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Ford and GM Are Dropping Because Next Year Looks Doubtful. Tesla Stock Is Down, Too.

Ford vehicles are shown on a sales lot in Houston, Texas, in October.

Brandon Bell/Getty Images

The outlook for the auto industry for 2022 is looking iffy, according to Daiwa analyst Jairam Nathan.

He downgraded shares of both Ford Motor and General Motors , sending those shares lower. Tesla shares fell as well, partly because CEO Elon Musk continues to sell stock, but also because the issues Nathan cited aren’t specific to the big Detroit car companies.

In early afternoon, Ford (ticker: F) stock was down almost 5% at $19.47, while GM shares had declined 2.3% to $57.77. The S&P 500 lost 1.2%, and the Dow Jones Industrial Average slid about 0.5%.

Tesla stock (TSLA) was down 2.7% after falling 5% on Monday—a slide that brings the decline since early November, when Musk announced plans to sell some stock, to about 23%. On Monday, Musk exercised stock options that were due to expire and sold some of the newly acquired stock to cover the tax bill, as he has done repeatedly over the past month.

“Moving to the sidelines on slowing [auto maker] earnings growth, EV transition risks and monetary tightening,” wrote Nathan in a Tuesday report. Those are reasons to be conservative about the industry as a whole, rather than issues with either GM or Ford.

Nathan believes demand will be weaker in 2022 because vehicle prices are high and because the Federal Reserve is cutting back the bond purchases it has used to prop up the economy since early in the pandemic—a step seen as a precursor to higher interest rates. Most people borrow to buy cars, and higher interest rates makes purchases more expensive.

Less demand could mean slower growth in earnings.

“Ford and GM each are planning for a substantial ramp up in new EV introductions between now and 2025,” said Nathan in his report. That is an opportunity, but Nathan said he is worried about higher warranty costs and rising costs of key materials such as the lithium used in EV batteries.

Nathan cut Ford from Hold to Sell. His target price, however, went up to $19 from $16. He cut GM stock from Buy to Hold. His target price remains $65 a share. He didn’t change his Hold rating on Tesla stock, but he raised his target for the price to $1,050 a share from $860.

With the downgrade, now 88% of analysts covering GM stock rate shares Buy. The average Buy-rating ratio for stocks in the S&P is about 55%.

The Buy-rating ratios for Tesla and Ford stocks didn’t change. About 54% of analysts covering Ford stock rate it at buy, compared with about 48% for Tesla.

Write to Al Root at [email protected]

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