The automobile sector comes off a rough road in Q1 when visions of a Green Tidal Wave faded into the realities of commodities inflation and more supply chain disruption.
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Looking ahead, Morgan Stanley warned that the combination of 40-year high CPI inflation, record gas prices and interest rate regime change may create conditions for an automobile buyers’ strike. After holding discussions with dealers, the firm believes the first signs of demand destruction will be with low-income consumers buying gas guzzling trucks and SUVs.
The top three selling trucks in the U.S. are the Ford F-Series (F), Ram Pickup (STLA) and Chevrolet Silverado (GM), which all feature a fuel economy rating below 20 miles per gallon. Big sellers like the Honda CR-V (HMC) , Toyota RAV-4 (TM) and Nissan Rogue (OTCPK:NSANY) are all below 30 mpg. The high level of gas prices and incrementally growing concerns of a recession in 2023 are seen starting to factor into buying decisions.
Analyst Adam Jonas and team expect the tough macro backdrop to pressure auto stocks with growth and margins seen at risk. There could also be some impatience with the recent IPO and SPAC entries into the sector due to production and revenue still down the road against a backdrop of value being favored over high-growth stories.
Investor are advised to climb the ladder on quality, pricing power, and renewability. Ferrari (RACE) is the Morgan Stanley’s top pick, Tesla (TSLA) is called a must-own name, while Rivian Automotive (RIVN), Carvana (CVNA) and Freyr Battery (FREY) are called “gems in the detritus.”
Some of the worst Q1 auto stocks performers were Electric Last Mile Solutions (ELMS) -81%, (CENN) -60%, Rivian (RIVN) -55%, Arrival (ARVL) -50% and Sono Group (NASDAQ:SEV) -46%.
Some of the best Q1 auto stock performers were Allego NV (NYSE:ALLG) +25%, Blue Bird Corporation (NASDAQ:BLBD) +22%, Workhorse Group (NASDAQ:WKHS) +6%, AEye (LIDR) +4% and Nikola (NKLA) +2%.
See the Seeking Alpha Quant Ratings across the automobile sector.
