On Monday, S&P Global revised its forecast for global automotive production, indicating a steeper decline than previously anticipated. The updated estimates now reflect a 5.4% contraction in 3Q24, compared to the earlier projection of a 5.0% decrease, signaling a more challenging environment for the auto industry. Morgan Stanley (NYSE:MS) commented on the revision, expressing expectations for a negative sentiment surrounding the upcoming 3Q24 financial results.
The downward adjustment also extends to the full-year 2024 (FY24) Light Vehicle Production (LVP) estimates, with a predicted contraction of 2.1% year-over-year. The revised forecast also includes a significant reduction in LVP volumes for fiscal years 2025 and 2026, with cuts amounting to approximately 0.8 million and 1.0 million units respectively.
Morgan Stanley anticipates that the lowered production estimates will lead to a somber tone in the upcoming quarterly results. The firm also foresees difficulties for auto suppliers in achieving margin expansion plans for FY25, given the recent wave of profit warnings from Original Equipment Manufacturers (OEMs).
The primary regions contributing to the global LVP downgrade are North America and China. In North America, over 1.3 million units have been removed from the forecast for the 2024-2026 period. This adjustment is due to a lowered sales outlook, a need for inventory correction, and the impact of 20 launch delays and program cancellations or resourcing decisions.
Meanwhile, in China, despite efforts to stimulate new car demand through incentives and subsidies, as well as policies encouraging the scrapping of Internal Combustion Engine (ICE (NYSE:ICE)) vehicles, demand remains weak. The competitive pricing environment has led to consumers postponing purchases in anticipation of further discounts from OEMs. The LVP estimates for FY25 and FY26 in China have been revised downwards, reflecting the anticipated repercussions following the expiration of scrapping policies.
In other recent news, Ford Motor Company (NYSE:F) has extended its Tax Benefit Preservation Plan (TBPP) until September 30, 2027, to protect its tax credits. The automotive industry is seeing an increased demand for platinum group metals due to a surge in hybrid vehicle sales. Ford, amongst other automotive financiers, has recently launched new bond offerings in the bond market, anticipating potential disruptions from the Federal Reserve's upcoming rate decision.
In addition, Ford has recalled 90,736 vehicles from the 2021-2022 lineup due to a potential engine valve issue. The U.S. Trade Representative's Office has delayed the final decision on increasing tariffs on Chinese-made goods, including electric vehicles, batteries, semiconductors, and solar cells. Ford has appealed to the USTR to lower proposed tariffs on essential materials like artificial graphite, used for electric vehicle battery production.
InvestingPro Insights
In light of the recent S&P Global revisions and the gloomy outlook for the auto industry, it's crucial to consider the financial health and market position of companies within the sector. According to InvestingPro data, one such company in the Automobiles industry has a market capitalization of $43.13 billion and is trading at a price-to-earnings (P/E) ratio of 11.24. More recent figures show an adjusted P/E ratio for the last twelve months as of Q2 2024 at a lower 7.43, suggesting a potential undervaluation compared to historical earnings.
Despite the industry's challenges, this company has shown resilience with a dividend yield as of late 2024 at a significant 7.3%, backed by a robust history of maintaining dividend payments for 13 consecutive years. This commitment to shareholder returns, highlighted by one of the InvestingPro Tips, could provide some solace to investors during turbulent times. Additionally, the company's revenue growth in the last twelve months as of Q2 2024 was 6.2%, indicating that it has managed to expand its top line despite broader industry headwinds.
However, it's important to note that the company suffers from weak gross profit margins, as indicated by another InvestingPro Tip, with the latest data showing a margin of 8.04%. Investors should also be aware that the company is trading at a high EBIT valuation multiple, which could suggest a premium on its earnings before interest and taxes. For those interested in a deeper analysis, InvestingPro offers additional tips that can provide further context and guidance on the company's financial standing and market prospects.
For a more comprehensive set of InvestingPro Tips and to explore the detailed financial metrics of this company, interested readers can visit the InvestingPro platform, which includes a total of 12 analyst revisions on earnings and other valuable insights.
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