Car rates

Automotive stocks have soared on ambitions for electric vehicles. Here’s where they go next.

Who needs parody cryptocurrency when auto stocks are so exciting?


Ford engine
,


General Motors
,


You’re here
,

and


Rivien Automobile

each experienced price fluctuations of more than 10% during the first trading week of the year. This, after some dizzying gains for the group last year.

Predicting performance from here will not be easy. I recently spoke to an analyst who says Tesla stock (ticker: TSLA) is heading towards $ 1,400, and another who says $ 67. You know what they say: sometimes you have to agree to disagree by a factor of 20.

Tesla took the first big step, jumping 13.5% on Monday after the company announced deliveries of 308,600 vehicles in the fourth quarter, beating estimates and its own record. Next, Ford (F) gained 11.7% on Tuesday after announcing it would increase production of its first electric pickup, the F-150 Lightning, to 150,000 units per year.

At this point in the week, shares of General Motors (GM) were already up 12% ahead of the unveiling of its Chevy Silverado electric pickup, scheduled for Wednesday at the Consumer Electronics Show. But on the day of the announcement, stocks fell. Perhaps investors were disappointed with the delivery schedule, or perhaps it was because the broader market was disappointed with signs that interest rates could rise earlier than expected.

What the Ford and Chevy pickup trucks have in common is that they will target workers as well as suburban pickers in spotless Carhartt jackets. The first versions will cost around $ 40,000 and $ 100,000.

The Chevrolet trumps the electrical characteristics: longer battery life and faster charging. But Ford is winning by bringing its truck to market this spring. Chevrolet buyers will have to wait until spring 2023 for the cheapest truck and fall 2023 for the trimmed truck. GM will also launch Chevy electric sport utility vehicles in 2023, including an Equinox that will start at $ 30,000.

Pickup trucks could be the key to electric vehicle adoption in the United States. Last year, electric vehicles reached about 4% of total sales in the United States, up from 2%. But Europe and China are well ahead, with penetration rates in the order of adolescence. Americans so far have few electric choices for the types of vehicles they like to buy. Last year, the Ford F-150 dominated new vehicle sales in the United States, as always. The only surprise was that the Ram 1500 pickup edged out the Chevy Silverado 1500 to be No.2.

Electric ram will take until 2024, owner says


Stellantis

(STLA), a collection of American, Italian and French brands. Startup Rivian (RIVN) has announced it will ship electric pickup trucks this year, but that stock fell 11% last Wednesday after initial support


Amazon.com

(AMZN) said it placed an order with Ram for delivery trucks. Tesla’s Cybertruck was expected last year, but was delayed.

The pent-up demand for vehicles, meanwhile, suggests that a boom is ahead. Amid last year’s shortages, light-duty vehicle sales in the United States were estimated at 15.1 million units, up from nearly 17 million a year before the pandemic. Average transaction prices have climbed 30% from pre-pandemic levels, and percentage price incentives are at record highs.

This year, expect unit sales to increase only modestly, but by next year, when showrooms are full and prices drop, units could reach 18 million. , according to Credit Suisse. The penetration of electric vehicles in the United States will double again this year to 8%, and exceed 50% by 2030, he adds.

One of the risks for mainstream automakers is that they are stalling – that they have to increase the number of EV units with low profit margins for now to make up for the losses to come in downsized models. high margin gasoline.

On the flip side, automakers could shift capacity from gasoline-powered vehicles to electric vehicles before customers want to make the switch. This could leave gasoline-powered vehicles with high prices and profit margins, creating a long and lucrative “farewell tour,” as Morgan Stanley analyst Adam Jonas puts it.

Valuations seem undemanding. Ford is aiming for 12 times projected profits, despite doubling prices last year. GM sells nine times.

The bull’s case on Tesla is that it will do great things in both cars and adjacent markets. Philippe Houchois, who covers Jefferies shares, sees a 35% rise from recent levels, to $ 1,400. Tesla lags behind its legacy rivals on things like build quality and finish, but these are issues that can be fixed, he says. It leads to software, batteries and autonomy, which are lasting assets. He sees Tesla using software to expand the utility and profit potential of vehicles.

Most versions of the Tesla Bear Case assume the company will do well in cars, but not enough to justify a market value of over $ 1,000 billion. For example, JP Morgan’s Ryan Brinkman calls his price target of $ 295 “quite generous” even if that implies a 70% drop in stocks because he values ​​Tesla slightly ahead of the world leader.


Toyota engine

(TM), despite producing a tenth the number of cars so far.

Then there is Gordon Johnson. He worked in large investment banks before launching GLJ Research, where he covers 20 stocks. He’s bullish on uranium stocks and bearish on cannabis, but all everyone wants to talk about, he says, is his price target of $ 67 on Tesla. “I have received death threats,” he said. “Now I don’t even answer the phone when I have unfamiliar calls. ”

In Johnson’s view, there is no reason to assume that Tesla will be successful in adjacent businesses. “You could take


Mcdonalds

and say they’re going to start selling Nike, chairs and pianos and add those ratings, ”he says. In cars, he calculates that the share price implies a ramp-up in production that no automaker could achieve. “Selling cars is not selling iPhones or shirts,” he says.

If Johnson’s three-year stock gain of nearly 1,400% shook Johnson’s confidence, it doesn’t show. After explaining his valuation model to me, he told me he was worried that his price target was too high.

Write to Jack Hough at [email protected] Follow him on twitter and subscribe to his Barron’s Streetwise podcast.