The Challenges Facing Auto Stocks Amidst the UAW vs. Big Auto Strike

Auto stocks such as Ford and General Motors have been trading at seemingly cheap valuations, with Ford’s forward price-to-earnings multiple at 6.3 times and General Motors’ at 4.9 times. However, these discounts might not be as attractive as they seem.

One of the key reasons for caution is the significant losses that large automakers are incurring due to the transition to electric vehicles (EVs), which is being mandated by governments worldwide. Ford’s EV unit was projected to lose $4.5 billion in 2021 even before any new contracts with the UAW, and achieving profitability in the coming years remains uncertain. General Motors is also grappling with losses in its EV and autonomous vehicle ventures.

The UAW strike, regardless of its outcome, is likely to result in higher costs for automakers and further losses in their EV operations. The increased wages paid to UAW workers will also impact profit margins in the gas-powered businesses that have been funding the development of EVs.

Another challenge is the declining average selling prices of EVs, partly due to competition from Tesla, as well as lower-priced models from GM and foreign automakers. The potential wage increases and higher headcount proposed in the new UAW contract could further erode operating profits by billions of dollars, according to JP Morgan analyst Ryan Brinkman.

With the UAW strike potentially leading to more cost increases, it is clear that Tesla is currently the dominant player in the EV market. Wedbush Securities analyst Dan Ives suggests that Tesla stands to benefit from the struggles faced by GM and Ford, potentially making significant acquisitions in the future.

In conclusion, auto stocks are facing significant challenges due to the EV transition, potential wage increases, and declining EV prices. Investors need to carefully consider these factors before making any investment decisions.

Source: Yahoo Finance