Wells Fargo analyst Colin Langan downgraded both Ford (NYSE:F) and General Motors (NYSE:GM) to Underweight from Overweight on “massive” rising BEV costs.
The analyst even wonders whether going all-in on BEV was a mistake for Detroit-based companies.
“The recent risk in nickel & lithium prices has increased the cost of batteries from the expected $105/kWh to $168/kWh… Unfortunately, before the price spike, the EPA announced aggressive fuel economy regulations that likely force BEV adoption. The OEMs are facing severe compliance cost headwinds through 2026, which limits their options. The main alternative chemistry is LFP, which has also seen a price increase; it also has lower density & currently has no US capacity,” Langan said in a client note.
The price target on F stock is cut in half to $12.00 per share as the increase in input costs pushes Ford Mach-E and Lighting “unplanned costs” by ~$4.8K and ~$8.5K, respectively.
“We estimate Ford relies on the F-Series for >60% of its profits historically, making possible substitution away from the ICE F-Series to the Lightning a material risk. In addition, we see headwinds from price normalization, inflationary costs, & the 2023 UAW contract negotiations. Therefore, we are concerned 2022 could be the peak profits, as Ford will be increasingly forced to absorb BEV losses to meet high 2026 US regulatory hurdles,” the analyst further noted.
GM stock price target is now slashed to $33.00 per share from $74.00 as the analyst expects to see an increase of ~$12.6K in unplanned costs to the Silverado EV.
“We estimate GM relies on large pickups for >40% of its profits historically, making possible substitution away from the ICE Silverado to the EV version a material risk,”
As in the case of Ford, Langan noted the same headwinds facing GM.
Shares of GM and F are both down nearly 5% at the open today.
By Senad Karaahmetovic