The automotive stock sector encompasses a wide range of companies.
An analyst has initiated coverage on five leading automotive companies, comprised of three key automotive manufacturers and two automotive suppliers.
The Automotive Analyst: Piper Sandler analyst Alexander Potter began coverage on the "five cornerstone stocks in the automotive sector."
The analyst said Piper Sandler has shifted away from covering internal combustion engine stocks. The transition to electric vehicles has "broad implications" on traditional automakers and suppliers, Potter added.
"In an effort to more fully capture the breadth of this trend, we are adding coverage of the ‘Detroit 3’ as well as two key suppliers," Potter said.
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Automotive Stocks: The new initiations from Potter include ratings on the "Big 3" Detroit automakers.
- Stellantis NV STLA: Overweight, $39 price target
- Ford Motor Company F: Neutral, $13 price target
- General Motors Company GM: Neutral, $44 price target
"Of these, our favorite is Stellantis," Potter said.
The analyst said Stellantis "sets the standard for incumbent OEMs."
"Like many carmakers, this builder of Ram pickups and Jeep SUVs may face margin pressure due to rising EV mix but with 6M+ units sold annually and best-in class margins, STLA has margin to spare."
The analyst said Stellantis is well positioned as it is partially shielded from EV risks with growth outside of the U.S. and Europe in regions that could be slower to adopt electric vehicles.
"We think STLA has the volume and the margins required for bridging the gap to a post-ICE world."
For General Motors, Potter sees a pure-play on the North American market and a focus on gasoline trucks and SUVs.
"Outside tiny cars built in China, GM lacks scale in regions/segments that are eagerly adopting EVs."
Potter said General Motors margins and market share could decline in the coming years.
"Our long-term forecast implies a few loss-making years in the late 2020s, followed by a recovery."
Potter said Ford has balanced investment characteristics, but hasn't kept pace with Tesla on its electric vehicle costs.
"As with GM, the EV transition may force Ford to cope with negative margins in the mid/late-2020s."
The analyst sees Ford's strong commercial vehicle segment as a positive that can help with pressure elsewhere.
Potter said most OEMs are unable to duplicate Tesla Inc‘s TSLA strategy of internalizing electronics and software development, along with its cost-effective Chinese production model.
The analyst has an Overweight rating and $225 price target on Tesla.
Potter also recently upgraded Rivian Automotive RIVN from Neutral to Overweight and raised the price target from $15 to $21. The analyst pointed out that Rivian is the company coming closest to mirroring Tesla’s efforts in the electric vehicle (EV) sector and in-house manufacturing approach.
Auto Suppliers: Potter highlighted two automotive suppliers poised to navigate the shift to electric vehicles successfully, offering products essential for various vehicle types.
- BorgWarner Inc BWA: Overweight, $43 price target
- Mobileye Global MBLY: Neutral, $31 price target
Potter said BorgWarner is a "value conscious EV stock."
The analyst said BorgWarner has used M&A activity, spin-outs and research and development to align its products with the automotive transition to EVs.
"Electrification is a durable theme, and BWA's exposure should ultimately translate into upside. It's not as lucrative as software, but EV drivetrain hardware is essential and unlikely to be insourced," Potter said.
The analyst said he likes Mobileye but worries about the reception of new product launches.
"It's unfair to judge MBLY based on a handful of customers product launches, but in 2024, we think that's exactly what investors will do."
Potter said Mobileye is growing and profitable, which makes it tough to be negative on the company.
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