Auto investor nerves are frayed as they deal with Russia, inflation and the persistent chip shortage.
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Automotive News incorrectly reported over the weekend that Ford Motor expected a 12% drop in U.S. sales as supply chain woes, and the global semiconductor shortage, persist for longer than expected.
The report was corrected, but Ford (ticker: F) shares are still down Monday. The reaction shows that auto investor nerves are frayed as they deal with everything from Russia, to inflation, to the persistent chip shortage.
Ford stock is down about 2% in midday trading at $15.71 a share. The S&P 500 is down 0.6% and Dow Jones Industrial Average is up 0.2%.
Ford explained to Barron’s the reported 12% sales drop was essentially comparing apples and oranges, looking at retail sales without considering all sales channels such as fleet sales.
The weekend report was potentially jarring because Ford, along with Wall Street and investors, expect a lot of improvement in 2022.
Ford still expects production to be up 10% to 15% globally for the full year 2022. The company expects to generate about $12 billion in operating profit in 2022, up from $10 billion in adjusted operating profit reported in 2021. Ford reiterated that profit guidance as recently as March 2.
Wall Street is projecting improvement as well. Analysts project sales will hit about $146 billion in 2022, up from $136 billion reported in 2021. What’s more, analysts estimate Ford will deliver about 4.4 million vehicles globally in 2022, up from about 3.9 million delivered in 2021. And in the U.S., analysts project almost 2.4 million deliveries, up from about 2 million deliveries in 2021.
At least the shares aren’t reacting as if U.S. production was cut by 12%, or by about 600,000 units compared with prior guidance. But shares are still down, indicating that investors are wary of supply chain news.
Supply chain problems aren’t new though, and are well known to just about everyone in a host of industries, including the car business. For cars, a lack of semiconductors has constrained global car production for more than a year. No chips shaved about 8 million units off of planned global production in 2021.
Light vehicle production was roughly 18 million units in the fourth quarter of 2021, according to auto suppler TE Connectivity (TEL). That rate was due to improve over the course of 2022, eventually hitting 20 to 21 million units per quarter.
Production might not be improving as fast as people expect. This past week, Benchmark analyst Mike Ward cut his 2022 earnings estimates for General Motors (GM) stock citing chip problems and inflation. “Higher commodity prices will result in a headwind of about $500 per unit based on current prices compared with year-earlier levels,” wrote the analyst.
His new 2022 EPS estimate for GM is $7 a share, down from $7.60, but he still rates the shares a Buy and has a $75 price target. Ward likes Ford stock, too, rating shares Buy. His Ford stock price target is $29 a share.
There are a lot of cross-currents for auto investors to deal with these days. At least, some bad news is already reflected in both shares of GM and Ford. GM stock is down about 29% year to date. Ford stock is off about 24%. Now auto investors have to decide whether recent prices are attractive enough to risk supply chain problems actually interfering with company guidance for the coming year.
Write to Al Root at [email protected]
