings estimates over the past three months.
The catalysts, given the exposure here, are both broad and specific. Magna looks set to rise along with the market for EVs, but also covers itself with conventional car manufacturers.
But the exposure goes deeper than you might think. It’s also set to benefit from increasing demand for driver assistance systems and vehicle automation—another sub-sector that’s seeing huge gains in the market.
What’s worth considering here is that MGA has seen consistent growth since 2010, and debt is low and easy to manage. All indications are that this one is undervalued.
By Tsvetana Paraskova for Oilprice.com
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