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US Auto Suppliers: Collateral Damage Ahead
Todd Duvick, CFA - Head of Autos
Jim Williamson - Senior Analyst, Autos
Will Lee - Analyst, Autos
Mark Ryan - Analyst, Autos
EXECUTIVE SUMMARY
- Stellantis’ North American vehicle shipment reduction will likely weigh on supplier earnings in our coverage universe. Most of the auto suppliers in our coverage universe have exposure to Stellantis, the European-based automaker that last week slashed its FY24 earnings guidance based on plans to reduce North American vehicle shipments and dealer inventories in 4Q24. We estimate the company could reduce North American vehicle production and shipments by up to one-third in 4Q24. While the lower volumes will have lesser impacts on the auto suppliers that serve diverse sets of customers, we believe the resulting lower supplier revenue and profit from Stellantis’ actions could lead several suppliers to lower FY24 earnings guidance at the next earnings release.
- GM and Ford could experience near-term pricing pressure in the SUV and pickup categories from Stellantis’s higher incentive spending. Stellantis indicated it will increase incentive spending on 2024 and older model year vehicles to reduce excess inventories. This strategy will likely weigh on pricing in the SUV and pickup categories, which combined accounted for about two-thirds of the company’s U.S. sales in the last four quarters. These two categories, which are important to peers GM and Ford from both a sales volume and profit standpoint, could experience incremental pricing pressure in 4Q24 compared to the modest softening both management teams highlighted on their most recent earnings calls.
RELATIVE VALUE
Auto suppliers have benefited for the better part of two years from improved supply chain efficiency and more stable automotive production schedules. However, beginning in 2H23, they were thrown a curve ball as slowing EV adoption led to the delay, reduction, or cancellation of many EV programs, which was partially offset by greater durability of several ICE vehicle programs. While this dynamic persists, automakers have more recently engaged in production schedule slowdowns on certain vehicles to align production with customer demand and manage dealer inventories. Both situations have been challenging for auto suppliers to manage and, in many cases, weighed on already thin operating margins.
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