The U.S. auto industry marked its worst decline in 2022. Besides for production headwinds, rising interest rates took a toll on demand. Further, a recent Wall Street Journal report highlighted that the challenges for auto companies aren’t likely to abate soon, with falling prices hurting profitability.
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The U.S. Fed’s hawkish stance and the looming threat of a recession are likely to pressure consumer spending and auto sales in the short term. To support volumes, EV giant Tesla (NASDAQ:TSLA) announced discounts in December 2022. Given the challenges, more automakers could announce incentives to boost sales that will negatively impact their profit margins and stock prices.
The WSJ report highlighted that rising interest rates would impact used vehicle sales more than new ones. This implies that shares of Carvana (NYSE:CVNA), which provides an online platform for buying and selling used cars, could remain under pressure despite being cheap.
As for General Motors (NYSE:GM), which defied the industry challenges and delivered 3% growth in U.S. sales in 2022, the pricing pressure could drag margins lower.
Amid ongoing issues, let’s take a look at what TipRanks’ data indicates about them.
Why is CVNA Down?
CVNA stock has lost more than 97% of its value in the past year, reflecting lower demand due to rising interest rates and vehicle price depreciation. It has received one Buy, 15 Hold, and two Sell recommendations for a Hold consensus rating. Meanwhile, analysts’ average price target of $14.71 implies 232.81% upside potential.
TipRanks’ data shows that insiders capitalized on the correction in CVNA stock. Insiders bought CVNA stock worth $2.7M last quarter. Meanwhile, it has received a positive signal from hedge fund managers. Overall, Carvana has a Neutral Smart Score of four.
Is Tesla Stock a Buy, Sell, or Hold?
Tesla stock dropped over 65% in one year. Meanwhile, it sports a Moderate Buy consensus rating, reflecting 20 Buy, nine Hold, and two Sell recommendations. Analysts’ average price target of $251.448 implies 111.59% upside potential.
Thanks to the pullback, hedge fund managers have acquired 1.1M shares of Tesla in the last three months. The buyers include Cathie Wood of ARK Innovation Fund (NYSEARCA:ARKK). TSLA stock carries a Neutral Smart Score of seven on TipRanks.
Is GM a Good Stock to Buy?
Despite solid performance amid a tough operating environment, GM stock fell about 40% in one year. It has a Moderate Buy consensus rating based on seven Buys, five Holds, and one Sell. Further, analysts’ average price target of $43 implies 15.87% upside potential.
Our data shows that hedge funds sold GM stock in bulk in the last three months. Per the data, hedge funds sold 6.4M shares of General Motors. Meanwhile, GM has a Neutral Smart Score of four.
Bottom Line
Rising interest rates and a weak economic environment could impact the demand for and sales of vehicles in 2023. Meanwhile, pricing pressure could weigh on the margins and stock prices. Though shares of these companies have corrected quite a lot, their Neutral Smart Score implies they could perform in line with broader market averages.
