Wall Street analysts said Monday that pre-buying vehicles ahead of tariffs would provide a temporary boost to US carmakers such as Ford and GM. However, the long-term outlook remains clouded due to rising costs and a weakening of demand throughout the automotive value chain.
Edison Yu, a Deutsche Bank analyst, took a close look at the auto industry on Monday. He revised his expectations for General Motors (GM) and Ford Motors as earnings in the first quarter approached.
Yu said that dealers pre-buying to get ahead of a new tariff regime will help both automakers begin the year on a firmer footing.
Yu wrote that “pre-buying” will be beneficial in the early part of 2025.
Both GM & Ford sell vehicles primarily to dealers who then sell them to consumers. This gives manufacturers a boost in the short-term as inventories build up.
Costs are increasing and threatening automaker profits
Yu, however, sees a lot of pain ahead, even after the initial wave.
He estimates that tariffs can reduce profits by between $4 billion and 7 billion dollars per year for both GM and Ford.
Ford and GM both posted operating profits of over $10 billion last year.
Yu wrote: “We don’t think [automakers] will bear the entire burden as consumers and dealers are going to take some of the hits.”
Automakers will likely explore mitigation strategies, such as adding production shifts to US plants and negotiating to share the burden with suppliers.
Yu is not optimistic, however, and says that the administration appears to be committed to the auto tariffs.
“While the Trump Administration appears flexible on broader reciprocal’ Tariffs, the auto Tariffs appear to be more stickier,” wrote Yu.
“Our assumption is that they won’t disappear, representing a cornerstone of America’s new Industrial Policy that demands onshoring.”
Analysts cut price targets as investor caution increases
Yu, who maintains a Hold rating, lowered his Ford price target to $7 per share from $9.
He also downgraded GM, reducing the price target to just $43 from $58.
GM shares rose 0.4% to $43.81 in the morning, while Ford shares fell 0.1% to $9.32.
Ford and GM have both fallen since the US elections, with Ford down 12%, and GM down 19%.
According to FactSet, since Trump’s announcement of tariffs on April 2, Ford’s average analyst price target has dropped to $9.40 from almost $10 earlier in the month.
This compares to almost $14 per share a year earlier.
For GM, GM’s average price target has dropped to $56 from $61 in the past.
Analysts had set a price target of $51 a year ago. However, share buybacks worth billions of dollars have helped to raise both the stock and its price target since then.
Currently, 54% of analysts who cover GM rate it as a Buy. This is roughly in line with an average Buy rating of 55% across the S&P 500.
Only 20% of analysts recommend purchasing Ford shares.
This post Ford and GM may get a boost early in 2025, but long-term trade risks persist; Deutsche Bank reduces price targets first appeared on The ICD
This site is for entertainment only. Click here to read more
