It isn't easy being an investor in car stocks these days. Questions about overall demand growth, electric vehicles, and the election are all being tossed around.
Wall Street still has some ideas about what stocks will work, though.
In an earnings preview report, Emmanuel Rosner of Wolfe Research lays out what he expects in the coming weeks as results roll in and what auto makers he likes.
First, his broad perspective: The third quarter "is likely to be another challenging autos earnings season, as we expect broad earnings misses and guide-downs," the analyst wrote.
The main problem, Rosner pointed out, is inventory destocking. Dealers need to work off some inventory, which will require the likes of General Motors, Ford Motor, and Stellantis to lower their production.
Still, the overall level of retail demand looks solid. Americans are on pace to buy about 15.7 million new cars this year, up from about 15.5 million in 2023. Prepandemic levels were closer to 17 million new cars a year.
"The one silver lining is that expectations and valuations are already low," added Rosner.
GM stock trades for about 5 times estimated 2025 earnings. Ford trades for 6 times.
Rosner likes GM stock into the quarter and sees upside to second-half numbers. The company expects to make about $6 billion in operating profit in the third and fourth quarters, down from the year's first half of $8.3 billion. The analyst thinks that guidance might turn out to be conservative.
Despite his bullish view, Rosner rates GM shares Hold and doesn't have a price target.
Like Rosner, BofA analyst John Murphy expects slowing production and solid quarters from both GM and Ford. Murphy rates both stocks Buy. His price targets for GM and Ford are $85 and $20, respectively.
As for suppliers, Murphy thinks those exposed to BMW, Mercedes-Benz, and Stellantis are more at risk. Those three have run into either slowing demand growth in China, high dealer inventories, or both. That could lead to volatile results at Visteon, Aptiv, and BorgWarner.
Murphy still rates all three supplier stocks Buy. His price targets for Borg, Visteon, and Aptiv are $45, $135, and $102, respectively.
Similar to his fellow analysts, Tom Narayan of RBC noted investor sentiment that is "quite bearish" heading into quarterly earnings.
Narayan thinks GM, Tesla, and Ferrari are the three companies "well positioned to weather" falling new car prices. "Ferrari is not really an auto name," added Narayan. It's more of a luxury stock. Shares trade for about 50 times estimated 2025 earnings.
The analyst rates Ferrari a Buy and has a $509 price target. He rates GM and Tesla shares Buy. His GM price target is $58 a share. His Tesla price target is $236.
Wedbush analyst Dan Ives rates Tesla a Buy. His price target is $300.
On Monday, Ives wrote that investors are focused on EV demand and profit margins heading into Tesla's third-quarter earnings report on Wednesday.
Tesla's operating profit margins in last year's third quarter came in at 7.6%. Operating profit margins in this year's second quarter came in at 6.3%.
Slowing sales growth, high costs to produce the Cybertruck, and higher incentive levels have weighed on profitability. Showing some improvement will be important. Wall Street expects third-quarter operating profit margins to come in at about 8%.
"Expect Musk to Address fourth-quarter [and] 2025 demand outlook," added Ives.
Wall Street expects Tesla will deliver about 490,000 vehicles in the fourth quarter. That would be a record. For this full year, Wall Street projects about 1.8 million vehicles sold, flat with 2023. For next year, analysts project a jump to about 2 million units.
Besides Tesla on Wednesday, GM reports on Tuesday and Ford reports next Monday. Investors will have a better sense of how the end of this year and the coming year will shape up after their numbers are out.
Maybe some of their questions will be answered, making life as an auto investor a little easier.
GM reports first Tuesday morning. Shares dropped 0.5% in Monday trading, closing at $48.93 while the S&P 500 and Dow Jones Industrial Average fell 0.2% and 0.8%, respectively.
