Ford F-150 Lightning electric truck
Courtesy of Ford
The auto industry is all-in on electric vehicles. Wells Fargo isn’t so sure that’s a great idea.
Wednesday evening, analyst Colin Langan double downgraded shares of both General Motors (ticker: GM) and Ford Motor (F) to Sell from Buy, skipping Hold. (Analysts typically move ratings one notch at a time.)
“Positive [battery electric vehicle, or BEV] headlines are ubiquitous, and faster BEV adoption seemed like a foregone conclusion; however, the recent raw material spike has massively changed the economics of the transition to BEV,” wrote Langan in a 77-page report on the state of the industry.
He believes the recent raw material spike has delayed cost parity between EVs and gasoline powered cars by “at least a decade.”
Langan still believes a lot of EVs will be sold in the U.S., however, because of fuel economy regulations. He just doesn’t believe traditional auto makers will make any money selling them.
That industry dynamic is what is driving his downgrade of both traditional auto stocks. He slashed his price targets, too. Langan took his GM price target to $33 from $74 a share. His Ford target went to $12 from $24.
Both downgrades are hitting the stocks Thursday. Ford shares slid 4.5% in premarket trading to $12.25. GM stock was down 4.6% to $35.54. S&P 500 and Dow Jones Industrial Average futures are down about 0.9% and 0.7%, respectively.
Langan also cut his price target for Tesla (TSLA) shares to $900 from $960. He kept his Hold rating on the stock. Tesla shares were down 3.6% in premarket trading to $707.89.
Inflation has been a problem for the entire sector recently, not just EVs. But batteries are getting more expensive, too. A basket of metals that go into EV batteries tracked by Barron’s is up about 50% year to date. It is, however, down about 9% from its March peak. Langan added in his report that easing raw material supply constraints would help change his mind.
The industry, of course, is watching raw materials. Many companies, including Tesla, GM and Ford, are investing in battery capacity and going upstream in the supply chain to secure raw material supply.
Tesla CEO Elon Musk said this week at a conference that he is worried less about raw material supply. Musk is more worried about refining capacity and believes the constraint will be the equipment to process raw materials. He sees a bottleneck developing a few years from now if the pace of investment doesn’t change.
Tesla, like many others, is also using more iron-phosphate battery chemistries instead of nickel or cobalt based chemistries. That saves cost while sacrificing some range. The industry will also try to innovate their way out of a raw materials crisis.
However things develop, the next few years will be interesting.
Write to Al Root at [email protected]
