Avoid the auto trade.
That’s what two traders recommended following Ford’s surprise announcement that CEO Jim Hackett is retiring in October. Jim Farley, the company’s chief operating officer, is set to succeed him. The move marks the fourth time Ford has replaced its chief executive since the Great Recession.
Ford’s stock closed more than 2.5% higher Tuesday and was up 0.4% in Wednesday’s premarket in response to the news, a spot of green in an otherwise difficult year for the legacy automaker. Shares of Ford and General Motors are down 26% and 29.5% year to date, respectively, while electric upstarts Tesla and Nikola have gained 255.5% and 276%.
Even so, none of the pure-play auto stocks look attractive to Mark Tepper, president and CEO of Strategic Wealth Partners.
“I wouldn’t be buying any of the automakers right here,” he told CNBC’s “Trading Nation” on Tuesday. “Vehicle sales overall have been on the decline for years and that was before any of this Covid stuff happened. And if you think about it, if work-from-home is permanent to some extent as a lot of people believe it’s going to be, people are going to be putting fewer miles on their cars.”
Tepper added that while electric vehicles seem like an imminent threat to the traditional automakers, they still only make up about 3% of total vehicle sales. Moreover, he said, Tesla’s sale of zero emission credits tipped its scales toward profitability last quarter — not vehicle sales.
“We’re not seeing a lot of those either,” Tepper said. “Just to kind of put things in perspective, Tesla has 10 times the market cap of Ford. Ford sold 367,000 F-Series pickups in the first half of this year and that’s how many vehicles Tesla sold in pretty much all of last year. So, I just don’t see a light at the end of the tunnel for the traditional automakers until they make a bigger push into EVs. I think that’s what it’s going to take.”
Todd Gordon, managing director at Ascent Wealth Partners, agreed.
“We’re not overly constructive. There’s a lot of moving parts to the industry and this story,” he said in the same “Trading Nation” interview.
From cars being a “big-ticket, high-discretionary purchase” — the kind that people tend to set aside in times of economic strain — to people driving less in the stay-at-home environment, Gordon sees the risks piling up for auto manufacturers.
“The other thing that’s interesting is the average lifespan … of cars is up to 11.9 years,” he said. “Technology is allowing these cars to stay on the road longer.”
Throw in a low interest-rate environment making it easy to borrow financing, and automakers seem to be falling victim to a kind of “technological deflation” as people turn to the used-car market instead of buying new, Gordon said.
“If you just take a look at Ford from a technical point of view, it’s been in an established downtrend,” he said, citing the chart.
“It’s got to break up through 10 bucks in sort of an example of the … turnaround story matching up with technicals,” Gordon said.
“They have a long way to go in terms of traditional autos [in] the electric vehicle market,” he added. “They’ve got a big head start in technology. Will they ever play catch-up? I don’t think so. We’ll just see if this next crop of sort of potential buyers of the EV market come in, if it becomes more mainstream because the initial tech, techies kind of jumped in for now. So, like I said, it’s a very difficult story. We have no positions and we’re staying pat right now.”
