General Motors (NYSE: GM) and Ford Motor (NYSE: F) will likely have a tough time convincing investors when they report results that Detroit’s pricing power for gasoline cars is still strong and losses from their EV ventures are dwindling.
GM is set to release its results for the July to September period on October 22, while crosstown rival Ford will report on October 28.
Earlier this month, GM CEO Mary Barra said that profit margins had not peaked on traditional gas-powered vehicles and EV sales were ramping up.
The automaker’s shares have risen by over a third this year as General Motors (NYSE: GM) raised its annual profit forecast twice, bolstered by strong sales of gas-powered models.
In contrast, Ford Motor (NYSE: F) has struggled with quality woes and billion-dollar EV losses that have sent its shares down 8% this year.
Analysts from Deutsche Bank have said the automaker could fall short of expectations for the quarter, hampered in particular during the period by bloated inventories.
Wall Street has for months questioned whether consumers will pay for trucks and SUVs at historically high prices as steep interest rates and broader economic concerns loom.
Data is mixed. Cox Automotive’s latest report reveals that the average listing price for a new vehicle rose 2% month-on-month in October to $47,823. This price is up only about 1% from a year ago, indicating that prices have touched a ceiling.
Automakers have had to lower the prices of vehicles as cautious consumers shy away from heavier purchases – a stark contrast from the pricing power companies commanded a few years back when supply chain issues constrained the production of newer models.
“Concerns over peak pricing … as well as uncertainties around EV strategies and penetration, serve as mid- to longer-term overhangs,” Deutsche Bank Research said in a note.
“Moreover, we also have the November election next month that could influence EV policies one way or another.”
Ford (NYSE: F) and General Motors (NYSE: GM) have focused on producing more higher margin gasoline-powered models such as Ford’s Maverick pickup and GM’s Chevrolet Trax compact SUV as EV sales growth has slowed.
In August, Ford canceled its much-anticipated electric three-row SUV, saying it could not profitably launch the vehicle. GM has gone slow on its EV production goals.
The Detroit automakers have also grabbed significant market share from struggling rival Stellantis, whose sales in North America have been lagging.
Investors and analysts will also be looking for comments on how the economy is affecting consumers.
“Even with a larger-than-expected rate cut by the Fed in September, there hasn’t been a material improvement in auto loan rates or the overall affordability of new vehicles,” said Cox Automotive Chief Economist Jonathan Smoke.
Consumers’ preferences have shifted towards economical compact crossovers over traditionally preferred larger vehicles due to their lower upkeep costs and better gas mileage, U.S. automakers’ third-quarter sales data showed.
THE NUMBERS
General Motors:
** Analysts estimate Q3 revenue to grow about 1% to $44.5 billion when it reports results on October 22
** Earnings per share (EPS) in the quarter estimated at $2.46
FORD:
** Analysts estimate Q3 revenue to grow about 2% to $42 billion when it reports results on October 28
** Earnings per share (EPS) in the quarter estimated at $0.48
(Source: ReutersReuters)
