General Motors, Ford and the broad U.S. auto industry all were hit with downgrades from Morgan Stanley analyst Adam Jonas on Wednesday. Jonas cut GM to underweight from equal weight. China looms large in the downgrade. The country now produces 9 million more vehicles than it sells, turning it from a profit center to a growing competitive threat, Jonas said.
Rising inventories, consumer and credit dynamics, and the costs of enabling vehicles with artificial intelligence also played a part in the downgrade.
The downgrade occurs as shares of Tesla's China-based rival BYD flash a buy signal. Meanwhile, Tesla has the industry on the edge of its seat waiting for its Oct. 10 robotaxi reveal.
Morgan Stanley Auto Ratings
GM, Ford and Rivian all slumped in early Wednesday stock market action after the Morgan Stanley downgrade. However, Jonas was more bullish on auto retailers including AutoNation and CarMax, which could benefit as Fed rate cuts bring down auto loan rates.
GM was the only automaker cut to underweight, as Jonas lowered his price target to 42 from 47 – below Tuesday's closing price. Rivian and Ford were both downgraded to equal weight from overweight, with price targets cut from 16 to 13 and 12, respectively.
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Jonas expects both GM and Ford to lose market share over time. For Rivian, Jonas boosted his estimate of capital spending by up to $300 million per year due to the "capital intensity" of developing autonomous vehicles and advanced driver-assistance systems.
Morgan Stanley's Jonas kept an overweight rating for Tesla and Ferrari.
False Dawn For GM Stock?
As of Tuesday's close, GM stock had rallied more than 80% off its lows from last November. At that point, just about everything was going wrong. Since then, GM has benefited from several factors. First, the resolution of a UAW strike. Then the ramping of EV production after multiple false starts. In addition, GM restarted its Cruise robotaxi rides after an accident involving a pedestrian.
GM's sales of gas-powered vehicles and stock buybacks have fueled the stock's recovery. However, new auto prices have trended lower and GM expects a further 1% to 1.5% pullback in the second half of the year.
On Wednesday, GM slid 4% to 46.12 in early trading, while RIVN fell 3.5%. Ford lost 2.2%.
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