As this year comes to a close, it is time to look at what 2022 could bring, especially for the Automobile sector. This sector was a troubled one this year, affected by supply chain constraints and a semiconductor shortage.
By analyst Colin Langan’s estimate, approximately 39 million vehicles could not be produced due to the semiconductor shortage. That represents around 40% of normal production levels globally. Analyst Langan is from Wells Fargo, one of the Top Research Firms, which is ranked #10 on TipRanks.
By his projections, it will take around five years for these lost sales to completely recover.
The other big news in the automobile industry this year was the push for electric vehicles (EV) from the U.S. government. Earlier this year, U.S. President Joe Biden signed an executive order that aims to make 50% of all new vehicles sold in the United States electric by 2030.
Considering these changes and hurdles last year, let us look at what 2022 holds for the automobile sector and the top picks in this sector, according to analyst Colin Langan.
Ford Motor Co. (NYSE: F)Analyst Langan has projected approximately a 9% unit growth globally next year for Ford, in line with Ford’s outlook for around 10%. The company expects certain headwinds to persist next year. These include commodity prices that could rise by $1.5 billion next year, from a range of $3 billion to $3.5 billion in 2021, as well as other inflationary cost pressures.
When it comes to Ford’s automotive financing arm, Ford Credit, Langan expects its profit to decline by around $1.4 billion in 2022, “given the non-reccurrence of MTM [mark-to-market] gains.”
Indeed, the company’s management stated on its Q3 earnings call that “Ford Credit is likely to be lower as strong auction values will be moderated by a smaller inventory of vehicles and lower lease and return rates.”
It is important to note here that Ford Credit earns revenues primarily from payments made “under retail installment sale and finance lease (retail financing) and operating lease contracts that it originates and purchases.”
When it comes to the North America segment, demand for Ford’s vehicles remains strong, and wholesales increased sequentially by 67%. Analyst Langan also expects the North America segment to be up 16% year-over-year in 2022.
As a result, the analyst is bullish on the stock with a Buy rating and raised the price target from $19 to $25 on the stock.
When it comes to analyst consensus, the rest of the analysts on the Street are cautiously optimistic with a Moderate Buy consensus rating, based on 9 Buys, 3 Holds, and 3 Sells.
The average Ford stock prediction of $19.50 implies a downside potential of 3.7% to current levels for this stock, suggesting that the stock has overshot its valuation.
General Motors (NYSE: GM)Analyst Langan anticipates a rise of 15% year-over-year in sales for GM in CY2022. When it comes to sales in North America, the analyst anticipates a 27% decline quarter-on-quarter, while weakness in International sales is also expected to persist.
GM is pushing for electric vehicles in a big way, and the company expects its EV vehicle assembly capacity in North America to reach 20% by 2025 and 50% by 2030. What’s more, the company estimates revenues from EVs to increase from about $10 billion in 2023 to $90 billion by around 2030.
The company’s management had made it clear on its Q3 earnings call that in spite of supply chain constraints, GM continued to expect higher volumes in Q4, as compared to Q3.
Langan anticipates higher volumes and positive “geographic mix” to be offset by higher “commodity costs (~$2b), lower credit profits, vehicle mix headwinds, and higher BEV [battery electric vehicles] investment costs.”
But the analyst remained upbeat about the stock, with a Buy rating, and he raised the price target from $67 to $74 based on 4.5x the revised 2022E EBITDA estimate of $12.5 billion.
The rest of the analysts are bullish about the stock, with a Strong Buy consensus rating based on 11 Buys and 2 Holds. The average General Motors stock price prediction of $74.08 implies upside potential of 30.2% to current levels for this stock.
Even hedge funds are positive about this stock, as 18 hedge funds have increased their holdings by 1.2 million shares in the last quarter. Robert Olstein, hedge fund manager for Olstein Capital Management, one of the Best Hedge Funds, according to the TipRanks ranking, raised its holding of the stock. GM made up 1.3% of that hedge fund's portfolio and the shares were worth $10.3 million as of December 26.
Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates. Read full disclaimer >