[Auto] Auto Stocks Down on Oil, Supply Chain, China Demand. Tesla Is Holding Up Better.

[FazzNoth]

Automotive investors woke up to a growing oil shock Tuesday. But that’s only one of the issues causing auto-stock stress these days. Meanwhile, shares of electric vehicle manufacturer Tesla are holding up better.

The Tesla (ticker: TSLA) stock price performance is small comfort to most automotive investors. Tesla is a growth stock. Most auto investors are part of the value tribe of the investing world.

Valuation explains the growth/value schism. Tesla stock trade for roughly 80 times estimated 2022 earnings. General Motors (GM) shares trade for roughly 6 times earnings.

Tesla shares are down 0.8% in midday trading Tuesday. The S&P 500 and Dow Jones Industrial Average are down 1.7% and 2.1%, respectively. Stocks in the Russell 3000 Automobiles & Parts Index are off more than 3% on average.

The average obscures some of the more significant declines. GM and Ford Motor (F) shares are down 5.7% and 5.2%, respectively. Shares of large auto suppliers Magna International (MGA) and Aptiv (APTV) are down 7.3% and 8.2%, respectively.

For the traditional auto companies and suppliers, there isn’t much company-specific news to pin those declines on. Investors need to look at the state of the broader market.

Benchmark crude oil prices are up almost 10% in midday trading Tuesday. That pushes up the price of gasoline and adds to inflationary concerns. Oil is rising after global governments excluded Russia from some banking payments systems, limiting Russia’s ability to do business. The move also, effectively, takes Russian oil off world markets.ù

 

Oil isn’t the only problem cropping up. There are more supply-chain issues to deal with.

Toyota Motor (TM) suspended production at 14 Japanese automotive plants on Tuesday due to a system failure at a supplier. News reports pinned the failure on a Russian cyberattack. Toyota said production is set to resume on March 2.

Cyberattacks would be a new supply issue for the industry to deal with. Parts issues aren’t. Global auto production has been constrained for more than a year by a lack of semiconductors.

But new parts shortages have recently taken production at a couple of Volkswagen (VOW3.Germany) plants offline for three to four days. The parts needed to run the plants used to come from Ukraine, which is under attack by Russia. “Group Purchasing is engaged in an intensive exchange with the relevant suppliers and is reviewing alternatives,” said a company spokesman in an emailed statement.

 

Investor pain isn’t confined to traditional auto stocks. Shares of some electric vehicle stocks are weak as well. It’s easier to figure out what investors are worried about in the EV space, however.

Rivian Automotive (RIVN) shares are down almost 10% in midday trading. Shares are weak after Wells Fargo analyst Colin Langan cut his price target on the stock to $70 from $110 a share. He maintained his Hold rating in a Tuesday report.

Shares of Chinese EV makers NIO (NIO), XPeng (XPEV) and Li Auto (LI) are down 3.4%, 7.1% and 0.6%, respectively after the trio reported February deliveries that were down sequentially compared with January. February is seasonally weak month, with the Lunar New Year, but investors appear a little worried about Chinese EV demand.

Purchase incentives for EV purchase in China were cut to start 2022. Investors are still working out how falling incentives will impact demand.

It’s a lot of worrying news to digest. One bit of good news comes from Tesla. Its new German plant is likely to get its permits to begin vehicle production in a couple of days. That’s one reason shares rose 7.5% Monday and are outperforming in Tuesday trading.

https://www.barrons.com/articles/auto-stocks-down-on-oil-supply-chain-china-demand-51646167290