Stock Analysis & Ideas

Why Auto Stocks May Face a Bumpy Ride Ahead

Story Highlights

The list of headwinds is increasing for automakers. The industry is facing challenges of higher interest rates and recessionary fears affecting consumer spending. 

Automakers have had a tough couple of years, with supply constraints taking a toll on them. Just as things gradually started to improve, rising interest rates, input cost headwinds, and an uncertain economic trajectory posed challenges. Macro headwinds are impacting consumer spending and auto demand, indicating a difficult operating environment for automakers in the coming months.

Car prices are now at record-high levels. On top of that, average interest rates of more than 5.5% are at three-year highs and have made the demand for new vehicles even more challenging.

Amid headwinds, Wall Street is wondering if consumer demand will remain intact. Let’s see what recent vehicle deliveries of the big auto companies indicate.  

Auto Industry Sales Numbers Indicate a Mixed Picture

For the third quarter, auto industry sales in the U.S. remained flat year-over-year at 3.36 million, according to data from Wards Intelligence.

On October 2, Tesla (NASDAQ:TSLA) reported record deliveries of 343,830 vehicles in Q3, but it fell short of the Street’s estimates of about 364,000.

On the positive side, General Motors (NYSE:GM) reported that vehicle sales grew 24% year-over-year to 555,580 units for the September ended quarter.

However, Japanese automaker Toyota’s (NYSE:TM) sales fell 7.1% year-over-year to 526,017 vehicles in the September quarter. Last week, Toyota slashed its production target for October by 6.3% due to chip shortages. This means lower production levels in the second half of the year.

Last night, EV maker Rivian Automotive (NASDAQ:RIVN) announced that it produced 7,363 vehicles in Q3 and delivered 6,584 units during the same period. Further, management reiterated its full-year production guidance of 25,000 units, which is comforting given the current scenario.

Ford Motor (NYSE:F) is expected to report its U.S. sales number later today. Let’s take a look at the Street’s outlook on Ford.

Is Ford Stock Expected to Rise?

Based on the 15 analysts covering Ford stock on TipRanks, Ford has an average price forecast of $16.16, which implies 40.89% upside potential.

Overall, analysts are cautiously optimistic about the stock and have a Moderate Buy consensus rating, which is based on five Buys, nine Holds and one Sell.

Notably, Ford stock has a top-notch ‘Perfect 10’ Smart Score on TipRanks. Further, Ford stock has a positive signal from hedge fund managers, who added 2.2 million shares during the last quarter.

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Concluding Thoughts

The moderation in demand resulting from rising interest rates as well as recessionary pressures is concerning for the overall auto industry. Though automakers expect that the demand could hold up, investors should remain cautious before investing in the auto space.

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