According to Automotive News analysis, share prices of US automakers fell an average of 48% in the first half of the year and more than 27% year-on-year. Rivian Automotive Inc. experienced the largest share price decline in the first half, falling more than 75%. Stellantis and Tesla Inc. were the least affected, with Stellantis only down 34% and Tesla 36% from their December prices.
John Murphy, chief executive of Bank of America Merrill Lynch, said Automotive News that the auto industry has been in a de facto recession for two and a half years due to supply constraints. He said he expects pent-up demand to drive the industry’s economic recovery as those constraints ease.
“Ultimately, we expect there will be a significant recovery in demand as supply constraints ease,” Murphy said. “We have evidence that this demand exists because used car prices, although having come down to some extent, are still near historical highs.”
Murphy said he doesn’t expect the industry to be hit by a potential recession due to record high costs for used and new vehicles and already existing demand. He said the auto industry tends to drive the economy in and out of recessions and that an auto recovery would “certainly drive the recovery of the US economy” from any potential recession.
“An official one-quarter recession where GDP is negative could be healed very quickly by a very significant recovery in auto volumes – which is currently dependent on supply chain constraints, not necessarily a lack of pent-up demand,” Murphy said.
He said the continued decline in automaker stock prices in the first half of the year stemmed from an unmet expectation of easing supply chain constraints as well as what he saw as “Misguided” concerns about potential demand destruction if the US goes into recession.
Ford Motor Co. and Tesla saw their U.S. light vehicle deliveries increase in the second quarter, Ford’s by 1.8% and Tesla’s by about 53%. Stellantis’ sales fell 15.8%, while GM’s fell 15.4%.
Share prices of various auto suppliers have fallen an average of 25% since the start of this year, Horizon Global Corp. having fallen the farthest, at almost 80%.
Luke Junk, senior financial analyst specializing in automotive suppliers at Robert W. Baird & Co., said Automotive News that the top three factors behind the decline in stock prices were the war in Ukraine, the COVID-19 lockdowns in China, and inflation.
Junk said suppliers were hampered by increases in the price of electronic components and transportation costs. He said much of those impacts were seen by auto suppliers last year and he expected some economic recovery by the rest of 2022.
“A lot of inflationary headwinds in the auto supplier world…much of that pain was seen in the last year,” Junk said. “There is actually, as we go through 2022, some price recovery. So while the market as a whole and auto stocks are impacted by inflation, the dynamics are a bit different.”
Junk reiterated Murphy’s assertion that the auto industry has been in a supply-driven recession since the start of 2020. He said Baird’s analysis showed auto sales fell by the same percentage in 2021 than at the height of the 2008 financial crisis and, as a result, the industry would not be as affected by a possible recession.
Dealer groups saw the smallest decline in stock prices, according to the Automotive News analysis, and fell an average of 12% from December. Asbury Automotive Group saw the smallest drop, falling just 2%, while CarMax saw the biggest drop, slipping more than 30%.
Murphy said dealer groups benefit from record prices for new and used vehicles, allowing them to retain more profits. He said groups are using increased cash flow to boost their structural earnings potential and buying back shares to boost earnings per share.
“We expect dealerships to continue to earn similar or even better earnings per share overall as a business over the next four or five to six years as we navigate a recovery in demand for new vehicles. “Murphy said.
Murphy said dealer groups saw their stock price decline in the first half due to a “myopic focus” on new-vehicle gross margins. He said those margins will inevitably shrink as supply constraints ease and this market focus “neglects to recognize strength and growth and other parts of the business.”
Other retail-related actions
Other retail-related stocks, especially e-tailers, have seen the biggest share price declines of any auto group, dropping an average of 57% in the first half of the year. Carvana experienced the largest decline, dipping more than 90 percent.
Concession management systems provider CDK Global Inc., which completed its sale to Brookfield Business Partners on Wednesday, saw its stock price soar more than 30% from December following the acquisition. The company is no longer listed on the stock exchange.