Ford, General Motors Shares Slide As 'Demand Destruction Seems Inevitable'

UBS analysts are turning less positive on the legacy automakers as demand destruction appears likely to pressure earnings in 2023.

What To Know: UBS on Monday downgraded Ford Motor Co F and General Motors Co GM, citing demand concerns and earnings risks in the face of a potential recession.

UBS believes Ford's European business will continue to face macro headwinds in the near term, which creates an unfavorable risk/reward opportunity. 

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"Ford has one of the least attractive risk/reward profiles amongst Western OEMs on a 12-month view, which is why we downgrade to Sell," UBS analysts wrote in a note to clients.

The analyst firm highlighted Ford's strong EV focus, but noted that GM is expected to catch up quickly, complements of its big Ultium-based product line.

Ford recently said it sold a total of 142,644 vehicles in September, consisting of 68,299 trucks, 70,887 SUVs and 4,691 EVs. EV sales were up 197.3% on a year-over-year basis. Ford also said its EV share increased 3.1% to 7% of the total market. 

"Ford's EV execution has been solid with a steep sales curve, but GM is likely to catch up fast in 2023," the UBS analysts said.

GM, however, faces significant earnings headwinds amid a slowdown in demand.

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"We expect EPS to more than halve next year," UBS analysts said.

"Despite -40% negative share performance ytd, the rapidly deteriorating top-down picture makes it unlikely that GM's strong EV story can drive shares higher with a 6-12m view."

UBS is anticipating a weak third quarter for Ford following production setbacks, but GM is likely to meet expectations, the firm said. 

"Unlike Ford, we think GM had no hiccups in its Q3 production schedule, so we expect a solid quarter," UBS said.

The analyst firm cut its price target on Ford to $10 from $13 and lowered its price target on GM to $38 from $56. 

"While we continue to like GM's EV momentum in 2023 with a strong (IRA-compliant) launch pipeline, the overall sector outlook for 2023 is deteriorating fast so that demand destruction seems inevitable at a time when supply is improving," UBS said.

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F, GM Price Action: At time of writing, Ford was down 7.38% at $11.30 and GM was down 6.84% at $31.32.

Photos: courtesy of Ford & GM.