It has been an eventful year for auto manufacturers and their shares. Vehicle prices leapt in 2022 as a chip shortage first seen during the pandemic continued to weigh on legacy automakers, according to Michelle Krebs, executive analyst at Cox Automotive. Affordability will remain a concern in 2023, she added. Meanwhile, Krebs said electric vehicle makers’ businesses have continued to thrive. Stock analysts also see some of those names potentially doubling in the next year. Inflation has also pressured consumers this year. But Krebs said she doesn’t believe a recession would affect vehicle sales much because the industry already felt sales pressures over the past few years given supply constraints. “The new-vehicle market is a rich man’s game,” Krebs said, citing supply restraints and automakers’ focus on higher-end vehicles with larger profit margins as price drivers. The Dow Jones U.S. Automobiles Index has dropped more than 60% in 2022. It has spent much of December hitting one new 52-week low after the next, including its latest on Friday. ‘Choppy waters still ahead’ Morgan Stanley analyst Adam Jonas said in a Dec. 14 note to investors to expect a “challenging” 2023 for auto earnings given sliding demand, deflation and unfavorable shifts in supply and demand for electric vehicles specifically. Jonas said he expects the seasonally adjusted annual rate of vehicle registrations to be up 7% year-over-year in 2023. “We see both the US economy and financing conditions as headwinds to auto demand, outweighed by increased inventories and production,” he said. “The net impact of this in our view will be lower prices and increased volumes.” Wells Fargo analyst Colin Langan also said to expect “choppy waters still ahead” in a Dec. 14 note to clients. The firm lowered its sales growth forecast for light vehicles, which includes passenger cars, to 2% from 7%, in line with what he called “a slower U.S. sales recovery.” He also said companies could miss 2023 margin estimates due to continued inflationary pressures. Electric vehicles remain hot Meanwhile, electric vehicles have a tailwind from new legislation. Krebs said they were boosted by the infrastructure package’s focus on charging stations and the Inflation Reduction Act’s tax credits for new electric vehicle purchases . Within California, she said Gov. Gavin Newsom’s announcement that all passenger vehicles sold in the state will have zero emissions by 2035 also helped raise interest. Tesla has remained the star of the electric vehicle crowd, with Krebs noting the company surpassed BMW and Mercedes-Benz this year in total sales. But she also noted startups like Lucid are making splashy entrances, while traditional automakers continue gaining ground. Krebs said Tesla will likely see sales keep rising, though its market share will inevitably shrink with more competition. A November report from S & P Global Mobility found Tesla made up 65% of newly registered electric vehicles in the U.S. through the end of the third quarter. That’s a drop from the 71% seen in 2021. S & P anticipates Tesla’s market share will decline to less than 20% by 2025 as the number of available electric vehicle models in the market triples in the same time period. That adds to growing concerns over Tesla’s stock, which has dropped 65% this year. However, about 63% of analysts covering the stock still rate it buy or overweight. The average price target on Tesla shares is $269.75, reflecting upside of 119%, according to FactSet. Morgan Stanley’s Jonas said the stock’s current price puts it at an attractive entry point. Goldman Sachs analyst Mark Delaney cut his price target but kept the buy rating, citing softer supply and demand expected in the fourth quarter of 2022 and in 2023. The electric vehicle maker has had to cut prices on some models in 2022. Bernstein analyst Toni Sacconaghi, said earlier this month that more cuts may be needed . Jonas also said to expect a cooler performance within the electric vehicle space. He lowered his anticipated market share of electric vehicles for 2025 and 2030 to 11% and 26%, respectively, from the prior forecast of 13% and 32%. Meanwhile, Cantor Fitzgerald began coverage of Rivian on Dec. 20 with a $30 price target, which marks nearly 57% upside from Friday’s close. The firm pointed to its SUV and truck selection, backing from Amazon and focus on building out its charging network as attractive qualities. Rivian’s shares have slid 81% in 2022. The average analyst has a target price of $44.88 on the stock, reflecting potential upside of 134%, according to FactSet. Finally, Jonas said Lucid, a newer entrant to the space, has been seeing lower reservations and more cancellations. The stock has shed 82% in 2022. The average analyst has a target price of $17.33 on Lucid, reflecting upside of more than 158%. Legacy automakers try to catch up Ford and General Motors are trying to gain ground within electric vehicle production. Ford CEO Jim Farley said the company overtook Hyundai to take the No. 2 spot for electric vehicle production behind Tesla. Meanwhile, Mary Barra, GM’s CEO, said previously that the company will try to overtake Tesla. GM shares are down 42.3% in 2022, while Ford has fallen 45.3%. JPMorgan’s Ryan Brinkman is overweight on both stocks, while Jonas is overweight on Ford, in addition to Ferrari , Rivian and Tesla. Goldman Sachs’ Delaney said the firm currently prefers GM to Ford given its “head start” on electric vehicles. “GM has opportunities to leverage its EV architecture and better target new markets (i.e. commercial with Brightdrop) and regions (e.g. Europe),” he said in a Dec. 13 note. —CNBC’s Michael Bloom contributed to this story.
