Morgan Stanley analysts said in a Monday note they believe the narrative on the global automotive sector is shifting in a positive direction. Therefore, the team upgraded their auto industry view to Attractive from In-Line.
“After years of peak spending on EVs and AVs, auto manufacturers are pivoting to capital efficiency and return. In our view, the industry has attractive optionality to lower spending, increased collaboration and restructured portfolios,” analysts said.
The investment giant said its coverage of the US automobile sector shows an average potential increase of 10% to their price targets, or 7% when excluding Tesla (NASDAQ:TSLA)
Furthermore, analysts highlighted a favorable risk-reward balance within the auto industry, with a 2:1 ratio of bullish to bearish forecasts.
This outlook suggests that, based on their projections, the sector offers an appealing investment opportunity “relative to what our US Equity Strategy team models for the S&P 500 by year end,” analysts wrote.
They said that without doubt, their “highest conviction” within the global automobile sector is the significant potential for enhancements in capital efficiency.
“Once 1 or 2 auto companies make the pivot from investing in battery plants and software to capital return we believe most other OEMs would follow suit in a domino-like fashion. Can Autos have a 'Meta-moment' that can trigger a long-awaited re-rating?” analysts asked.
“We see potential for lessons learned from the Oil & Gas industry on the topic of capital discipline.”
Morgan Stanley highlighted Ford Motor (NYSE:F) as its Top Pick in the US auto market, citing an “opportunity for capital discipline and shareholder return.”