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Morgan Stanley sees a bumpy road for the auto sector in 2023 after two years of price hikes that have pushed auto affordability to the breaking point for consumers. The company is especially careful with electric vehicles that have a supply of demand has increased and is beginning to slow.
“We are bracing for a challenging FY23 outlook for auto revenues on declining demand (higher rates), deflation (lower price/mix) and unfavorable changes in the supply balance/ demand for EVs. However, as the year changes and as forecasts and stock prices decline, we are preparing for some potentially exciting value opportunities to emerge,” said analyst Adam Jonas.
The overall forecast for auto sales is for 2023 SAAR (seasonally adjusted annual rate) to increase by 7% to 15.0M. The US economy and financing conditions are seen as constraints on auto demand, but increased inventories and production levels are expected to work in favor of higher sales levels.
For the EV sector, Morgan Stanley estimates global EV sales of 9.7M EV units and global EV penetration of 11.8% in 2023 compared to 10.1% in 2022. For the US, the firm sees EV sales of 750K EV units and US EV penetration of 5.0 % in 2023 compared to 4.2% in 2022. Looking further into the future, EV forecasts for 2025-2030 have also been reduced.
EV forecasts were lower than expected from the beginning of the year when the Green Tidal Wave thesis rose higher. Now, Morgan Stanley thinks the market is too optimistic on EV penetration in the short term. Analyst Adam Jonas and team pointed to Tesla (NASDAQ: TSLA) reducing prices in China and seeing used prices drop for its older cars. Additionally, Lucid Group (LCID) was noted to be seeing lower reservations and cancellations and Rivian Automotive (RIVN) stopped reporting reservations. The company’s caution is also based on direct discussions with OEMs and suppliers across the value chain.
Looking to the 2023 setup, Morgan Stanley maintains an Overweight rating on Tesla (TSLA) and Rivian Automotive (RIVN), each of which has separate reasons to be seen as long-term winners. However, legacy OEs are expected to match their EV ambitions and pure plays in the sector will be seen struggling.
Morgan Stanley’s top 2023 auto sector stock picks are FREYR Battery (FREY), Ferrari (RACE), Ford (F), American Axle & Manufacturing (AXL), and Magna International (MGA). Meanwhile, the company is wary of Adient (ADNT), Avis Budget Car Group (CAR), and Lucid Group (LCID) with Underweight ratings in place.
As usual, Tesla (TSLA) is a battleground stock in Seeking Alpha with a Buy rating from Envision Research, a Hold rating from Growth and Good Price and a Sell rating from Bill Maurer all in the mix.
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