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Have We Reached Peak Auto? Not Even Close

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Have We Reached Peak Auto? Not Even Close
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The next wave of Auto-Tech investing is unlikely to be confined to auto suppliers, and should rather expand to certain automakers, Citi’s Itay Michaeli mentioned. While bears believe that Ford Motor Company (NYSE: F) and General Motors Company (NYSE: GM) have “squeezed every dollar” out of North America. The analyst pointed out, however, that:

  1. Car segments do not appear significantly profitable, with most of the profits being generated by trucks, which is “a segment that we also happen to regard as a strategic “moat” that’s less susceptible to transformation”
  2. Both Ford and General Motors seem to be underpenetrated in major states, such as California and New York
  3. Although their aftermarket businesses are highly profitable, they are addressing less than 50 percent of the market

Michaeli commented that this did not appear to be peak potential.

Related Link: JPMorgan Doubtful Tesla Will Hit Production Numbers

GM Is A Looming Transformation Story

General Motors is likely to become a transformation story based on the potential long-term shift from low-margin cars to high-margin mobility, “with trucks (majority of profits) staying as the anchor,” Michaeli said. He believes the company’s key assets, namely Bolt and SuperCruise, would be able to enhance Lyft’s driver recruitment proposition, “thereby giving GM a direct hand in building the network.”

“This could position GM for more lucrative economics in the driverless era than what’s commonly perceived for “OEMs”. Even contract manufacturing could be a better proposition than today’s small car returns,” the Citi report stated.

Michaeli has Neutral rating for Ford, with a price target of $15. The analyst maintained a Buy rating for General Motors, while raising the price target from $44 to $50.

Latest Ratings for GM

DateFirmActionFromTo
Mar 2017NomuraUpgradesNeutralBuy
Jan 2017Daiwa CapitalDowngradesNeutralUnderperform
Dec 2016BMO CapitalInitiates Coverage OnMarket Perform

View More Analyst Ratings for GM
View the Latest Analyst Ratings

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