General Motors and Ford will report earnings this week as both U.S. automakers are making significant shifts toward electric vehicles in the face of inflation, high energy prices, supply chain issues and ongoing recession fears. Garrett Nelson, senior analyst and vice president of equity research at CFRA Research, doesn’t foresee major changes to the 2022 guidance at either manufacturer. “So, beyond that, it's going to be any new developments related to their electric vehicle development … that's what investors will be focusing on,” Nelson said. This trend comes amid rising car prices in the U.S. — Nelson says the average cost for a new car has hit $48,000. 

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Focus on Auto Industry Revs Up Ahead of Earnings From GM, Ford

and attention on the auto industry is revving up as GM and ford are reporting earnings this week and it will come as both automakers are making significant shifts towards electric vehicles while facing an onslaught of challenges like inflation, high energy prices, supply chain issues and ongoing recession fears joining us now to break it all down is Garrett NElson, he's senior analyst and VP of equity research at CFR A research. So thanks so much for joining us. GM reports earnings tomorrow and four reports earnings on Wednesday. What should investors be looking out for? Yeah, we think investors will really be focused on any potential changes to their 2022 guidance. Um, now we're not expecting any major changes in the guidance because GM came out and maintain that guidance just a few weeks ago when they reported their second quarter sales. And uh, we're also not expecting any major change for ford either. So really, um, beyond that, it's gonna be any, any new developments related to their electric vehicle development and so that's what investors will be focusing on. Now. Some analysts have been cutting profit estimates for both ford and GM over the past several weeks because of fears of the recession, But others have argued that a recession could be mild and demands for vehicles could recover quickly even more quickly than it has in the past. What are your thoughts on this? So, what we're seeing in the auto market in the US is a real slowdown in new vehicle sales prices are at record highs. The average vehicle price is now $48,000 in in the US for a new vehicle. And rising interest rates are not helping in terms of affordability. So if you look at the most recent month, uh, Vehicle sales were down about 16% year over year. And so that the sales volumes are really starting to get hurt um, by by those factors. And so um, and then on the cost side it's it's inflation. The raw material and labor costs have gone up a lot. And so uh, you know, there are concerns that the profitability of these companies is really going to be hurt and that's why the share price performance has been so poor So far this year. Both these stocks are down roughly 40% year to date. And so um, you know, investors are gonna be looking for any signs of uh, of optimism. Uh, you know, with that backdrop now GM has publicly declared its belief in an all electric future. I think mary Berry said this as early as 2017. But according to the Auto industry Data Intelligence service, LMC automotive. Tesla still has a dominant 66% of the U. S. E. V. Market and GM it's only at 6%. So what are you expecting from G. M. E. V. Guidance when it reports tomorrow. So investors are really looking for any information as to when the new six E. V. Models that they're building with their new multi um, battery, when you know, when are those gonna be available? Exactly and what the reservation counts look like for those specific models. You know, investors been very patient with General Motors. Mary Barra has been Ceo for 8.5 years now, The stock is down almost 15% from the day that she became Ceo. And this is really a longer term transformation story. So most of the new E. V. Models that GM is putting out are not going to be available until next year and the year after. So it's really more of a 23 20, and 2024 story. And so um, investors have been patient however, they're growing sort of impatient and so I think investors gonna be looking for answers. But you know, we do view GM as a deep value name at these levels. It's trading at very low earnings multiples and so we do think it is a buy at these levels. Let's stick with the E. V. Market and GM for a minute. So today the U. S. Energy Department announced it intends to load $2.5 billion to a venture of GM and that's to help finance new battery manufacturing facilities. What impact could this have on the E. V. Industry and especially GM push for an electric future. It could certainly help them a lot. Um, you know, GM is sort of unique and taking an approach very similar to Tesla and that they're manufacturing their own batteries. They're forming partnerships with LG cam and other major battery companies in order to so that they can produce their own batteries, they, so they can have control of their own supply chain. And so it's really a different approach than other automakers are taking. And so, you know, they, in their eyes, they're going to be much better positioned um, in the coming years when other automakers start to ramp up their own tv production. And so, um, you know, they seize major strategic advantages in controlling their own battery production. You know, one more thing on GM, they launch a new online platform called E V Live Today, which aims to educate car shoppers about electric vehicles. What are your thoughts on this initiative, do you think this could actually help the company with its goal of selling more E. V. S? Well, at the end of the day, they need to come out with E. V. S that consumers really want, that. They really, there's real demand for, in a way that Tesla has, has, has mastered and that's why Tesla has established such a dominant market share. We see a lot of new E V. S coming to market, We expect more than four dozen new E. V models to debut in the US between now and the end of next year. And so, um, you know, our concern really is that there's gonna be a lot of supply, there's gonna be a lot of competition and consumer demand isn't going to be there quite yet. Um You know, by the end of this decade we think about 30% of all new vehicle sales will be electric Today. That percentage is only about 8%. So you know there's a lot of room to grow and there's gonna be a lot of new e. V. models that you know consumers have have available Now. Let's move on to Ford Real Quick. Meanwhile the Detroit Free Press reported last week that Ford plans to lay off 8000 workers as it aims to make its struggling TV business more financially viable. I think those 8000 workers are coming mostly from the combustible engine departments and they're gonna move the funding into the TV a development. So what are your thoughts on this move by ford? It makes a lot of sense. So that's about 4% of of Ford's global workforce. You know, we think there's there's room for them to cut it kind of fits the mold of what um their ceo jim Farley is trying to do is to make ford a leaner company and more focused on electric vehicles. So um you know, yeah we think it makes a lot of sense, they're taking a little bit different approach than Gm and that they're not setting a date in the future in which they'll be all electric, They're they're more phasing in models. They just came out with their F150 lightning just started first deliveries of that E. V. And so they've really beat GM to market in terms of GM bringing their Chevy Silverado, a pickup to market that F 1 50 Lightning is now available. And so, you know, over time they're gonna have to cut jobs on the ice on the gas powered engine business in order to fund growth of the the the E. V. Side. So we think it makes sense. And you know, could could really help the bottom line of of the E. B. Of the E. B. Business as they as they try to ramp up. Well, thanks for joining us. That's Garrett NElson, he's senior analyst and VP of equity research at CFR, a research.