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Morgan Stanley ‘constructive’ on GM, Ford ahead of auto earnings

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Yahoo Finance's Pras Subramanian discusses a Morgan Stanley analyst note that was bearish on the auto sector but more optimistic about Ford and General Motors, plus an overview of the auto market and EV charging network.

Video Transcript

[MUSIC PLAYING]

DAVE BRIGGS: Morgan Stanley slashing price targets for the automakers today. The firm forecasting lower returns than previously expected for General Motors and Tesla, among others. But our Pras Subramanian found some upside in this note. Hey, Pras. What do you make of the calls?

PRAS SUBRAMANIAN: Yeah, Jonas, Adam Jonas, you're getting a little bearish ahead of earnings and potentially an economic slowdown across the globe. So he's saying they're kind of bringing down their estimates for the automakers, based on pricing, slower sales, auto credit issues.

But the silver lining is that he sees GM and Ford as being constructive here because they have these legacy ICE businesses that could keep going in this kind of slowing time period, where people are still buying these gas-powered cars that are cheaper, more efficient now, better pricing. So this has long legs at this point for him.

SEANA SMITH: Pras, what do you make of the trend that we've seen, more broadly speaking, in the automaker sector over the last couple of years? Because of COVID, we've seen automakers they've been forced to pull back because of some of those chip shortages. So they're making fewer cars. Prices are going up. The profit margins are actually pretty strong. Is this a trend that you see sticking here within the industry?

PRAS SUBRAMANIAN: Many-- a few years ago, we saw around 17 million cars and trucks a year in the US, and now it's around 13, 13 and 1/2. So, on paper, it looks pretty bad, but what's happening is, they're selling fewer cars, but higher priced cars. Ford and GM making a lot of money. I mean, GM, $10 billion in profit. Ford, $10 billion in operating profit. Like, they're doing really well because they're just charging more money.

And I think that's sort of, like, where we're going to head now, is the fact that these automakers are saying to themselves, why should we flood the lots with cars when we can actually have Dave or Seana come to us and give us an order, we make it for them, and then we can charge them more money? Maybe the entry level car now is a used car. So I think that's sort of a trend we're seeing now. It began in the higher part of the market. And I think it's coming down at the lower part, too.

RACHELLE AKUFFO: And Pras, other than price, obviously, a lot of people wonder, where am I going to charge this thing? And so that's also offputting for some people. But you're seeing that GM has now teamed up with EVGo to at least try and alleviate some of that pressure. What do we know?

PRAS SUBRAMANIAN: Yeah, so GM teaming up with Pilot and Flying J. They're like these out there, sort of truck stops, big gas stations out in the middle of the country, where they can actually install these EV chargers. I think it's something like 500 Pilot, J stations will get these chargers. So this is a good kind of first step here for adding these chargers at gas stations. We're talking about close to 2,000 chargers in total.

But there's a long way to go with the Biden White House wanting 500,000 chargers by 2030. And still, we've got a long way to go here. But we're starting to see these things at places where people actually go to, like Kroger grocery stores, Starbucks, things like that. So it might make sense that we would see these sort of happening across the interstate, too, at these Pilot gas stations.

RACHELLE AKUFFO: And Pras, I want to ask you about something that we're seeing, at least anecdotally, among some car dealers. They're seeing a higher number of repossessions, especially for people who perhaps bought their cars in 2020 or 2021, before we saw inflation hit where it is now.

PRAS SUBRAMANIAN: Yeah, you know, anecdotally, we're seeing the repos go up for car dealers. Used car dealers are actually-- they were talking about how they were giving out loans to people that are making 2,500 bucks a month. The auto payment was 1,000 bucks a month. So you can see why these repos are starting inching up more and more. We're seeing more anecdotal stuff, not so much hard data. So we'll keep an eye on that. But it's not a good thing when we're seeing these car payments are eating up so many people's monthly take-home payment.