Morgan Stanley Urges A Cautious Approach To Auto Industry Growth

In a new report, Morgan Stanley analyst Adam Jonas gives his cautious take on the strong February U.S. auto sales numbers released this week. According to Jonas, the amount of discounting and pull-forward financing currently in the industry is an important caveat to the stellar sales numbers.

On the surface, Ford Motor Company F was a big winner, delivering 20.2 percent year-over-year (Y/Y) sales growth compared to consensus estimates of +11.8 percent. Ford rival General Motors Company GM’s 1.5 percent Y/Y growth came up short of +5.0 percent consensus estimates.

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Morgan Stanley is calling for SAAR of 18.2 million in 2016 and 18.9 million in 2017.

Despite the strong numbers, Jonas notes a certain degree of uneasiness regarding the easy financing and high levels of incentives in the industry.

“We reiterate our view that OEMs are not the best way to gain exposure to SAAR beats,” he explains. Morgan Stanley instead prefers equities with less direct exposure to the U.S. auto credit cycle and more exposure to powerful secular trends within the industry.

Morgan Stanley has Outperform ratings on Fiat Chrysler Automobiles NV FCAU, Delphi Autimotive PLC DLPH, Harley-Davidson Inc HOG, Lear Corporation LEA, Magna International Inc. (USA) MGA, Meritor Inc MTOR, Mobileye NV MBLY and Tesla Motors Inc TSLA.

Disclosure: the author holds no position in the stocks mentioned.