Major automotive and auto component manufacturers have seen their stock prices decline by an average of over -30% year-to-date, due to the Coronavirus pandemic. While General Motors stock is down by about -41% year-to-date, Ford is down by -47%. However, Tesla has bucked the trend, rising 68%. The health crisis has meant people really don’t need to drive much right now, and not many are buying new cars either. Irrespective of what local and country governments prescribe or guide, we don’t believe this is likely to change in a hurry. Discretionary spending is likely to drop as the economy slips into a recession, impacting auto sales.
Though steep declines have happened, more pain and declines are possible in the coming weeks as earnings and accompanying guidance confirm the bad on-the-ground situation. That said, given the U.S Federal Reserve’s backing, most of the companies should survive. All said, it might be wise to wait to invest in the theme, however brave investors could choose to invest a fraction into the theme now, still keeping funds ready if things unfold for the worse in the coming weeks and months. As part of our theme: Autos Fight COVID-19, we discuss further our analysis of the recent performance of key automotive stocks, the survival risks the key auto names face, and the potential downside.
Our Automobile portfolio of 10 stocks including Ford, General Motors, Tesla, Navistar, Harley Davidson
We dive a little deeper to look at the vulnerability of key automotive players through the current downturn. Our analysis Can GM survive the crash indicates that with over $19 billion in cash in hand, General Motors will have a relatively low probability of bankruptcy. On the other hand, Advance Auto Parts, which has higher relative fixed costs and a lower cash balance faces more uncertainty. The company recently issued $500 million in notes to better manage its liquidity. View our analysis Advance Auto Parts: A COVID Recession can consume $513 Mil in cash during 2020 for more details on how a demand shock will impact the company’s financials and cash flows.
How Low Can Automotive Stocks Go?
Automotive stocks could be poised