Automakers could be in for a rough ride next year, with some analysts expecting a significant decline in profits as weakening demand leads to an oversupply of vehicles.
According to a USB Group research note, estimates for the sector need to move materially lower, as the three-year run of “unprecedented” pricing and margins is about to end abruptly, with an abundance of cars beginning to emerge as soon as three months from now. “Demand destruction is no longer a vague risk, but has started to become a reality,” said UBS Group AG analysts, led by Patrick Hummel.
Shares of automakers like GM and Ford have been taking a beating lately, as outlook for the industry has progressively darkened over the course of the year. Since January, GM shares have dropped over 38 percent to $37.86 a share, while Ford stock sank almost over 41 percent to $12.82 a share. This puts both companies’ stocks at losses for the year, with values down more than 45 percent on concerns of supply-chain shortages, rising costs and a cash-strapped consumer.
Despite this drop in share price, GM earnings have been improving. For the third quarter of 2022, GM recorded 1,537 million vehicle deliveries globally. That’s a significant increase compared to the 1,312 million deliveries during the same time frame a year ago. The uptick in sales enabled GM to earn $3.3 billion in income on $41.9 billion in revenue during the quarter.
By comparison, GM recorded 1,421 million vehicle deliveries globally during the second quarter of 2022, representing a drop of 19 percent year-over-year compared to the 1,757 million the same time frame a year ago. This led to GM reporting $1.7 billion in income on $35.8 billion in revenue. When compared to the second quarter of 2021, the results represent a 40 percent downturn in income and a 4.7 percent uptick in revenue on “higher corporate expenses primarily due to year-over-year mark-to-market changes,” according to the automaker.